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File Amended Return

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File Amended Return

File amended return Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. File amended return Proc. File amended return 2009-37 Table of Contents SECTION 1. File amended return PURPOSE SECTION 2. File amended return BACKGROUND SECTION 3. File amended return SCOPE SECTION 4. File amended return ELECTION PROCEDURES SECTION 5. File amended return REQUIRED INFORMATION STATEMENT SECTION 6. File amended return EFFECTIVE DATE SECTION 7. File amended return TRANSITION RULE SECTION 8. File amended return PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. File amended return PURPOSE . File amended return 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 amended return . File amended return 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 amended return This revenue procedure describes the time and manner of providing this additional information. File amended return . File amended return 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 amended return Taxpayers should be aware that these regulations may be retroactive. File amended return See § 7805(b)(2). File amended return This revenue procedure may be modified to provide procedures consistent with additional guidance. File amended return SECTION 2. File amended return BACKGROUND . File amended return 01 Section 108(i), Generally. File amended return Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. File amended return L. File amended return No. File amended return 111-5, 123 Stat. File amended return 338. File amended return 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 amended return 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 amended return 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 amended return 1273-1(d) of the Income Tax Regulations. File amended return The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. File amended return For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). File amended return 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 amended return See § 108(i)(5)(D). File amended return 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 amended return Section 108(i)(5)(D)(ii). File amended return 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 amended return . File amended return 02 Applicable Debt Instrument. File amended return 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 amended return 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 amended return Section 108(i)(3)(B). File amended return For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. File amended return 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 amended return 1502-13(g)(5). File amended return . File amended return 03 Reacquisition. File amended return 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 amended return 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 amended return See § 108(i)(4)(B). File amended return The term “acquisition” also includes an indirect acquisition within the meaning of § 1. File amended return 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). File amended return 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 amended return . File amended return 04 General Requirements for the Section 108(i) Election. File amended return 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 amended return (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 amended return ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. File amended return Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. File amended return . File amended return 05 Section 108(i) Elections Made by Pass-through Entities. File amended return 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 amended return Section 108(i)(5)(B)(iii). File amended return . File amended return 06 Additional Information on Subsequent Years’ Returns. File amended return 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 amended return . File amended return 07 Exclusivity. File amended return 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 amended return . File amended return 08 Allocation of Deferred COD Income on Partnership Indebtedness. File amended return Section 4. File amended return 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 amended return 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 amended return 704-1(b)(2)(iii). File amended return Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). File amended return The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). File amended return 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 amended return . File amended return 09 Partner’s Deferred § 752 Amount. File amended return 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 amended return 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 amended return 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 amended return 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 amended return See Rev. File amended return Rul. File amended return 92-97, 1992-2 C. File amended return B. File amended return 124, and Rev. File amended return Rul. File amended return 94-4, 1994-1 C. File amended return B. File amended return 195. File amended return 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 amended return . File amended return 10 Allocation of Deferred COD Income on S Corporation Indebtedness. File amended return 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 amended return . File amended return 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. File amended return (1) In general. File amended return 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 amended return 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 amended return 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 amended return 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 amended return See § 1. File amended return 56(g)-1(c)(1). File amended return (2) Exceptions for certain special status corporations. File amended return 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 amended return 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 amended return . File amended return 12 Extension of Time to Make Election. File amended return Under § 301. File amended return 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. File amended return An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. File amended return Section 301. File amended return 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. File amended return SECTION 3. File amended return 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 amended return SECTION 4. File amended return ELECTION PROCEDURES . File amended return 01 In General. File amended return (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 amended return 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 amended return 07, 4. File amended return 08, 4. File amended return 09, or 4. File amended return 10 of this revenue procedure. File amended return (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. File amended return 01(1)(a) of this revenue procedure for making the § 108(i) election. File amended return The rules that apply to an automatic extension under § 301. File amended return 9100-2(a) apply to this automatic extension. File amended return . File amended return 02 Section 108(i) Elections Made by Members of Consolidated Groups. File amended return The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. File amended return See § 1. File amended return 1502-77(a). File amended return . File amended return 03 Aggregation Rule. File amended return 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 amended return A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. File amended return 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 amended return . File amended return 04 Partial Elections. File amended return (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 amended return 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 amended return 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 amended return (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 amended return 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 amended return (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 amended return 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 amended return A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. File amended return The provisions of this section 4. File amended return 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 amended return . File amended return 05 Contents of Election Statement. File amended return A statement meets the requirements of this section 4. File amended return 05 if the statement— (1) Label. File amended return States “Section 108(i) Election” across the top. File amended return (2) Required information. File amended return 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 amended return 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 amended return . File amended return 06 Supplemental information. File amended return The statement described in section 4. File amended return 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. File amended return 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 amended return 05(2)(d) of this revenue procedure. File amended return 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 amended return 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 amended return 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 amended return 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 amended return 08, 2. File amended return 10 and, if applicable, 4. File amended return 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. File amended return . File amended return 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. File amended return The rules of this section 4. File amended return 07 apply to partnerships other than partnerships described in section 4. File amended return 10 of this revenue procedure. File amended return (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). File amended return 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 amended return , 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 amended return 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 amended return (2) Election information statement provided to partners. File amended return 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 amended return 