File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Irs 1040ez 2011

Irs Tax Tables2012 Tax Forms 1040ez2012 Tax FormsTax ReturnTurbotax 2013File 2007 Tax ReturnTax Aid1040nr 2013File My State Taxes For FreeFree 2011 Tax FilingHow Do I File My 2011 Taxes1040ez Form For 2010File Taxes 2008Do Students Need To File A Tax ReturnPrior Year Tax Returns1040ez Form For 20141040ez Form InstructionsFree H R Block 2011Ny State Tax Forms 20111040ez Free EfileHow To File My 2012 Taxes For FreeTaxact 2011How To Do Amended Tax ReturnHr Block 2011 Tax SoftwareFile Taxes Online For Free 20112013 Colo State Tax FormsFiling Taxes Late2008 TurbotaxAmend My 2012 Tax ReturnFree Tax PrepTax AmendmentsFile Tax ReturnIncome Tax Form 1040xFile Taxes Online Free 20121040ez Worksheet Line FFile My 2009 Taxes Online FreeWhere Can I File Just My State TaxesFile 2007 Taxes OnlineHow Do I Efile My State TaxesFree Tax Extensions

Irs 1040ez 2011

Irs 1040ez 2011 Publication 524 - Main Content Table of Contents Are You Eligible for the Credit?Qualified Individual Income Limits Credit Figured for You Figuring the Credit YourselfStep 1. Irs 1040ez 2011 Determine Initial Amount Step 2. Irs 1040ez 2011 Total Certain Nontaxable Pensions and Benefits Step 3. Irs 1040ez 2011 Determine Excess Adjusted Gross Income Step 4. Irs 1040ez 2011 Determine the Total of Steps 2 and 3 Step 5. Irs 1040ez 2011 Determine Your Credit Examples How To Get Tax Help Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. Irs 1040ez 2011 You are a qualified individual. Irs 1040ez 2011 Your income is not more than certain limits. Irs 1040ez 2011 You can use Figure A and Table 1 as guides to see if you are eligible for the credit. Irs 1040ez 2011 Use Figure A first to see if you are a qualified individual. Irs 1040ez 2011 If you are, go to Table 1 to make sure your income is not too high to take the credit. Irs 1040ez 2011 You can take the credit only if you file Form 1040 or Form 1040A. Irs 1040ez 2011 You cannot take the credit if you file Form 1040EZ or Form 1040NR. Irs 1040ez 2011 Qualified Individual You are a qualified individual for this credit if you are a U. Irs 1040ez 2011 S. Irs 1040ez 2011 citizen or resident alien, and either of the following applies. Irs 1040ez 2011 You were age 65 or older at the end of 2013. Irs 1040ez 2011 You were under age 65 at the end of 2013 and all three of the following statements are true. Irs 1040ez 2011 You retired on permanent and total disability (explained later). Irs 1040ez 2011 You received taxable disability income for 2013. Irs 1040ez 2011 On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). Irs 1040ez 2011 Age 65. Irs 1040ez 2011   You are considered to be age 65 on the day before your 65th birthday. Irs 1040ez 2011 As a result, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Irs 1040ez 2011 U. Irs 1040ez 2011 S. Irs 1040ez 2011 Citizen or Resident Alien You must be a U. Irs 1040ez 2011 S. Irs 1040ez 2011 citizen or resident alien (or be treated as a resident alien) to take the credit. Irs 1040ez 2011 Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. Irs 1040ez 2011 Exceptions. Irs 1040ez 2011   You may be able to take the credit if you are a nonresident alien who is married to a U. Irs 1040ez 2011 S. Irs 1040ez 2011 citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. Irs 1040ez 2011 S. Irs 1040ez 2011 resident alien. Irs 1040ez 2011 If you make that choice, both you and your spouse are taxed on your worldwide incomes. Irs 1040ez 2011   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. Irs 1040ez 2011 S. Irs 1040ez 2011 citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. Irs 1040ez 2011 S. Irs 1040ez 2011 resident alien for the entire year. Irs 1040ez 2011 In that case, you may be allowed to take the credit. Irs 1040ez 2011   For information on these choices, see chapter 1 of Publication 519, U. Irs 1040ez 2011 S. Irs 1040ez 2011 Tax Guide for Aliens. Irs 1040ez 2011 Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. Irs 1040ez 2011 However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. Irs 1040ez 2011 Head of household. Irs 1040ez 2011   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet all the following tests. Irs 1040ez 2011 You file a separate return. Irs 1040ez 2011 You paid more than half the cost of keeping up your home during the tax year. Irs 1040ez 2011 Your spouse did not live in your home at any time during the last 6 months of the tax year and the absence was not temporary. Irs 1040ez 2011 (See Temporary absences under Head of Household in Publication 501. Irs 1040ez 2011 ) Your home was the main home of your child, stepchild, or an eligible foster child for more than half the year. Irs 1040ez 2011 An eligible foster child is a child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Irs 1040ez 2011 You can claim an exemption for that child, or you cannot claim the exemption only because the noncustodial parent can claim the child using the rules for children of divorced or separated parents. Irs 1040ez 2011 For more information, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Irs 1040ez 2011 Figure A. Irs 1040ez 2011 Are You a Qualified Individual? Please click here for the text description of the image. Irs 1040ez 2011 figure a Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). Irs 1040ez 2011 You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. Irs 1040ez 2011 Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. Irs 1040ez 2011 If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. Irs 1040ez 2011 You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. Irs 1040ez 2011 Permanent and total disability. Irs 1040ez 2011    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. Irs 1040ez 2011 A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. Irs 1040ez 2011 See Physician's statement , later. Irs 1040ez 2011 Substantial gainful activity. Irs 1040ez 2011   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Irs 1040ez 2011 Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. Irs 1040ez 2011   Substantial gainful activity is not work you do to take care of yourself or your home. Irs 1040ez 2011 It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. Irs 1040ez 2011 However, doing this kind of work may show that you are able to engage in substantial gainful activity. Irs 1040ez 2011    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. Irs 1040ez 2011   The following examples illustrate the tests of substantial gainful activity. Irs 1040ez 2011 Example 1. Irs 1040ez 2011 Trisha, a sales clerk, retired on disability. Irs 1040ez 2011 She is 53 years old and now works as a full-time babysitter for the minimum wage. Irs 1040ez 2011 Even though Trisha is doing different work, she is able to do the duties of her new job in a full-time competitive work situation for the minimum wage. Irs 1040ez 2011 She cannot take the credit because she is able to engage in substantial gainful activity. Irs 1040ez 2011 Example 2. Irs 1040ez 2011 Tom, a bookkeeper, retired on disability. Irs 1040ez 2011 He is 59 years old and now drives a truck for a charitable organization. Irs 1040ez 2011 He sets his own hours and is not paid. Irs 1040ez 2011 Duties of this nature generally are performed for pay or profit. Irs 1040ez 2011 Some weeks he works 10 hours, and some weeks he works 40 hours. Irs 1040ez 2011 Over the year he averages 20 hours a week. Irs 1040ez 2011 The kind of work and his average hours a week conclusively show that Tom is able to engage in substantial gainful activity. Irs 1040ez 2011 This is true even though Tom is not paid and he sets his own hours. Irs 1040ez 2011 He cannot take the credit. Irs 1040ez 2011 Example 3. Irs 1040ez 2011 John, who retired on disability, took a job with a former employer on a trial basis. Irs 1040ez 2011 The purpose of the job was to see if John could do the work. Irs 1040ez 2011 The trial period lasted for 6 months during which John was paid the minimum wage. Irs 1040ez 2011 Because of John's disability, he was assigned only light duties of a nonproductive “make-work” nature. Irs 1040ez 2011 The activity was gainful because John was paid at least the minimum wage. Irs 1040ez 2011 But the activity was not substantial because his duties were nonproductive. Irs 1040ez 2011 These facts do not, by themselves, show that John is able to engage in substantial gainful activity. Irs 1040ez 2011 Example 4. Irs 1040ez 2011 Joan, who retired on disability from a job as a bookkeeper, lives with her sister who manages several motel units. Irs 1040ez 2011 Joan helps her sister for 1 or 2 hours a day by performing duties such as washing dishes, answering phones, registering guests, and bookkeeping. Irs 1040ez 2011 Joan can select the time of day when she feels most fit to work. Irs 1040ez 2011 Work of this nature, performed off and on during the day at Joan's convenience, is not activity of a “substantial and gainful” nature even if she is paid for the work. Irs 1040ez 2011 The performance of these duties does not, of itself, show that Joan is able to engage in substantial gainful activity. Irs 1040ez 2011 Sheltered employment. Irs 1040ez 2011   