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Irs Ez Form 2011

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Irs Ez Form 2011

Irs ez form 2011 3. Irs ez form 2011   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. Irs ez form 2011 Other income (nonpassive income). Irs ez form 2011 Expenses. Irs ez form 2011 Additional information. Irs ez form 2011 Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. Irs ez form 2011 Basis. Irs ez form 2011 How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. Irs ez form 2011 Including mutual fund or REMIC expenses in income. Irs ez form 2011 Nondeductible ExpensesUsed as collateral. Irs ez form 2011 Short-sale expenses. Irs ez form 2011 Expenses for both tax-exempt and taxable income. Irs ez form 2011 State income taxes. Irs ez form 2011 Nondeductible amount. Irs ez form 2011 Basis adjustment. Irs ez form 2011 How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . Irs ez form 2011 Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Irs ez form 2011 Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. Irs ez form 2011 The at-risk rules and passive activity rules are explained briefly in this section. Irs ez form 2011 The limit on investment interest is explained later in this chapter under Interest Expenses . Irs ez form 2011 The 2% limit is explained later in this chapter under Expenses of Producing Income . Irs ez form 2011 At-risk rules. Irs ez form 2011   Special at-risk rules apply to most income-producing activities. Irs ez form 2011 These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. Irs ez form 2011 Generally, this is the cash and the adjusted basis of property you contribute to the activity. Irs ez form 2011 It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. Irs ez form 2011 For more information, see Publication 925. Irs ez form 2011 Passive activity losses and credits. Irs ez form 2011   The amount of losses and tax credits you can claim from passive activities is limited. Irs ez form 2011 Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. Irs ez form 2011 Also, you can use credits from passive activities only against tax on the income from passive activities. Irs ez form 2011 There are exceptions for certain activities, such as rental real estate activities. Irs ez form 2011 Passive activity. Irs ez form 2011   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. Irs ez form 2011 However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. Irs ez form 2011 More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. Irs ez form 2011 You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. Irs ez form 2011  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. Irs ez form 2011 However, it does not include rental activities or certain activities treated as incidental to holding property for investment. Irs ez form 2011   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. Irs ez form 2011 Other income (nonpassive income). Irs ez form 2011    Generally, you can use losses from passive activities only to offset income from passive activities. Irs ez form 2011 You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. Irs ez form 2011 Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. Irs ez form 2011 It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. Irs ez form 2011 This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. Irs ez form 2011   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. Irs ez form 2011 Expenses. Irs ez form 2011   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. Irs ez form 2011 However, this interest and other expenses may be subject to other limits. Irs ez form 2011 These limits are explained in the rest of this chapter. Irs ez form 2011 Additional information. Irs ez form 2011   For more information about determining and reporting income and losses from passive activities, see Publication 925. Irs ez form 2011 Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. Irs ez form 2011 For information on business interest, see chapter 4 of Publication 535. Irs ez form 2011 You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. Irs ez form 2011 Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Irs ez form 2011 You can deduct investment interest subject to the limit discussed later. Irs ez form 2011 However, you cannot deduct interest you incurred to produce tax-exempt income. Irs ez form 2011 See Tax-exempt income under Nondeductible Expenses, later. Irs ez form 2011 You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. Irs ez form 2011 Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Irs ez form 2011 Investment property. Irs ez form 2011   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Irs ez form 2011 It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Irs ez form 2011 Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Irs ez form 2011 Partners, shareholders, and beneficiaries. Irs ez form 2011   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Irs ez form 2011 Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Irs ez form 2011 Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Irs ez form 2011 The allocation is not affected by the use of property that secures the debt. Irs ez form 2011 Example 1. Irs ez form 2011 You borrow $10,000 and use $8,000 to buy stock. Irs ez form 2011 You use the other $2,000 to buy items for your home. Irs ez form 2011 Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. Irs ez form 2011 The other 20% is nondeductible personal interest. Irs ez form 2011 Debt proceeds received in cash. Irs ez form 2011   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. Irs ez form 2011 Debt proceeds deposited in account. Irs ez form 2011   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. Irs ez form 2011 But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. Irs ez form 2011 Example 2. Irs ez form 2011 Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. Irs ez form 2011 You did not buy the household items until June 1. Irs ez form 2011 You had deposited the $2,000 in the bank. Irs ez form 2011 You had no other transactions on the bank account until June. Irs ez form 2011 You did not sell the stock, and you made no principal payments on the debt. Irs ez form 2011 You paid interest from another account. Irs ez form 2011 The $8,000 is treated as being used for an investment purpose. Irs ez form 2011 The $2,000 is treated as being used for an investment purpose for the 3-month period. Irs ez form 2011 Your total interest expense for 3 months on this debt is investment interest. Irs ez form 2011 In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. Irs ez form 2011 Amounts paid within 30 days. Irs ez form 2011   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Irs ez form 2011 This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Irs ez form 2011   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Irs ez form 2011 Payments on debt may require new allocation. Irs ez form 2011   As you repay a debt used for more than one purpose, you must reallocate the balance. Irs ez form 2011 You must first reduce the amount allocated to personal purposes by the repayment. Irs ez form 2011 You then reallocate the rest of the debt to find what part is for investment purposes. Irs ez form 2011 Example 3. Irs ez form 2011 If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. Irs ez form 2011 The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. Irs ez form 2011 Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. Irs ez form 2011 Pass-through entities. Irs ez form 2011   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. Irs ez form 2011 If you contribute to the capital of