07(2). File amended return 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 amended return A statement meets the requirements of this section 4. File amended return 07(2) if the statement— (a) Label. File amended return States “Section 108(i) Election Information Statement for Partners” across the top. File amended return (b) Required information. File amended return 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 amended return 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 amended return 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. File amended return 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. File amended return (c) If a partner fails to provide the written statement required by section 4. File amended return 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. File amended return 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 amended return (3) Partner reporting requirements. File amended return 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 amended return 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. File amended return 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 amended return 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 amended return If a partner provides its written statement under this section 4. File amended return 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 amended return 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 amended return . File amended return 08 Additional Requirements for an S Corporation Making a § 108(i) Election. File amended return (1) Information filing on Schedule K-1 (Form 1120S). File amended return 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 amended return , 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 amended return 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 amended return (2) Election information statement provided to shareholders. File amended return 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 amended return 08(2). File amended return 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 amended return A statement meets the requirements of this section 4. File amended return 08(2) if the statement— (a) Label. File amended return States “Section 108(i) Election Information Statement for Shareholders” across the top. File amended return (b) Required information. File amended return 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 amended return 06 of this revenue procedure. File amended return . File amended return 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. File amended return 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 amended return 964-1(c)(3). File amended return Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. File amended return 05 of this revenue procedure and, if applicable, section 4. File amended return 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 amended return . File amended return 10 Section 108(i) Elections Made By Certain Foreign Partnerships. File amended return The rules of this section 4. File amended return 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 amended return See § 1. File amended return 6031(a)-1(b). File amended return (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. File amended return 05 of this revenue procedure and, if applicable, section 4. File amended return 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. File amended return 6031(a)-1(b)(5) it files with the Service. File amended return In addition, a nonfiling foreign partnership must include in the information required in section 4. File amended return 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 amended return S. File amended return 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 amended return (2) The nonfiling foreign partnership must make the election, in accordance with § 1. File amended return 6031(a)-1(b)(5), by the date provided in section 4. File amended return 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 amended return (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 amended return 07(1) of this revenue procedure. File amended return Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). File amended return 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 amended return 07(2) of this revenue procedure by the date provided in section 4. File amended return 01(1)(a) of this revenue procedure. File amended return The partnership should not attach any statement described in section 4. File amended return 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. File amended return 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 amended return (4) The partnership and each affected partner must satisfy the requirements of section 4. File amended return 07(3) of this revenue procedure. File amended return . File amended return 11 Protective § 108(i) Election. File amended return (1) In general. File amended return 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 amended return 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 amended return 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 amended return A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. File amended return 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. File amended return 01(1)(a) of this revenue procedure. File amended return 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 amended return A statement meets the requirements of this section 4. File amended return 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. File amended return 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. File amended return 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. File amended return 06 of this revenue procedure. File amended return (2) Statements provided to shareholders and partners. File amended return (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 amended return 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 amended return 11(1)(d) of this revenue procedure. File amended return (b) The partnership or S corporation should not attach the statements described in this section 4. File amended return 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 amended return . File amended return 12 Election-Year Reporting by Tiered Pass-Through Entities. File amended return (1) A partnership required to file a U. File amended return S. File amended return partnership return other than under § 1. File amended return 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 amended return 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 amended return 07(1)(a) through (d) of this revenue procedure). File amended return (2) If a partnership described in section 4. File amended return 12(1) of this revenue procedure receives a statement described in sections 4. File amended return 07(2) or 4. File amended return 10(3) of this revenue procedure or this section 4. File amended return 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 amended return 07(2)(b)(x) of this revenue procedure. File amended return If an S corporation receives a statement described in sections 4. File amended return 07(2) or 4. File amended return 10(3) of this revenue procedure or this section 4. File amended return 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 amended return 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. File amended return 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 amended return 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 amended return (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 amended return 704-1(b)(2)(iii). File amended return 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 amended return 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 amended return The partnership allocates amounts described in section 4. File amended return 06 of this revenue procedure under this section 4. File amended return 12(3) as if the additional COD income was realized. File amended return (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 amended return 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 amended return (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 amended return (6) This paragraph 4. File amended return 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. File amended return S. File amended return 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 amended return 07(1) of this revenue procedure, or a statement described in sections 4. File amended return 07(2) or 4. File amended return 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 amended return (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 amended return 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 amended return 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 amended return (b) A Category 2 filer must include its share of the information described in section 4. File amended return 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. File amended return Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. File amended return (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. File amended return 12(6)(a)(ii) and 4. File amended return 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. File amended return 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 amended return (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. File amended return 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. File amended return 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 amended return 12(1) and (2) of this revenue procedure. File amended return Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. File amended return 12(6) of this revenue procedure. File amended return (8) The provisions of section 4. File amended return 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. File amended return 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. File amended return 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 amended return 11(1)(d) of this revenue procedure. File amended return SECTION 5. File amended return REQUIRED INFORMATION STATEMENT . File amended return 01 Annual Information Statements. File amended return Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. File amended return 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. File amended return 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 amended return . File amended return 02 Contents of Statement. File amended return A statement meets the requirements of this section 5. File amended return 02 if the statement— (1) Label. File amended return