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. Irs 1040ez 2011 These qualified locations are in sheltered workshops, hospitals and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. Irs 1040ez 2011   Compared to commercial employment, pay is lower for sheltered employment. Irs 1040ez 2011 Therefore, one usually does not look for sheltered employment if he or she can get other employment. Irs 1040ez 2011 The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. Irs 1040ez 2011 Physician's statement. Irs 1040ez 2011   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. Irs 1040ez 2011 You can use the statement in the Instructions for Schedule R. Irs 1040ez 2011   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. Irs 1040ez 2011 Veterans. Irs 1040ez 2011    If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. Irs 1040ez 2011 VA Form 21-0172 must be signed by a person authorized by the VA to do so. Irs 1040ez 2011 You can get this form from your local VA regional office. Irs 1040ez 2011 Physician's statement obtained in earlier year. Irs 1040ez 2011   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. Irs 1040ez 2011 For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. Irs 1040ez 2011 If you meet the required conditions, check the box on your Schedule R, Part II, line 2. Irs 1040ez 2011   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. Irs 1040ez 2011 Disability income. Irs 1040ez 2011   If you are under age 65, you must also have taxable disability income to qualify for the credit. Irs 1040ez 2011 Disability income must meet both of the following requirements. Irs 1040ez 2011 It must be paid under your employer's accident or health plan or pension plan. Irs 1040ez 2011 It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. Irs 1040ez 2011 Payments that are not disability income. Irs 1040ez 2011    Any payment you receive from a plan that does not provide for disability retirement is not disability income. Irs 1040ez 2011 Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. Irs 1040ez 2011    For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. Irs 1040ez 2011 Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. Irs 1040ez 2011 Income Limits To determine if you can claim the credit, you must consider two income limits. Irs 1040ez 2011 The first limit is the amount of your adjusted gross income (AGI). Irs 1040ez 2011 The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. Irs 1040ez 2011 The limits are shown in Table 1. Irs 1040ez 2011 If your AGI and your nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. Irs 1040ez 2011 See Figuring the Credit Yourself , later. Irs 1040ez 2011 Table 1. Irs 1040ez 2011 Income Limits IF your filing status is THEN, even if you qualify (see Figure A), you CANNOT take the credit if   Your adjusted gross income (AGI)* is equal to or more than. Irs 1040ez 2011 . Irs 1040ez 2011 . Irs 1040ez 2011     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. Irs 1040ez 2011 . Irs 1040ez 2011 . Irs 1040ez 2011   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. Irs 1040ez 2011 If your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. Irs 1040ez 2011 Credit Figured for You You can figure the credit yourself, or the Internal Revenue Service (IRS) will figure it for you. Irs 1040ez 2011 See Figuring the Credit Yourself , next. Irs 1040ez 2011 If you can take the credit and you want the IRS to figure the credit for you, attach Schedule R to your return. Irs 1040ez 2011 Check the appropriate box in Part I of Schedule R and fill in Part II and lines 11, 13a, and 13b of Part III, if they apply to you. Irs 1040ez 2011 If you file Form 1040A, enter “CFE” in the space to the left of Form 1040A, line 30. Irs 1040ez 2011 If you file Form 1040, check box c on Form 1040, line 53, and enter “CFE” on the line next to that box. Irs 1040ez 2011 Attach Schedule R to your return. Irs 1040ez 2011 Table 2. Irs 1040ez 2011 Initial Amounts IF your filing status is. Irs 1040ez 2011 . Irs 1040ez 2011 . Irs 1040ez 2011   THEN enter on line 10 of Schedule R. Irs 1040ez 2011 . Irs 1040ez 2011 . Irs 1040ez 2011 single,head of household, or qualifying widow(er) with dependent child and, by the end of 2013, you were       • 65 or older $5,000   • under 65 and retired on permanent and total disability1 $5,000 married filing a joint return and by the end of 2013       • both of you were 65 or older $7,500   • both of you were under 65 and one of you retired on permanent and total disability1 $5,000   • both of you were under 65 and both of you retired on permanent and total disability2 $7,500   • one of you was 65 or older, and the other was under 65 and retired on permanent  and total disability3 $7,500   • one of you was 65 or older, and the other was under 65 and not retired on permanent  and total disability $5,000 married filing a separate return and you did not live with your spouse at any time during the year and, by the end of 2013, you were       • 65 or older $3,750   • under 65 and retired on permanent and total disability1 $3,750   1 Amount cannot be more than the taxable disability income. Irs 1040ez 2011     2 Amount cannot be more than your combined taxable disability income. Irs 1040ez 2011     3 Amount is $5,000 plus the taxable disability income of the spouse under age 65, but not more than $7,500. Irs 1040ez 2011   Figuring the Credit Yourself If you figure the credit yourself, fill out the front of Schedule R. Irs 1040ez 2011 Next, fill out Schedule R, Part III. Irs 1040ez 2011 If you file Form 1040A, enter the amount from Schedule R, line 22 on line 30. Irs 1040ez 2011 If you file Form 1040, include the amount from Schedule R, line 22 on line 53, check box c, and enter “Sch R” on the line next to that box. Irs 1040ez 2011 There are five steps in Part III to determine the amount of your credit. Irs 1040ez 2011 Determine your initial amount (lines 10–12). Irs 1040ez 2011 Determine the total of any nontaxable social security and certain other nontaxable pensions, annuities, and disability benefits you received (lines 13a, 13b, and 13c). Irs 1040ez 2011 Determine your excess adjusted gross income (lines 14–17). Irs 1040ez 2011 Determine the total of steps 2 and 3 (line 18). Irs 1040ez 2011 Determine your credit (lines 19–22). Irs 1040ez 2011 These steps are discussed in more detail next. Irs 1040ez 2011 Step 1. Irs 1040ez 2011 Determine Initial Amount To figure the credit, you must first determine your initial amount using lines 10 through 12. Irs 1040ez 2011 See Table 2. Irs 1040ez 2011 Your initial amount is on line 12. Irs 1040ez 2011 Initial amounts for persons under age 65. Irs 1040ez 2011   If you are a qualified individual under age 65, your initial amount cannot be more than your taxable disability income. Irs 1040ez 2011 Special rules for joint returns. Irs 1040ez 2011   If you are a qualified individual under age 65, and your spouse is also a qualified individual, your initial amount is your taxable disability income plus $5,000. Irs 1040ez 2011   If you are a qualified individual, and both you and your spouse are under age 65, your initial amount cannot be more than your combined taxable disability income. Irs 1040ez 2011 Step 2. Irs 1040ez 2011 Total Certain Nontaxable Pensions and Benefits Step 2 is to figure the total amount of nontaxable social security and certain other nontaxable payments you received during the year. Irs 1040ez 2011 You must reduce your initial amount by these payments. Irs 1040ez 2011 Enter these nontaxable payments on lines 13a or 13b and total them on line 13c. Irs 1040ez 2011 If you are married filing jointly, you must enter the combined amount of nontaxable payments both you and your spouse received. Irs 1040ez 2011 Worksheets are provided in the instructions for Forms 1040 and 1040A to help you determine if any of your social security benefits (or equivalent railroad retirement benefits) are taxable. Irs 1040ez 2011 Include the following nontaxable payments in the amounts you enter on lines 13a and 13b. Irs 1040ez 2011 Nontaxable social security payments. Irs 1040ez 2011 This is the nontaxable part of the benefits shown in box 5 of Form SSA-1099, Social Security Benefit Statement, before deducting any amounts withheld to pay premiums on supplementary Medicare insurance, and before any reduction because of benefits received under workers' compensation. Irs 1040ez 2011 (Do not include a lump-sum death benefit payment you may receive as a surviving spouse, or a surviving child's insurance benefit payments you may receive as a guardian. Irs 1040ez 2011 ) Nontaxable railroad retirement pension payments treated as social security. Irs 1040ez 2011 This is the nontaxable part of the benefits shown in box 5 of Form RRB-1099, Payments by the Railroad Retirement Board. Irs 1040ez 2011 Nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the Department of Veterans Affairs (VA). Irs 1040ez 2011 (Do not include amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the National Oceanic and Atmospheric Administration or the Public Health Service, or as a disability annuity under section 808 of the Foreign Service Act of 1980. Irs 1040ez 2011 ) Pension or annuity payments or disability benefits that are excluded from income under any provision of federal law other than the Internal Revenue Code. Irs 1040ez 2011 (Do not include amounts that are a return of your cost of a pension or annuity. Irs 1040ez 2011 These amounts do not reduce your initial amount. Irs 1040ez 2011 ) You should be sure to take into account all of the nontaxable amounts you receive. Irs 1040ez 2011 These amounts are verified by the IRS through information supplied by other government agencies. Irs 1040ez 2011 Step 3. Irs 1040ez 2011 Determine Excess Adjusted Gross Income You also must reduce your initial amount by your excess adjusted gross income. Irs 1040ez 2011 Figure your excess adjusted gross income on lines 14–17. Irs 1040ez 2011 You figure your excess adjusted gross income as follows. Irs 1040ez 2011 Subtract from your adjusted gross income (Form 1040A, line 22 or Form 1040, line 38) the amount shown for your filing status. Irs 1040ez 2011 $7,500 if you are single, a head of household, or a qualifying widow(er) with dependent child, $10,000 if you are married filing jointly, or $5,000 if you are married filing separately and you and your spouse did not live in the same household at any time during the tax year. Irs 1040ez 2011 Divide the result of (1) by 2. Irs 1040ez 2011 Step 4. Irs 1040ez 2011 Determine the Total of Steps 2 and 3 To determine if you can take the credit, you must add (on line 18) the amounts you figured in Step 2 (line 13c) and Step 3 (line 17). Irs 1040ez 2011 Step 5. Irs 1040ez 2011 Determine Your Credit Subtract the amount determined in Step 4 (line 18) from the amount determined in Step 1 (line 12), and multiply the result by 15% (. Irs 1040ez 2011 15). Irs 1040ez 2011 In certain cases, the amount of your credit may be limited. Irs 1040ez 2011 See Limit on credit , later. Irs 1040ez 2011 Example. Irs 1040ez 2011 You are 66 years old and your spouse is 64. Irs 1040ez 2011 Your spouse is not disabled. Irs 1040ez 2011 You file a joint return on Form 1040. Irs 1040ez 2011 Your adjusted gross income is $14,630. Irs 1040ez 2011 Together you received $3,200 from social security, which was nontaxable. Irs 1040ez 2011 You figure the credit as follows: Example applying the 5 step process Amount (Line references (shown in parentheses) are to the Schedule R)      1. Irs 1040ez 2011 Initial amount (line 12) $5,000 2. Irs 1040ez 2011 Total nontaxable social security  and other nontaxable  pensions (line 13c) $3,200   3. Irs 1040ez 2011 Excess adjusted gross income  ($14,630–$10,000) ÷ 2 (line 17) 2,315   4. Irs 1040ez 2011 Add (2) and (3) (line 18) 5,515 5. Irs 1040ez 2011 Subtract (4) from (1) (line 12 – line 18 = line 19) (Do not enter less than -0-) $ -0- You cannot take the credit because your nontaxable social security plus your excess adjusted gross income is more than your initial amount. Irs 1040ez 2011 Limit on credit. Irs 1040ez 2011   The amount of credit you can claim is generally limited to the amount of your tax. Irs 1040ez 2011 Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. Irs 1040ez 2011 Examples The following examples illustrate the credit for the elderly or the disabled. Irs 1040ez 2011 The initial amounts are taken from Table 2, earlier. Irs 1040ez 2011 Example 1. Irs 1040ez 2011 James Davis is 58 years old, single, and files Form 1040A. Irs 1040ez 2011 In 2011 he retired on permanent and total disability, and he is still permanently and totally disabled. Irs 1040ez 2011 He got the required physician's statement in 2011 and kept it with his tax records. Irs 1040ez 2011 His physician signed on line B of the statement. Irs 1040ez 2011 This year James checks the box in Schedule R, Part II. Irs 1040ez 2011 He does not need to get another statement for 2013. Irs 1040ez 2011 He received the following income for the year: Nontaxable social security $1,500 Interest (taxable) 100 Taxable disability pension 11,400       James' adjusted gross income is $11,500 ($11,400 + $100). Irs 1040ez 2011 He figures the credit on Schedule R as follows: 1. Irs 1040ez 2011 Initial amount   $5,000 2. Irs 1040ez 2011 Taxable disability pension   11,400 3. Irs 1040ez 2011 Smaller of line 1 or line 2   5,000 4. Irs 1040ez 2011 Nontaxable social security  benefits $1,500     5. Irs 1040ez 2011 Excess adjusted gross income  ($11,500 − $7,500) ÷ 2 2,000     6. Irs 1040ez 2011 Add lines 4 and 5   3,500 7. Irs 1040ez 2011 Subtract line 6 from line 3  (Do not enter less than (-0-))   1,500 8. Irs 1040ez 2011 Multiply line 7 by 15% (. Irs 1040ez 2011 15)   225 9. Irs 1040ez 2011 Enter the amount from the  Credit Limit Worksheet in the  Instructions for Schedule R, line 21   151 10. Irs 1040ez 2011 Credit (Enter the smaller of  line 8 or line 9)   $ 151 He enters $151 on line 30 of Form 1040A. Irs 1040ez 2011 The Schedule R for James Davis is not shown. Irs 1040ez 2011 Example 2. Irs 1040ez 2011 William White is 53. Irs 1040ez 2011 His wife Helen is 49. Irs 1040ez 2011 William had a stroke 3 years ago and retired on permanent and total disability. Irs 1040ez 2011 He is still permanently and totally disabled because of the stroke. Irs 1040ez 2011 In November, Helen was injured in an accident at work and retired on permanent and total disability. Irs 1040ez 2011 William received nontaxable social security disability benefits of $2,000 during the year and a taxable disability pension of $6,200. Irs 1040ez 2011 Helen earned $12,500 from her job and received a taxable disability pension of $1,700. Irs 1040ez 2011 Their joint return on Form 1040 shows adjusted gross income of $20,400 ($6,200 + $12,500 + $1,700). Irs 1040ez 2011 They do not itemize deductions. Irs 1040ez 2011 They do not have any amounts that would increase their standard deduction. Irs 1040ez 2011 Helen's doctor completed the physician's statement in the Instructions for Schedule R. Irs 1040ez 2011 Helen is not required to include the statement with their return, but she must keep it for her records. Irs 1040ez 2011 William got a physician's statement for the year he had the stroke. Irs 1040ez 2011 His doctor had signed on line B of that physician's statement to certify that William was permanently and totally disabled. Irs 1040ez 2011 William has kept the physician's statement with his records. Irs 1040ez 2011 He checks the box on Schedule R, Part II and writes his first name in the space above the box on line 2. Irs 1040ez 2011 William and Helen use Schedule R to figure their $41 credit for the elderly or the disabled. Irs 1040ez 2011 They attach Schedule R to their Form 1040 and enter $41 on line 53. Irs 1040ez 2011 They check box c on line 53 and enter “Sch R” on the line next to that box. Irs 1040ez 2011 See their filled-in Schedule R and Helen's filled-in physician's statement, later. Irs 1040ez 2011 Instructions for Physician's Statement     Taxpayer Physician If you retired after 1976, enter the date you retired in the space provided on the statement below. Irs 1040ez 2011 A person is permanently and totally disabled if both of the following apply:   1. Irs 1040ez 2011 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Irs 1040ez 2011   2. Irs 1040ez 2011 A physician determines that the disability has lasted or can be expected to last continuously for at least a year or can lead to death. Irs 1040ez 2011 Physician's Statement     I certify that Helen A. Irs 1040ez 2011 White Name of disabled person was permanently and totally disabled on January 1, 1976, or January 1, 1977, or was permanently and totally disabled on the date he or she retired. Irs 1040ez 2011 If retired after 1976, enter the date retired ▶ November 1, 2013   Physician: Sign your name on either A or B below. Irs 1040ez 2011 AThe disability has lasted or can be expected to last continuously for at least a year     Physician's signatureDate BThere is no reasonable probability that the disabled condition will ever improve Ayden D. Irs 1040ez 2011 Doctor 2/8/14   Physician's signatureDate Physician's name Physician's address Ayden D. Irs 1040ez 2011 Doctor 1900 Green St. Irs 1040ez 2011 , Hometown, MD 20000         This image is too large to be displayed in the current screen. Irs 1040ez 2011 Please click the link to view the image. Irs 1040ez 2011 Page 1 of Schedule R for the Whites This image is too large to be displayed in the current screen. Irs 1040ez 2011 Please click the link to view the image. Irs 1040ez 2011 Page 2 of Schedule R for the Whites How To Get Tax Help Go online, use a smart phone, call or walk in to an office near you. Irs 1040ez 2011 Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. Irs 1040ez 2011 Free help with your tax return. Irs 1040ez 2011   Free help in preparing your return is available nationwide from IRS-certified volunteers. Irs 1040ez 2011 The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. Irs 1040ez 2011 The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Irs 1040ez 2011 Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Irs 1040ez 2011 Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Irs 1040ez 2011 To find the nearest VITA or TCE site, visit IRS. Irs 1040ez 2011 gov or call 1-800-906-9887. Irs 1040ez 2011   As part of the TCE program, AARP offers the Tax-Aide counseling program. Irs 