States “Section 108(i) Information Statement” across the top; (2) Required information. File amended return 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 amended return (3) Election attached. File amended return Includes a copy of the election statement described in section 4. File amended return 05 of this revenue procedure. File amended return . File amended return 03 Additional Annual Reporting Requirements for Certain Partnerships. File amended return The rules of this section 5. File amended return 03 apply to partnerships other than partnerships described in section 5. File amended return 05 of this revenue procedure. File amended return (1) In general. File amended return A partnership that makes an election under § 108(i) (except for a protective election under section 4. File amended return 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. File amended return 01 of this revenue procedure. File amended return In addition, for each taxable year in which a statement is required under section 5. File amended return 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 amended return 07(1) of this revenue procedure. File amended return (2) Annual information statements provided to partners. File amended return 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 amended return 01 of this revenue procedure, a statement meeting the requirements of this section 5. File amended return 03(2). File amended return 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 amended return A statement meets the requirements of this section 5. File amended return 03(2) if the statement— (a) Label. File amended return States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. File amended return (b) Required information. File amended return 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 amended return If a partner fails to provide the written statement required by section 4. File amended return 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. File amended return 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. File amended return . File amended return 04 Additional Annual Reporting Requirements for an S Corporation. File amended return (1) In general. File amended return An S corporation that makes an election under § 108(i) (except for a protective election under section 4. File amended return 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. File amended return 01 of this revenue procedure. File amended return In addition, for each taxable year in which a statement is required under section 5. File amended return 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 amended return 08(1) of this revenue procedure. File amended return (2) Annual information statements provided to shareholders. File amended return 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 amended return 01 of this revenue procedure a statement meeting the requirements of this section 5. File amended return 04(2). File amended return 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 amended return A statement meets the requirements of this section 5. File amended return 04(2) if the statement— (a) Label. File amended return States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. File amended return 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 amended return . File amended return 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. File amended return (1) The rules of this section 5. File amended return 05 apply to nonfiling foreign partnerships. File amended return (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. File amended return 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. File amended return 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. File amended return 01 of this revenue procedure. File amended return (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. File amended return 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. File amended return (4) For each taxable year in which a statement is required under section 5. File amended return 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 amended return 07(1) of this revenue procedure. File amended return Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). File amended return The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. File amended return 6031(b)-1T(b). File amended return 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 amended return 05(2) of this revenue procedure. File amended return (5) For each taxable year for which a statement is required under section 5. File amended return 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 amended return 03(2) of this revenue procedure. File amended return 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 amended return . File amended return 06 Information Statements Made on Behalf of Certain Foreign Corporations. File amended return Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. File amended return 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 amended return 01 of this revenue procedure. File amended return . File amended return 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. File amended return (1) A partnership required to file a U. File amended return S. File amended return partnership return other than under § 1. File amended return 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 amended return 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 amended return 07(1)(a) through (d) of this revenue procedure). File amended return (2) If a partnership described in section 5. File amended return 07(1) of this revenue procedure receives a statement described in sections 5. File amended return 03(2) or 5. File amended return 05(5) of this revenue procedure or this section 5. File amended return 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 amended return If an S corporation receives a statement described in sections 5. File amended return 03(2) or 5. File amended return 05(5) of this revenue procedure or this section 5. File amended return 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 amended return 03(2)(b)(i) through (viii) of this revenue procedure. File amended return 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 amended return 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 amended return (3) This paragraph 5. File amended return 07(3) provides the rules for persons described in section 4. File amended return 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 amended return 03(1) of this revenue procedure, or a statement described in sections 5. File amended return 03(2) or 5. File amended return 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 amended return (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 amended return 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 amended return 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 amended return (b) A Category 2 filer must include its share of the information described in section 4. File amended return 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. File amended return Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. File amended return (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. File amended return 07(3)(a)(ii) and 5. File amended return 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. File amended return 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 amended return (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. File amended return 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. File amended return 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 amended return 07(1) and (2) of this revenue procedure. File amended return Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. File amended return 12(6) of this revenue procedure. File amended return SECTION 6. File amended return EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. File amended return SECTION 7. File amended return TRANSITION RULE . File amended return 01 Noncomplying Election. File amended return Except as otherwise provided in this section 7. File amended return 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 amended return 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 amended return . File amended return 02 Modification of Election. File amended return 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 amended return 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 amended return . File amended return 03 Notations. File amended return A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. File amended return A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. File amended return See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. File amended return SECTION 8. File amended return 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 amended return S. File amended return C. File amended return 3507) under control number 1545-2147. File amended return 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 amended return The collection of information in this revenue procedure is in sections 4, 5 and 7. File amended return 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 amended return This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. File amended return The collection of information is required to obtain a benefit. File amended return 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 amended return The estimated total annual reporting burden is 300,000 hours. File amended return The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. File amended return The estimated number of respondents is 50,000. File amended return 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 amended return Generally, tax returns and return information are confidential, as required by § 6103. File amended return DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. File amended return 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 amended return For further information regarding this revenue procedure, contact Megan A. File amended return Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. File amended return Blanchard at (202) 622-3950 for questions involving OID, Ronald M. File amended return 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 amended return Prev  Up  Next   Home   More Internal Revenue Bulletins
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Letter 3030C Frequently Asked Questions (FAQs)

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The letter is providing you an explanation of the tax, penalty and interest still due on your account.