1040ez 2011 To find the nearest AARP Tax-Aide site, visit AARP's website at www. Irs 1040ez 2011 aarp. Irs 1040ez 2011 org/money/taxaide or call 1-888-227-7669. Irs 1040ez 2011   For more information on these programs, go to IRS. Irs 1040ez 2011 gov and enter “VITA” in the search box. Irs 1040ez 2011 Internet. Irs 1040ez 2011 IRS. Irs 1040ez 2011 gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. Irs 1040ez 2011 Apply for an Employer Identification Number (EIN). Irs 1040ez 2011 Go to IRS. Irs 1040ez 2011 gov and enter Apply for an EIN in the search box. Irs 1040ez 2011 Request an Electronic Filing PIN by going to IRS. Irs 1040ez 2011 gov and entering Electronic Filing PIN in the search box. Irs 1040ez 2011 Check the status of your 2013 refund with Where's My Refund? Go to IRS. Irs 1040ez 2011 gov or the IRS2Go app, and click on Where's My Refund? You'll get a personalized refund date as soon as the IRS processes your tax return and approves your refund. Irs 1040ez 2011 If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Irs 1040ez 2011 Check the status of your amended return. Irs 1040ez 2011 Go to IRS. Irs 1040ez 2011 gov and enter Where's My Amended Return in the search box. Irs 1040ez 2011 Download forms, instructions, and publications, including some accessible versions. Irs 1040ez 2011 Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. Irs 1040ez 2011 gov or IRS2Go. Irs 1040ez 2011 Tax return and tax account transcripts are generally available for the current year and past three years. Irs 1040ez 2011 Figure your income tax withholding with the IRS Withholding Calculator on IRS. Irs 1040ez 2011 gov. Irs 1040ez 2011 Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Irs 1040ez 2011 Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Irs 1040ez 2011 gov. Irs 1040ez 2011 Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. Irs 1040ez 2011 gov or IRS2Go. Irs 1040ez 2011 Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. Irs 1040ez 2011 An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. Irs 1040ez 2011 Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. Irs 1040ez 2011 If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. Irs 1040ez 2011 Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Irs 1040ez 2011 Locate the nearest volunteer help site with the VITA Locator Tool on IRS. Irs 1040ez 2011 gov. Irs 1040ez 2011 Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Irs 1040ez 2011 The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Irs 1040ez 2011 Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. Irs 1040ez 2011 AARP offers the Tax-Aide counseling program as part of the TCE program. Irs 1040ez 2011 Visit AARP's website to find the nearest Tax-Aide location. Irs 1040ez 2011 Research your tax questions. Irs 1040ez 2011 Search publications and instructions by topic or keyword. Irs 1040ez 2011 Read the Internal Revenue Code, regulations, or other official guidance. Irs 1040ez 2011 Read Internal Revenue Bulletins. Irs 1040ez 2011 Sign up to receive local and national tax news by email. Irs 1040ez 2011 Phone. Irs 1040ez 2011 You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Irs 1040ez 2011 Download the free IRS2Go mobile app from the iTunes app store or from Google Play. Irs 1040ez 2011 Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Irs 1040ez 2011 Call to locate the nearest volunteer help site, 1-800-906-9887. Irs 1040ez 2011 Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Irs 1040ez 2011 The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Irs 1040ez 2011 Most VITA and TCE sites offer free electronic filing. Irs 1040ez 2011 Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Irs 1040ez 2011 Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Irs 1040ez 2011 Call to check the status of your 2013 refund, 1-800-829-1954 or 1-800-829-4477. Irs 1040ez 2011 The automated Where's My Refund? information is available 24 hours a day, 7 days a week. Irs 1040ez 2011 If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Irs 1040ez 2011 Before you call, have your 2013 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Irs 1040ez 2011 Where's My Refund? can give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Irs 1040ez 2011 Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Irs 1040ez 2011 Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Irs 1040ez 2011 Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). Irs 1040ez 2011 You should receive your order within 10 business days. Irs 1040ez 2011 Call to order transcripts of your tax returns or tax account, 1-800-908-9946. Irs 1040ez 2011 Follow the prompts to provide your Social Security Number or Individual Taxpayer Identification Number, date of birth, street address and ZIP code. Irs 1040ez 2011 Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. Irs 1040ez 2011 Call to ask tax questions, 1-800-829-1040. Irs 1040ez 2011 Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Irs 1040ez 2011 The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Irs 1040ez 2011 These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. Irs 1040ez 2011 gsa. Irs 1040ez 2011 gov/fedrelay. Irs 1040ez 2011 Walk-in. Irs 1040ez 2011 You can find a selection of forms, publications and services — in-person, face-to-face. Irs 1040ez 2011 Products. Irs 1040ez 2011 You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Irs 1040ez 2011 Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Irs 1040ez 2011 Services. Irs 1040ez 2011 You can walk in to your local TAC most business days for personal, face-to-face tax help. Irs 1040ez 2011 An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Irs 1040ez 2011 If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Irs 1040ez 2011 No appointment is necessary—just walk in. Irs 1040ez 2011 Before visiting, check www. Irs 1040ez 2011 irs. Irs 1040ez 2011 gov/localcontacts for hours of operation and services provided. Irs 1040ez 2011 Mail. Irs 1040ez 2011 You can send your order for forms, instructions, and publications to the address below. Irs 1040ez 2011 You should receive a response within 10 business days after your request is received. Irs 1040ez 2011  Internal Revenue Service 1201 N. Irs 1040ez 2011 Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. Irs 1040ez 2011   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Irs 1040ez 2011 Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Irs 1040ez 2011 What can TAS do for you?   We can offer you free help with IRS problems that you can't resolve on your own. Irs 1040ez 2011 We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Irs 1040ez 2011 You face (or your business is facing) an immediate threat of adverse action. Irs 1040ez 2011 You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Irs 1040ez 2011   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Irs 1040ez 2011 Here's why we can help: TAS is an independent organization within the IRS. Irs 1040ez 2011 Our advocates know how to work with the IRS. Irs 1040ez 2011 Our services are free and tailored to meet your needs. Irs 1040ez 2011 We have offices in every state, the District of Columbia, and Puerto Rico. Irs 1040ez 2011 How can you reach us?   If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Irs 1040ez 2011 irs. Irs 1040ez 2011 gov/advocate, or call us toll-free at 1-877-777-4778. Irs 1040ez 2011 How else does TAS help taxpayers?   TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Irs 1040ez 2011 If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Irs 1040ez 2011 irs. Irs 1040ez 2011 gov/sams. Irs 1040ez 2011 Low Income Taxpayer Clinics. Irs 1040ez 2011   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Irs 1040ez 2011 Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Irs 1040ez 2011 Visit www. Irs 1040ez 2011 TaxpayerAdvocate. Irs 1040ez 2011 irs. Irs 1040ez 2011 gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. Irs 1040ez 2011 Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Correcting Plan Errors

The Employee Plans Compliance Resolution System (EPCRS)
offers three programs for correcting plan errors:

Find Plan Errors

Fix Plan Errors

Avoid Plan Errors

Revenue Procedure for EPCRS 

Topical index

Chart of significant changes

Additional resources

Page Last Reviewed or Updated: 14-Mar-2014

The Irs 1040ez 2011

Irs 1040ez 2011 Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. Irs 1040ez 2011 Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. Irs 1040ez 2011 Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. Irs 1040ez 2011 Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. Irs 1040ez 2011 However, a joint undertaking merely to share expenses is not a partnership. Irs 1040ez 2011 For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. Irs 1040ez 2011 The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. Irs 1040ez 2011 Organizations formed after 1996. Irs 1040ez 2011   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. Irs 1040ez 2011 An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. Irs 1040ez 2011 An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. Irs 1040ez 2011 An insurance company. Irs 1040ez 2011 Certain banks. Irs 1040ez 2011 An organization wholly owned by a state, local, or foreign government. Irs 1040ez 2011 An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Irs 1040ez 2011 Certain foreign organizations identified in section 301. Irs 1040ez 2011 7701-2(b)(8) of the regulations. Irs 1040ez 2011 A tax-exempt organization. Irs 1040ez 2011 A real estate investment trust. Irs 1040ez 2011 An organization classified as a trust under section 301. Irs 1040ez 2011 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. Irs 1040ez 2011 Any other organization that elects to be classified as a corporation by filing Form 8832. Irs 1040ez 2011 For more information, see the instructions for Form 8832. Irs 1040ez 2011 Limited liability company. Irs 1040ez 2011   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Irs 1040ez 2011 Unlike a partnership, none of the members of an LLC are personally liable for its debts. Irs 1040ez 2011 An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. Irs 1040ez 2011 7701-3. Irs 1040ez 2011 See Form 8832 and section 301. Irs 1040ez 2011 7701-3 of the regulations for more details. Irs 1040ez 2011 A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. Irs 1040ez 2011 Organizations formed before 1997. Irs 1040ez 2011   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. Irs 1040ez 2011 Community property. Irs 1040ez 2011    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. Irs 1040ez 2011 They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. Irs 1040ez 2011 A change in reporting position will be treated for federal tax purposes as a conversion of the entity. Irs 1040ez 2011   A qualified entity is a business entity that meets all the following requirements. Irs 1040ez 2011 The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. Irs 1040ez 2011 No person other than one or both spouses would be considered an owner for federal tax purposes. Irs 1040ez 2011 The business entity is not treated as a corporation. Irs 1040ez 2011   For more information about community property, see Publication 555, Community Property. Irs 1040ez 2011 Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Irs 1040ez 2011 Family Partnership Members of a family can be partners. Irs 1040ez 2011 However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. Irs 1040ez 2011 If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. Irs 1040ez 2011 If capital is not a material income-producing factor, they joined together in good faith to conduct a business. Irs 1040ez 2011 They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. Irs 1040ez 2011 Capital is material. Irs 1040ez 2011   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. Irs 1040ez 2011 Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. Irs 1040ez 2011 Capital is not material. Irs 1040ez 2011   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. Irs 1040ez 2011 Capital interest. Irs 1040ez 2011   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. Irs 1040ez 2011 The owner withdraws from the partnership. Irs 1040ez 2011 The partnership liquidates. Irs 1040ez 2011   The mere right to share in earnings and profits is not a capital interest in the partnership. Irs 1040ez 2011 Gift of capital interest. Irs 1040ez 2011   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. Irs 1040ez 2011 It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. Irs 1040ez 2011 The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. Irs 1040ez 2011 Purchase. Irs 1040ez 2011   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. Irs 1040ez 2011 The fair market value of the purchased interest is considered donated capital. Irs 1040ez 2011 For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). Irs 1040ez 2011 Example. Irs 1040ez 2011 A father sold 50% of his business to his son. Irs 1040ez 2011 The resulting partnership had a profit of $60,000. Irs 1040ez 2011 Capital is a material income-producing factor. Irs 1040ez 2011 The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. Irs 1040ez 2011 The $24,000 must be allocated to the father as compensation. Irs 1040ez 2011 Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. Irs 1040ez 2011 The son's share of partnership profit cannot be more than $18,000. Irs 1040ez 2011 Business owned and operated by spouses. Irs 1040ez 2011   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. Irs 1040ez 2011 If so, they should report income or loss from the business on Form 1065. Irs 1040ez 2011 They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. Irs 1040ez 2011 However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. Irs 1040ez 2011 Qualified Joint Venture Election. Irs 1040ez 2011   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. Irs 1040ez 2011 A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. Irs 1040ez 2011   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. Irs 1040ez 2011 All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. Irs 1040ez 2011 Each spouse takes into account his or her respective share of these items as a sole proprietor. Irs 1040ez 2011 Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). Irs 1040ez 2011 For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. Irs 1040ez 2011 e. Irs 1040ez 2011 , based on their respective interests in the venture). Irs 1040ez 2011   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. Irs 1040ez 2011 Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. Irs 1040ez 2011   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. Irs 1040ez 2011 However, this may not be true if either spouse exceeds the social security tax limitation. Irs 1040ez 2011   For more information on qualified joint ventures, go to IRS. Irs 1040ez 2011 gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. Irs 1040ez 2011 ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. Irs 1040ez 2011 The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. Irs 1040ez 2011 The agreement or modifications can be oral or written. Irs 1040ez 2011 Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. Irs 1040ez 2011 This filing date does not include any extension of time. Irs 1040ez 2011 If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. Irs 1040ez 2011 Terminating a Partnership A partnership terminates when one of the following events takes place. Irs 1040ez 2011 All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. Irs 1040ez 2011 At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. Irs 1040ez 2011 Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. Irs 1040ez 2011 See section 1. Irs 1040ez 2011 708-1(b) of the regulations for more information on the termination of a partnership. Irs 1040ez 2011 For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. Irs 1040ez 2011 708-1(c) and 1. Irs 1040ez 2011 708-1(d) of the regulations. Irs 1040ez 2011 Date of termination. Irs 1040ez 2011   The partnership's tax year ends on the date of termination. Irs 1040ez 2011 For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. Irs 1040ez 2011 For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. Irs 1040ez 2011 Short period return. Irs 1040ez 2011   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. Irs 1040ez 2011 The return is due the 15th day of the fourth month following the date of termination. Irs 1040ez 2011 See Partnership Return (Form 1065), later, for information about filing Form 1065. Irs 1040ez 2011 Conversion of partnership into limited liability company (LLC). Irs 1040ez 2011   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. Irs 1040ez 2011 The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. Irs 1040ez 2011   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. Irs 1040ez 2011 Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. Irs 1040ez 2011 If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. Irs 1040ez 2011 For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. Irs 1040ez 2011   The same rules apply if an LLC classified as a partnership is converted into a partnership. Irs 1040ez 2011 IRS e-file (Electronic Filing) Please click here for the text description of the image. Irs 1040ez 2011 e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). Irs 1040ez 2011 Other partnerships generally have the option to file electronically. Irs 1040ez 2011 For details about IRS e-file, see the Form 1065 instructions. Irs 1040ez 2011 Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. Irs 1040ez 2011 All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. Irs 1040ez 2011 However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. Irs 1040ez 2011 Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. Irs 1040ez 2011 Investing partnership. Irs 1040ez 2011   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. Irs 1040ez 2011 They own the property as co-owners. Irs 1040ez 2011 They reserve the right separately to take or dispose of their shares of any property acquired or retained. Irs 1040ez 2011 They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. Irs 1040ez 2011 Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. Irs 1040ez 2011 Operating agreement partnership. Irs 1040ez 2011   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. Irs 1040ez 2011 