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Pay the balance due in the letter as soon as possible.

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Page Last Reviewed or Updated: 30-Jan-2014

The File Amended Return

File amended return 3. File amended return   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. File amended return Form 4797. File amended return Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. File amended return Granting the right to remove deposits. File amended return Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. File amended return You must report the income from all the different sources on your tax return, unless it is excluded by law. File amended return Where you report the income on your tax return depends on its source. File amended return This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. File amended return For information on where to report other income, see the Instructions for Form 1040, U. File amended return S. File amended return Individual Income Tax Return. File amended return Accounting method. File amended return   The rules discussed in this chapter assume you use the cash method of accounting. File amended return Under the cash method, you generally include an item of income in gross income in the year you receive it. File amended return See Cash Method in chapter 2. File amended return   If you use an accrual method of accounting, different rules may apply to your situation. File amended return See Accrual Method in chapter 2. File amended return Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. File amended return Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. File amended return Use this schedule to figure the net profit or loss from regular farming operations. File amended return Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. File amended return This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. File amended return It also includes income from the sale of crop shares if you materially participate in producing the crop. File amended return See Rents (Including Crop Shares) , later. File amended return Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. File amended return Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. File amended return Land. File amended return Depreciable farm equipment. File amended return Buildings and structures. File amended return Livestock held for draft, breeding, sport, or dairy purposes. File amended return Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. File amended return Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. File amended return Sales of Farm Products Where to report. File amended return    Table 3-1 shows where to report the sale of farm products on your tax return. File amended return Schedule F. File amended return   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. File amended return This includes money and the fair market value of any property or services you receive. File amended return When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). File amended return See chapter 6 for information on the basis of assets. File amended return You generally report these amounts on Schedule F for the year you receive payment. File amended return Example. File amended return In 2012, you bought 20 feeder calves for $11,000 for resale. File amended return You sold them in 2013 for $21,000. File amended return You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. File amended return Form 4797. File amended return   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. File amended return In either case, you should always report these sales on Form 4797 instead of Schedule F. File amended return See Livestock under Ordinary or Capital Gain or Loss in chapter 8. File amended return Animals you do not hold primarily for sale are considered business assets of your farm. File amended return Table 3-1. File amended return Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. File amended return   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. File amended return This applies even if your agent pays you in a later year. File amended return For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. File amended return Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. File amended return You must meet all the following conditions to qualify. File amended return Your principal trade or business is farming. File amended return You use the cash method of accounting. File amended return You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. File amended return The weather-related condition caused an area to be designated as eligible for assistance by the federal government. File amended return Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. File amended return The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. File amended return A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. File amended return See Other Involuntary Conversions in chapter 11. File amended return Usual business practice. File amended return   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. File amended return Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. File amended return If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. File amended return Connection with affected area. File amended return   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. File amended return However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. File amended return This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. File amended return Classes of livestock. File amended return   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. File amended return Do not separate animals into classes based on age, sex, or breed. File amended return Amount to be postponed. File amended return   Follow these steps to figure the amount of gain to be postponed for each class of animals. File amended return Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. File amended return For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. File amended return Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. File amended return Example. File amended return You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. File amended return As a result of drought, you sold 135 head during 2012. File amended return You realized $70,200 from the sale. File amended return On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. File amended return The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. File amended return How to postpone gain. File amended return   To postpone gain, attach a statement to your tax return for the year of the sale. File amended return The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. File amended return A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). File amended return Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. File amended return A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. File amended return The number of animals sold in each of the 3 preceding years. File amended return The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. File amended return The total number of animals sold and the number sold because of weather-related conditions during the tax year. File amended return A computation, as described above, of the income to be postponed for each class of livestock. File amended return   Generally, you must file the statement and the return by the due date of the return, including extensions. File amended return However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. File amended return For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). File amended return Attach the statement to the amended return and write “Filed pursuant to section 301. File amended return 9100-2” at the top of the amended return. File amended return File the amended return at the same address you filed the original return. File amended return Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. File amended return Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. File amended return However, if you materially participate in farming operations on the land, the rent is farm income. File amended return See Landlord Participation in Farming in chapter 12. File amended return Pasture income and rental. File amended return   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. File amended return You must enter it as Other income on Schedule F. File amended return If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. File amended return Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. File amended return It does not matter whether you use the cash method of accounting or an accrual method of accounting. File amended return If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. File amended return See Landlord Participation in Farming in chapter 12. File amended return Report the rental income on Schedule F. File amended return If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). File amended return The income is not included in self-employment income. File amended return Crop shares you use to feed livestock. File amended return   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. File amended return You must include the fair market value of the crop shares in income at that time. File amended return You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. File amended return Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. File amended return See  chapter 12. File amended return Crop