They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. Irs 1040ez 2011 They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. Irs 1040ez 2011 They do not jointly sell services or the property produced or extracted. Irs 1040ez 2011 Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. Irs 1040ez 2011 However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. Irs 1040ez 2011 Electing the exclusion. Irs 1040ez 2011   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. Irs 1040ez 2011 This filing date includes any extension of time. Irs 1040ez 2011 See Regulations section 1. Irs 1040ez 2011 761-2(b) for the procedures to follow. Irs 1040ez 2011 Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. Irs 1040ez 2011 The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. Irs 1040ez 2011 The return must be signed by a general partner. Irs 1040ez 2011 If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. Irs 1040ez 2011 A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. Irs 1040ez 2011 See the Instructions for Form 1065 for more information about who must file Form 1065. Irs 1040ez 2011 Partnership Distributions Partnership distributions include the following. Irs 1040ez 2011 A withdrawal by a partner in anticipation of the current year's earnings. Irs 1040ez 2011 A distribution of the current year's or prior years' earnings not needed for working capital. Irs 1040ez 2011 A complete or partial liquidation of a partner's interest. Irs 1040ez 2011 A distribution to all partners in a complete liquidation of the partnership. Irs 1040ez 2011 A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. Irs 1040ez 2011 If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. Irs 1040ez 2011 Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. Irs 1040ez 2011 Effect on partner's basis. Irs 1040ez 2011   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. Irs 1040ez 2011 See Adjusted Basis under Basis of Partner's Interest, later. Irs 1040ez 2011 Effect on partnership. Irs 1040ez 2011   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. Irs 1040ez 2011 The partnership may be able to elect to adjust the basis of its undistributed property. Irs 1040ez 2011 Certain distributions treated as a sale or exchange. Irs 1040ez 2011   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. Irs 1040ez 2011 Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. Irs 1040ez 2011 Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. Irs 1040ez 2011   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Irs 1040ez 2011   This treatment does not apply to the following distributions. Irs 1040ez 2011 A distribution of property to the partner who contributed the property to the partnership. Irs 1040ez 2011 Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. Irs 1040ez 2011 Substantially appreciated inventory items. Irs 1040ez 2011   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. Irs 1040ez 2011 However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. Irs 1040ez 2011 Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. Irs 1040ez 2011 Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. Irs 1040ez 2011 If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. Irs 1040ez 2011 For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. Irs 1040ez 2011 Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Irs 1040ez 2011 Example. Irs 1040ez 2011 The adjusted basis of Jo's partnership interest is $14,000. Irs 1040ez 2011 She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. Irs 1040ez 2011 Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. Irs 1040ez 2011 Any gain on the land will be recognized when she sells or otherwise disposes of it. Irs 1040ez 2011 The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. Irs 1040ez 2011 Marketable securities treated as money. Irs 1040ez 2011   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. Irs 1040ez 2011 This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. Irs 1040ez 2011   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). Irs 1040ez 2011   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. Irs 1040ez 2011 Loss on distribution. Irs 1040ez 2011   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. Irs 1040ez 2011 The adjusted basis of the partner's interest in the partnership exceeds the distribution. Irs 1040ez 2011 The partner's entire interest in the partnership is liquidated. Irs 1040ez 2011 The distribution is in money, unrealized receivables, or inventory items. Irs 1040ez 2011   There are exceptions to these general rules. Irs 1040ez 2011 See the following discussions. Irs 1040ez 2011 Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. Irs 1040ez 2011 Distribution of partner's debt. Irs 1040ez 2011   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). Irs 1040ez 2011   The partner is treated as having satisfied the debt for its fair market value. Irs 1040ez 2011 If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. Irs 1040ez 2011   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. Irs 1040ez 2011 Net precontribution gain. Irs 1040ez 2011   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. Irs 1040ez 2011   The gain recognized is the lesser of the following amounts. Irs 1040ez 2011 The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. Irs 1040ez 2011 The “net precontribution gain” of the partner. Irs 1040ez 2011 This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. Irs 1040ez 2011 For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. Irs 1040ez 2011   The character of the gain is determined by reference to the character of the net precontribution gain. Irs 1040ez 2011 This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. Irs 1040ez 2011 For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. Irs 1040ez 2011 Effect on basis. Irs 1040ez 2011   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. Irs 1040ez 2011 Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. Irs 1040ez 2011 See Basis of Partner's Interest , later. Irs 1040ez 2011   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. Irs 1040ez 2011 Exceptions. Irs 1040ez 2011   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. Irs 1040ez 2011 For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. Irs 1040ez 2011   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. Irs 1040ez 2011 Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. Irs 1040ez 2011 However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Irs 1040ez 2011 Example 1. Irs 1040ez 2011 The adjusted basis of Emily's partnership interest is $30,000. Irs 1040ez 2011 She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. Irs 1040ez 2011 Her basis for the property is $20,000. Irs 1040ez 2011 Example 2. Irs 1040ez 2011 The adjusted basis of Steve's partnership interest is $10,000. Irs 1040ez 2011 He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. Irs 1040ez 2011 His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). Irs 1040ez 2011 Complete liquidation of partner's interest. Irs 1040ez 2011   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. Irs 1040ez 2011 Partner's holding period. Irs 1040ez 2011   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. Irs 1040ez 2011 If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. Irs 1040ez 2011 Basis divided among properties. Irs 1040ez 2011   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. Irs 1040ez 2011 For property distributed after August 5, 1997, allocate the basis using the following rules. Irs 1040ez 2011 Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. Irs 1040ez 2011 If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Irs 1040ez 2011 Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. Irs 1040ez 2011 If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. Irs 1040ez 2011 If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Irs 1040ez 2011 Allocating a basis increase. Irs 1040ez 2011   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. Irs 1040ez 2011 If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. Irs 1040ez 2011 Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. Irs 1040ez 2011 Example. Irs 1040ez 2011 Eun's basis in her partnership interest is $55,000. Irs 1040ez 2011 In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. Irs 1040ez 2011 Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. Irs 1040ez 2011 Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. Irs 1040ez 2011 To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). Irs 1040ez 2011 This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). Irs 1040ez 2011 She first allocates $35,000 to property A (its unrealized appreciation). Irs 1040ez 2011 The remaining $5,000 is allocated between the properties based on their fair market values. Irs 1040ez 2011 $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. Irs 1040ez 2011 Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). Irs 1040ez 2011 Allocating a basis decrease. Irs 1040ez 2011   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. Irs 1040ez 2011 Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. Irs 1040ez 2011 If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. Irs 1040ez 2011 Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). Irs 1040ez 2011 Example. Irs 1040ez 2011 Armando's basis in his partnership interest is $20,000. Irs 1040ez 2011 In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. Irs 1040ez 2011 Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. Irs 1040ez 2011 Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. Irs 1040ez 2011 To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). Irs 1040ez 2011 This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). Irs 1040ez 2011 He allocates the entire $10,000 to property D (its unrealized depreciation). Irs 1040ez 2011 Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). Irs 1040ez 2011 Distributions before August 6, 1997. Irs 1040ez 2011   For property distributed before August 6, 1997, allocate the basis using the following rules. Irs 1040ez 2011 Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. Irs 1040ez 2011 If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. Irs 1040ez 2011 Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. Irs 1040ez 2011 Partner's interest more than partnership basis. Irs 1040ez 2011   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. Irs 1040ez 2011 Special adjustment to basis. Irs 1040ez 2011   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. Irs 1040ez 2011 To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. Irs 1040ez 2011 Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. Irs 1040ez 2011   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. Irs 1040ez 2011 However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. Irs 1040ez 2011   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. Irs 1040ez 2011 If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. Irs 1040ez 2011   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. Irs 1040ez 2011 The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. Irs 1040ez 2011 Example. Irs 1040ez 2011 Chin Ho purchased a 25% interest in X partnership for $17,000 cash. Irs 1040ez 2011 At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. Irs 1040ez 2011 Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. Irs 1040ez 2011 Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. Irs 1040ez 2011 The value of the inventory received was 25% of the value of all partnership inventory. Irs 1040ez 2011 (It is immaterial whether the inventory he received was on hand when he acquired his interest. Irs 1040ez 2011 ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. Irs 1040ez 2011 His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). Irs 1040ez 2011 The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. Irs 1040ez 2011 The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). Irs 1040ez 2011 His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). Irs 1040ez 2011 The remaining $11,500 is allocated to his new basis for the other property he received. Irs 1040ez 2011 Mandatory adjustment. Irs 1040ez 2011   A partner does not always have a choice of making this special adjustment to basis. Irs 1040ez 2011 The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. Irs 1040ez 2011 The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. Irs 1040ez 2011 If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. Irs 1040ez 2011 The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. Irs 1040ez 2011 Required statement. Irs 1040ez 2011   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. Irs 1040ez 2011 The statement must provide information necessary for the partner to compute the special basis adjustment. Irs 1040ez 2011 Marketable securities. Irs 1040ez 2011   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. Irs 1040ez 2011 See Marketable securities treated as money under Partner's Gain or Loss, earlier. Irs 1040ez 2011 The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. Irs 1040ez 2011 Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. Irs 1040ez 2011 These transactions include the following. Irs 1040ez 2011 Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. Irs 1040ez 2011 Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. Irs 1040ez 2011 Payments by accrual basis partnership to cash basis partner. Irs 1040ez 2011   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. Irs 1040ez 2011 However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. Irs 1040ez 2011 Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. Irs 1040ez 2011 A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. Irs 1040ez 2011 This treatment is for purposes of determining gross income and deductible business expenses only. Irs 1040ez 2011 For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Irs 1040ez 2011 Guaranteed payments are not subject to income tax withholding. Irs 1040ez 2011 The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. Irs 1040ez 2011 They are also listed on Schedules K and K-1 of the partnership return. Irs 1040ez 2011 The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. Irs 1040ez 2011 Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. Irs 1040ez 2011 Generally, organizational and syndication expenses are not deductible by the partnership. Irs 1040ez 2011 However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). Irs 1040ez 2011 Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. Irs 1040ez 2011 Minimum payment. Irs 1040ez 2011   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. Irs 1040ez 2011 Example. Irs 1040ez 2011 Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. Irs 1040ez 2011 The partnership has net income of $20,000. Irs 1040ez 2011 Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). Irs 1040ez 2011 The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). Irs 1040ez 2011 Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. Irs 1040ez 2011 If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. Irs 1040ez 2011 Self-employed health insurance premiums. Irs 1040ez 2011   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. Irs 1040ez 2011 The partnership can deduct the payments as a business expense, and the partner must include them in gross income. Irs 1040ez 2011 However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. Irs 1040ez 2011   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. Irs 1040ez 2011 The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. Irs 1040ez 2011 For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. Irs 1040ez 2011 Including payments in partner's income. Irs 1040ez 2011   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. Irs 1040ez 2011 Example 1. Irs 1040ez 2011 Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. Irs 1040ez 2011 Her distributive share of the partnership income is 10%. Irs 1040ez 2011 The partnership has $50,000 of ordinary income after deducting the guaranteed payment. Irs 1040ez 2011 She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. Irs 1040ez 2011 Example 2. Irs 1040ez 2011 Lamont is a calendar year taxpayer who is a partner in a partnership. Irs 1040ez 2011 The partnership uses a fiscal year that ended January 31, 2013. Irs 1040ez 2011 Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. Irs 1040ez 2011 He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. Irs 1040ez 2011 Payments resulting in loss. Irs 1040ez 2011   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. Irs 1040ez 2011 The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. Irs 1040ez 2011 Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. Irs 1040ez 2011 Losses. Irs 1040ez 2011   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. Irs 1040ez 2011   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. Irs 1040ez 2011   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. Irs 1040ez 2011   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. Irs 1040ez 2011 If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. Irs 1040ez 2011 Gains. Irs 1040ez 2011   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. Irs 1040ez 2011 More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). Irs 1040ez 2011 The property in the hands of the transferee immediately after the transfer is not a capital asset. Irs 1040ez 2011 Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. Irs 1040ez 2011 More than 50% ownership. Irs 1040ez 2011   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. Irs 1040ez 2011 An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. Irs 1040ez 2011 An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. Irs 1040ez 2011 For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. Irs 1040ez 2011 If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. Irs 1040ez 2011 However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. Irs 1040ez 2011 Example. Irs 1040ez 2011 Individuals A and B and Trust T are equal partners in Partnership ABT. Irs 1040ez 2011 A's husband, AH, is the sole beneficiary of Trust T. Irs 1040ez 2011 Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. Irs 1040ez 2011 As a result, A is a more-than-50% partner. Irs 1040ez 2011 This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. Irs 1040ez 2011 More information. Irs 1040ez 2011   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Irs 