shares you give to others (gift). File amended return   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. File amended return You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. File amended return Example. File amended return A tenant farmed part of your land under a crop-share arrangement. File amended return The tenant harvested and delivered the crop in your name to an elevator company. File amended return Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. File amended return They sell their crop shares in the following year and the elevator company makes payments directly to your children. File amended return In this situation, you are considered to have received rental income and then made a gift of that income. File amended return You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. File amended return Crop share loss. File amended return   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. File amended return See Publication 925 for information on these rules. File amended return Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. File amended return However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. File amended return See Cost-Sharing Exclusion (Improvements) , later. File amended return Report the agricultural program payment on the appropriate line of Schedule F, Part I. File amended return Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. File amended return However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. File amended return Claim the deduction on Schedule F for the year of repayment or reduction. File amended return Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. File amended return However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. File amended return You do not need approval from the IRS to adopt this method of reporting CCC loans. File amended return Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. File amended return However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. File amended return For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. File amended return Revenue Procedure 2008-52, 2008-36 I. File amended return R. File amended return B. File amended return 587, is available at  www. File amended return irs. File amended return gov/irb/2008-36_IRB/ar09. File amended return html. File amended return You can request income tax withholding from CCC loan payments you receive. File amended return Use Form W-4V, Voluntary Withholding Request. File amended return See chapter 16 for information about ordering the form. File amended return To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. File amended return Attach a statement to your return showing the details of the loan. File amended return You must file the statement and the return by the due date of the return, including extensions. File amended return If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File amended return Attach the statement to the amended return and write “Filed pursuant to section 301. File amended return 9100-2” at the top of the return. File amended return File the amended return at the same address you filed the original return. File amended return When you make this election, the amount you report as income becomes your basis in the commodity. File amended return See chapter 6 for information on the basis of assets. File amended return If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. File amended return If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. File amended return If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. File amended return If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. File amended return Form 1099-A. File amended return   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. File amended return “CCC” should be shown in box 6. File amended return The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. File amended return Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. File amended return If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. File amended return Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. File amended return Market gain should be reported as follows. File amended return If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. File amended return However, adjust the basis of the commodity for the amount of the market gain. File amended return If you did not include the CCC loan in income in the year received, include the market gain in your income. File amended return The following examples show how to report market gain. File amended return Example 1. File amended return Mike Green is a cotton farmer. File amended return He uses the cash method of accounting and files his tax return on a calendar year basis. File amended return He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. File amended return In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. File amended return 00 per pound). File amended return In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. File amended return 50 per pound (lower than the loan amount). File amended return Later in 2013, he sold the cotton for $2,500. File amended return The market gain on the redemption was $. File amended return 50 ($2. File amended return 00 – $1. File amended return 50) per pound. File amended return Mike realized total market gain of $500 ($. File amended return 50 x 1,000 pounds). File amended return How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. File amended return Included CCC loan. File amended return   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. File amended return The $500 market gain is not recognized on the redemption. File amended return He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. File amended return   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. File amended return His gain from the sale is $1,000 ($2,500 – $1,500). File amended return He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. File amended return Excluded CCC loan. File amended return   Mike has income of $500 from market gain in 2013. File amended return He reports it on Schedule F, lines 4a and 4b. File amended return His basis in the cotton is zero, so his gain from its sale is $2,500. File amended return He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. File amended return Example 2. File amended return The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. File amended return Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. File amended return In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. File amended return How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. File amended return Included CCC loan. File amended return   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. File amended return The $500 market gain is not recognized on the redemption. File amended return Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. File amended return   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. File amended return Mike has no gain or loss on its sale to the cotton buyer for that amount. File amended return Excluded CCC loan. File amended return   As in Example 1, Mike has income of $500 from market gain in 2013. File amended return He reports it on Schedule F, lines 4a and 4b. File amended return His basis in the cotton is zero, so his gain from its sale is $1,500. File amended return He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. File amended return Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. File amended return You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. File amended return Cost-share payments you receive may qualify for the cost-sharing exclusion. File amended return See Cost-Sharing Exclusion (Improvements) , later. File amended return CRP payments are reported to you on Form 1099-G. File amended return Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. File amended return See the instructions for Schedule SE (Form 1040). File amended return Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. File amended return You generally include them in the year you receive them. File amended return Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. File amended return You can request income tax withholding from crop disaster payments you receive from the federal government. File amended return Use Form W-4V, Voluntary Withholding Request. File amended return See chapter 16 for information about ordering the form. File amended return Election to postpone reporting until the following year. File amended return   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. File amended return You use the cash method of accounting. File amended return You receive the crop insurance proceeds in the same tax year the crops are damaged. File amended return You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. File amended return   Deferral is not permitted for proceeds received from revenue insurance policies. File amended return   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. File amended return Check the box on line 8c and attach a statement to your tax return. File amended return The statement must include your name and address and contain the following information. File amended return A statement that you are making an election under IRC section 451(d) and Regulations section 1. File amended return 451-6. File amended return The specific crop or crops physically destroyed or damaged. File amended return A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. File amended return The cause of the physical destruction or damage and the date or dates it occurred. File amended return The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. File amended return The name of each insurance carrier from whom you received payments. File amended return   One election covers all crops representing a single trade or business. File amended return If you have more than one farming business, make a separate election for each one. File amended return For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. File amended return   An election is binding for the year unless the IRS approves your request to change it. File amended return To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. File amended return Ogden Submission Processing Center P. File amended return O. File amended return Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. File amended return These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. File amended return They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. File amended return Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. File amended return You must include these benefits in income in the year you receive them. File amended return You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. File amended return Report the benefits on Schedule F, Part I, as agricultural program payments. File amended return You can usually take a current deduction for the same amount as a feed expense. File amended return Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. File amended return A payment is any economic benefit you get as a result of an improvement. File amended return However, this exclusion applies only to that part of a payment that meets all three of the following tests. File amended return It was for a capital expense. File amended return You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. File amended return You must include the payment for a deductible expense in income, and you can take any offsetting deduction. File amended return See chapter 5 for information on deducting soil and water conservation expenses. File amended return It does not substantially increase your annual income from the property for which it is made. File amended return An increase in annual income is substantial if it is more than the greater of the following amounts. File amended return 10% of the average annual income derived from the affected property before receiving the improvement. File amended return $2. File amended return 50 times the number of affected acres. File amended return The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. File amended return Qualifying programs. File amended return   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. File amended return The rural clean water program authorized by the Federal Water Pollution Control Act. File amended return The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. File amended return The water bank program authorized by the Water Bank Act. File amended return The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. File amended return The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. File amended return The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. File amended return The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. File amended return Certain small watershed programs, listed later. File amended return Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. File amended return Several state programs have been approved. File amended return For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). File amended return Small watershed programs. File amended return   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. File amended return The programs under the Watershed Protection and Flood Prevention Act. File amended return The flood prevention projects under the Flood Control Act of 1944. File amended return The Emergency Watershed Protection Program under the Flood Control Act of 1950. File amended return Certain programs under the Colorado River Basin Salinity Control Act. File amended return The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. File amended return The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. File amended return The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. File amended return The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. File amended return The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. File amended return The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. File amended return The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. File amended return The Conservation Security Program authorized by the Food Security Act of 1985. File amended return The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. File amended return Income realized. File amended return   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). File amended return Value of the improvement. File amended return   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. File amended return The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. File amended return Any government payments under a program not listed earlier. File amended return Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. File amended return Any government payment to you for rent or for your services. File amended return The denominator of the fraction is the total cost of the improvement. File amended return Excludable portion. File amended return   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. File amended return 10% of the prior average annual income from the affected acreage. File amended return The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. File amended return $2. File amended return 50 times the number of affected acres. File amended return The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. File amended return You may need to consult your tax advisor for assistance. File amended return Example. File amended return One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. File amended return The total cost of the improvement was $500,000. File amended return The USDA paid $490,000. File amended return You paid $10,000. File amended return The value of the cost-sharing improvement is $15,000. File amended return The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. File amended return The excludable portion is the greater amount, $1,550. File amended return You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. File amended return   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. File amended return Any payment excluded from income is not part of your basis. File amended return In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. File amended return   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. File amended return How to report the exclusion. File amended return   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. File amended return The statement must include the following information. File amended return The dollar amount of the cost funded by the government payment. File amended return The value of the improvement. File amended return The amount you are excluding. File amended return   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. File amended return Recapture. File amended return   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. File amended return In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. File amended return You must report the recapture on Form 4797. File amended return See Section 1255 property under Other Gains in chapter 9. File amended return Electing not to exclude payments. File amended return   You can elect not to exclude all or part of any payments you receive under these programs. File amended return If you make this election for all of these payments, none of the above restrictions and rules apply. File amended return You must make this election by the due date, including extensions, for filing your return. File amended return In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. File amended return If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File amended return Write “Filed pursuant to section 301. File amended return 9100-2” at the top of the amended return and file it at the same address you filed the original return. File amended return Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. File amended return You must include these payments on Schedule F, lines 4a and 4b. File amended return The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. File amended return You must include these payments on Schedule F, lines 6a and 6b. File amended return The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. File amended return Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. File amended return As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. File amended return If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. File amended return If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. File amended return Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. File amended return Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. File amended return The gain or loss is capital or ordinary depending on how you used the quota. File amended return See Capital or ordinary gain or loss , later. File amended return Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. File amended return Adjusted basis. File amended return   The adjusted basis of your quota is determined differently depending on how you obtained the quota. File