1040ez 2011 Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. Irs 1040ez 2011 This applies whether a partnership is being formed or is already operating. Irs 1040ez 2011 The partnership's holding period for the property includes the partner's holding period. Irs 1040ez 2011 The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. Irs 1040ez 2011 The exchange is not subject to the rules explained later under Disposition of Partner's Interest. Irs 1040ez 2011 Disguised sales. Irs 1040ez 2011   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. Irs 1040ez 2011 The distribution would not have been made but for the contribution. Irs 1040ez 2011 The partner's right to the distribution does not depend on the success of partnership operations. Irs 1040ez 2011   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. Irs 1040ez 2011 However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. Irs 1040ez 2011 If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. Irs 1040ez 2011 Form 8275 required. Irs 1040ez 2011   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. Irs 1040ez 2011 For exceptions to this requirement, see section 1. Irs 1040ez 2011 707-3(c)(2) of the regulations. Irs 1040ez 2011   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. Irs 1040ez 2011   Form 8275 must include the following information. Irs 1040ez 2011 A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. Irs 1040ez 2011 A description of the transferred property or money, including its value. Irs 1040ez 2011 A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. Irs 1040ez 2011 See section 1. Irs 1040ez 2011 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. Irs 1040ez 2011 Contribution to partnership treated as investment company. Irs 1040ez 2011   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. Irs 1040ez 2011   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. Irs 1040ez 2011 These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. Irs 1040ez 2011 For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. Irs 1040ez 2011 Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. Irs 1040ez 2011   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. Irs 1040ez 2011 Contribution to foreign partnership. Irs 1040ez 2011   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. Irs 1040ez 2011 Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. Irs 1040ez 2011 The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. Irs 1040ez 2011   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. Irs 1040ez 2011 See the form instructions for more information. Irs 1040ez 2011 Basis of contributed property. Irs 1040ez 2011   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. Irs 1040ez 2011 Allocations to account for built-in gain or loss. Irs 1040ez 2011   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. Irs 1040ez 2011 The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. Irs 1040ez 2011 This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. Irs 1040ez 2011   The partnership can use different allocation methods for different items of contributed property. Irs 1040ez 2011 A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. Irs 1040ez 2011 See section 1. Irs 1040ez 2011 704-3 of the regulations for allocation methods generally considered reasonable. Irs 1040ez 2011   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. Irs 1040ez 2011 If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. Irs 1040ez 2011 However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. Irs 1040ez 2011 Example. Irs 1040ez 2011 Areta and Sofia formed an equal partnership. Irs 1040ez 2011 Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. Irs 1040ez 2011 The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. Irs 1040ez 2011 In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. Irs 1040ez 2011 Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. Irs 1040ez 2011 To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. Irs 1040ez 2011 However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. Irs 1040ez 2011 The entire $400 must be allocated to Areta. Irs 1040ez 2011 Distribution of contributed property to another partner. Irs 1040ez 2011   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. Irs 1040ez 2011   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. Irs 1040ez 2011 This amount is the difference between the property's basis and its fair market value at the time of contribution. Irs 1040ez 2011 The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. Irs 1040ez 2011 Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. Irs 1040ez 2011 Disposition of certain contributed property. Irs 1040ez 2011   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. Irs 1040ez 2011 Unrealized receivables. Irs 1040ez 2011 If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. Irs 1040ez 2011 Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. Irs 1040ez 2011 When reading the definition, substitute “partner” for “partnership. Irs 1040ez 2011 ” Inventory items. Irs 1040ez 2011 If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. Irs 1040ez 2011 Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. Irs 1040ez 2011 Capital loss property. Irs 1040ez 2011 If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. Irs 1040ez 2011 The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. Irs 1040ez 2011 Substituted basis property. Irs 1040ez 2011 If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. Irs 1040ez 2011 Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. Irs 1040ez 2011 Capital interest. Irs 1040ez 2011   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. Irs 1040ez 2011 This determination generally is made at the time of receipt of the partnership interest. Irs 1040ez 2011 The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. Irs 1040ez 2011 The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. Irs 1040ez 2011   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. Irs 1040ez 2011 Profits interest. Irs 1040ez 2011   A profits interest is a partnership interest other than a capital interest. Irs 1040ez 2011 If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. Irs 1040ez 2011 However, this does not apply in the following situations. Irs 1040ez 2011 The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. Irs 1040ez 2011 Within 2 years of receipt, the partner disposes of the profits interest. Irs 1040ez 2011 The profits interest is a limited partnership interest in a publicly traded partnership. Irs 1040ez 2011   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. Irs 1040ez 2011 Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. Irs 1040ez 2011 If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. Irs 1040ez 2011 Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. Irs 1040ez 2011 Interest acquired by gift, etc. Irs 1040ez 2011   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. Irs 1040ez 2011 Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). Irs 1040ez 2011 The basis of an interest in a partnership is increased or decreased by certain items. Irs 1040ez 2011 Increases. Irs 1040ez 2011   A partner's basis is increased by the following items. Irs 1040ez 2011 The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. Irs 1040ez 2011 The partner's distributive share of taxable and nontaxable partnership income. Irs 1040ez 2011 The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. Irs 1040ez 2011 Decreases. Irs 1040ez 2011   The partner's basis is decreased (but never below zero) by the following items. Irs 1040ez 2011 The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. Irs 1040ez 2011 The partner's distributive share of the partnership losses (including capital losses). Irs 1040ez 2011 The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. Irs 1040ez 2011 This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. Irs 1040ez 2011 The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. Irs 1040ez 2011 Partner's liabilities assumed by partnership. Irs 1040ez 2011   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. Irs 1040ez 2011 This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. Irs 1040ez 2011 The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. Irs 1040ez 2011 See Effect of Partnership Liabilities , later. Irs 1040ez 2011 Example 1. Irs 1040ez 2011 Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. Irs 1040ez 2011 The partnership assumed payment of the mortgage. Irs 1040ez 2011 The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. Irs 1040ez 2011 If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. Irs 1040ez 2011 The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. Irs 1040ez 2011 However, this gain would not increase the basis of his partnership interest. Irs 1040ez 2011 Book value of partner's interest. Irs 1040ez 2011   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. Irs 1040ez 2011 Example. Irs 1040ez 2011 Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. Irs 1040ez 2011 His partner contributes $1,000 cash. Irs 1040ez 2011 While each partner has increased his capital account by $1,000, which will be re