amended return The basis of a quota derived from an original grant by the federal government is zero. File amended return The basis of a purchased quota is the purchase price. File amended return The basis of a quota received as a gift is generally the same as the donor's basis. File amended return However, under certain circumstances, the basis is increased by the amount of gift taxes paid. File amended return If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. File amended return The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. File amended return Reduction of basis. File amended return   You are required to reduce the basis of your tobacco quota by the following amounts. File amended return Deductions you took for amortization, depletion, or depreciation. File amended return Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. File amended return The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). File amended return Amount treated as interest. File amended return   You must reduce your tobacco quota buyout program payment by the amount treated as interest. File amended return The interest is reportable as ordinary income. File amended return If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. File amended return   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. File amended return You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. File amended return For more information, see Notice 2005-57, 2005-32 I. File amended return R. File amended return B. File amended return 267, available at www. File amended return irs. File amended return gov/irb/2005-32_IRB/ar13. File amended return html. File amended return Installment method. File amended return   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. File amended return Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. File amended return See chapter 10 for more information. File amended return Capital or ordinary gain or loss. File amended return   Whether your gain or loss is ordinary or capital depends on how you used the quota. File amended return Quota used in the trade or business of farming. File amended return   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. File amended return See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. File amended return Quota held for investment. File amended return   If you held the quota for investment purposes, any gain or loss is capital gain or loss. File amended return The same result also applies if you held the quota for the production of income, though not connected with a trade or business. File amended return Gain treated as ordinary income. File amended return   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. File amended return Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. File amended return The cost of acquiring a quota. File amended return Amounts for amortization, depletion, or depreciation. File amended return Amounts to reflect a reduction in the quota pounds. File amended return   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. File amended return Self-employment income. File amended return   The tobacco quota buyout payments are not self-employment income. File amended return Income averaging for farmers. File amended return   The gain or loss resulting from the quota payments does not qualify for income averaging. File amended return A tobacco quota is considered an interest in land. File amended return Income averaging is not available for gain or loss arising from the sale or other disposition of land. File amended return Involuntary conversion. File amended return   The buyout of the tobacco quota is not an involuntary conversion. File amended return Form 1099-S. File amended return   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. File amended return The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. File amended return Like-kind exchange of quota. File amended return   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. File amended return See Notice 2005-57 for more information. File amended return Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. File amended return Taxation of payments to tobacco growers. File amended return   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. File amended return Individuals will generally report the payments as an Agricultural program payment on Schedule F. File amended return If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. File amended return Self-employment income. File amended return   Payments to growers generally represent self-employment income. File amended return If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. File amended return Income averaging for farmers. File amended return   Payments to growers who are individuals qualify for farm income averaging. File amended return Form 1099-G. File amended return   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. File amended return Other Payments You must include most other government program payments in income. File amended return Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. File amended return How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. File amended return Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. File amended return You must also capitalize the full cost of the improvement. File amended return Since you have included the payments in income, they do not reduce your basis. File amended return However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. File amended return National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. File amended return You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. File amended return If you produce a tobacco crop, report the payments as income from farming on your Schedule F. File amended return If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. File amended return Payment to More Than One Person The USDA reports program payments to the IRS. File amended return It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). File amended return If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. File amended return You should file Form 1099-G to report the identity of the actual recipient to the IRS. File amended return You should also give this information to the recipient. File amended return You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. File amended return Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. File amended return However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. File amended return See chapter 16 for information about ordering Form 1099-G. File amended return Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). File amended return If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. File amended return Form 1099-PATR. File amended return   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. File amended return Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. File amended return For information on the alternative minimum tax, see the Instructions for Form 6251. File amended return Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. File amended return They include the following items. File amended return Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). File amended return The stated dollar value of qualified written notices of allocation. File amended return The fair market value of other property. File amended return Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. File amended return You must reduce the cost or other basis of these items by the amount of such patronage dividends received. File amended return Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. File amended return If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. File amended return Qualified written notice of allocation. File amended return   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. File amended return A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. File amended return The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. File amended return You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. File amended return Signing and giving a written agreement to the cooperative. File amended return Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. File amended return The cooperative must notify you in writing of this bylaw and give you a copy. File amended return Endorsing and cashing a qualified check paid as part of the same patronage dividend. File amended return You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. File amended return Qualified check. File amended return   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. File amended return It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. File amended return It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. File amended return Loss on redemption. File amended return   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. File amended return The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. File amended return Nonqualified notice of allocation. File amended return   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. File amended return Your basis in the notice is zero. File amended return You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. File amended return Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. File amended return However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. File amended return   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. File amended return For example, if it represents interest income, report it on your return as interest. File amended return Buying or selling capital assets or depreciable property. File amended return   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. File amended return You must, however, reduce the basis of these assets by the dividends. File amended return This reduction is taken into account as of the first day of the tax year in which the dividends are received. File amended return If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. File amended return   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. File amended return Example. File amended return On July 1, 2012, Mr. File amended return Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. File amended return The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). File amended return Mr. File amended return Brown files his return on a calendar year basis. File amended return For 2012, he claimed a depreciation deduction of $311, using the 10. File amended return 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). File amended return On July 2, 2013, the cooperative association paid Mr. File amended return Brown a $300 cash patronage dividend for buying the machine. File amended return Mr. File amended return Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. File amended return Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. File amended return 38% × 1. File amended return 5 = 23. File amended return 07% Depreciation deduction for 2013 ($2,289 × 23. File amended return 07%) $528 Exceptions. File amended return   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. File amended return If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. File amended return If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). File amended return   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. File amended return Personal purchases. File amended return   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). File amended return This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. File amended return Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. File amended return A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. File amended return These allocations can be paid in money, other property, or qualified certificates. File amended return Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. File amended return Qualified certificates. File amended return   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. File amended return The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. File amended return If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. File amended return Nonqualified certificates. File amended return   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. File amended return Your basis in the certificate is zero. File amended return You must include in income any amount you receive from its sale, redemption, or other disposition. File amended return Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. File amended return Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. File amended return For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. File amended return General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. File amended return Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. File amended return It is excluded from taxable income (see Exclusions , later). File amended return Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. File amended return If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. File amended return Election to defer income from discharge of indebtedness. File amended return   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. File amended return Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. File amended return See IRC section 108(i) and Publication 4681 for details. File amended return Form 1099-C. File amended return   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. File amended return The amount of debt canceled is shown in box 2. File amended return Exceptions The following discussion covers some exceptions to the general rule for canceled debt. File amended return These exceptions apply before the exclusions discussed below. File amended return Price reduced after purchase. File amended return   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. File amended return Reduce your basis in the property by the amount of the reduction in the debt. File amended return The rules that apply to bankruptcy and insolvency are explained below under Exclusions . File amended return Deductible debt. File amended return   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. File amended return This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. File amended return Example. File amended return You get accounting services for your farm on credit. File amended return Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. File amended return Your accountant forgives part of the amount you owe for the accounting services. File amended return How you treat the canceled debt depends on your method of accounting. File amended return Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. File amended return Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. File amended return Exclusions Do not include canceled debt in income in the following situations. File amended return The cancellation takes place in a bankruptcy case under title 11 of the U. File amended return S. File amended return Code. File amended return The cancellation takes place when you are insolvent. File amended return The canceled debt is a qualified farm debt. File amended return The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). File amended return See Publication 334, Tax Guide for Small Business, chapter 5. File amended return The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. File amended return The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. File amended return If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. File amended return If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. File amended return See Form 982 , later, for information on how to claim an exclusion for a canceled debt. File amended return Debt. File amended return   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. File amended return Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. File amended return Bankruptcy. File amended return   A bankruptcy case is a case under title 11 of the U. File amended return S. File amended return Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. File amended return   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. File amended return Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . File amended return Insolvency. File amended return   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. File amended return   You can exclude canceled debt from gross income up to the amount by which you are insolvent. File amended return If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. File amended return Otherwise, you include the difference in gross income. File amended return Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . File amended return You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. File amended return Example. File amended return You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. File amended return Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. File amended return Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). File amended return You can exclude this amount from income. File amended return The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. File amended return If not, you must include it in income. File amended return Reduction of tax attributes. File amended return   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. File amended return Order of reduction. File amended return   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. File amended return Net operating loss (NOL). File amended return Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. File amended return Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. File amended return General business credit carryover. File amended return Reduce the credit carryover to or from the tax year of the debt cancellation. File amended return Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. File amended return Minimum tax credit. File amended return Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. File amended return Reduce the credit 331/3 cents for each dollar of excluded canceled debt. File amended return Capital loss. File amended return Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. File amended return Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. File amended return Basis. File amended return Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. File amended return Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. File amended return Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. File amended return Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. File amended return Inventory and accounts and notes receivable. File amended return Other property. File amended return Reduce the basis one dollar for each dollar of excluded canceled debt. File amended return However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. File amended return For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. File amended return 1017-1(b)(2). File amended return Also see Electing to reduce the basis of depreciable property