the entity, you can make the allocation using any reasonable method. Irs ez form 2011 Additional allocation rules. Irs ez form 2011   For more information about allocating interest expense, see chapter 4 of Publication 535. Irs ez form 2011 When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. Irs ez form 2011 If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. Irs ez form 2011 For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. Irs ez form 2011 Example. Irs ez form 2011 You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. Irs ez form 2011 On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. Irs ez form 2011 If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. Irs ez form 2011 If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. Irs ez form 2011 Interest paid in advance. Irs ez form 2011   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. Irs ez form 2011 You can deduct in each year only the interest for that year. Irs ez form 2011 Interest on margin accounts. Irs ez form 2011   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. Irs ez form 2011 You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. Irs ez form 2011 Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. Irs ez form 2011   You cannot deduct any interest on money borrowed for personal reasons. Irs ez form 2011 Limit on interest deduction for market discount bonds. Irs ez form 2011   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. Irs ez form 2011 This limit does not apply if you accrue the market discount and include it in your income currently. Irs ez form 2011   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. Irs ez form 2011 Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . Irs ez form 2011 Interest not deducted due to limit. Irs ez form 2011   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. Irs ez form 2011 Choosing to deduct disallowed interest expense before the year of disposition. Irs ez form 2011   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. Irs ez form 2011 The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. Irs ez form 2011 Net interest income. Irs ez form 2011   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. Irs ez form 2011 Limit on interest deduction for short-term obligations. Irs ez form 2011   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. Irs ez form 2011   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). Irs ez form 2011 The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . Irs ez form 2011 Interest not deducted due to limit. Irs ez form 2011   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. Irs ez form 2011 Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. Irs ez form 2011 Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. Irs ez form 2011 You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. Irs ez form 2011 The interest carried over is treated as investment interest paid or accrued in that next year. Irs ez form 2011 You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Irs ez form 2011 Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Irs ez form 2011 Investment income. Irs ez form 2011   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Irs ez form 2011 Investment income does not include Alaska Permanent Fund dividends. Irs ez form 2011 It also does not include qualified dividends or net capital gain unless you choose to include them. Irs ez form 2011 Choosing to include qualified dividends. Irs ez form 2011   Investment income generally does not include qualified dividends, discussed in chapter 1. Irs ez form 2011 However, you can choose to include all or part of your qualified dividends in investment income. Irs ez form 2011   You make this choice by completing Form 4952, line 4g, according to its instructions. Irs ez form 2011   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Irs ez form 2011 Choosing to include net capital gain. Irs ez form 2011    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Irs ez form 2011 However, you can choose to include all or part of your net capital gain in investment income. Irs ez form 2011   You make this choice by completing Form 4952, line 4g, according to its instructions. Irs ez form 2011   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Irs ez form 2011   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. Irs ez form 2011    Before making either choice, consider the overall effect on your tax liability. Irs ez form 2011 Compare your tax if you make one or both of these choices with your tax if you do not. Irs ez form 2011 Investment income of child reported on parent's return. Irs ez form 2011   Investment income includes the part of your child's interest and dividend income you choose to report on your return. Irs ez form 2011 If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. Irs ez form 2011 Include it on line 4a of Form 4952. Irs ez form 2011 Example. Irs ez form 2011 Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. Irs ez form 2011 You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. Irs ez form 2011 Also enter $200 on Form 1040, line 21. Irs ez form 2011 Your investment income includes this $200. Irs ez form 2011 Child's qualified dividends. Irs ez form 2011   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Irs ez form 2011 However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Irs ez form 2011   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Irs ez form 2011 Child's Alaska Permanent Fund dividends. Irs ez form 2011   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Irs ez form 2011 To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Irs ez form 2011 Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Irs ez form 2011 Subtract the result from the amount on Form 8814, line 12. Irs ez form 2011 Example. Irs ez form 2011 Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. Irs ez form 2011 You choose to report this on your return. Irs ez form 2011 You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. Irs ez form 2011 You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. Irs ez form 2011 You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. Irs ez form 2011 Child's capital gain distributions. Irs ez form 2011   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. Irs ez form 2011 However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Irs ez form 2011   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Irs ez form 2011 Investment expenses. Irs ez form 2011   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Irs ez form 2011 Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Irs ez form 2011 Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. Irs ez form 2011 See Expenses of Producing Income , later, for a discussion of the 2% limit. Irs ez form 2011 Losses from passive activities. Irs ez form 2011   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Irs ez form 2011 See Publication 925 for information about passive activities. Irs ez form 2011 Example. Irs ez form 2011 Ted is a partner in a partnership that operates a business. Irs ez form 2011 However, he does not materially participate in the partnership's business. Irs ez form 2011 Ted's interest in the partnership is considered a passive activity. Irs ez form 2011 Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. Irs ez form 2011 His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. Irs ez form 2011 His investment interest expense is $8,000. Irs ez form 2011 Ted also has income from the partnership of $2,000. Irs ez form 2011 Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. Irs ez form 2011 His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. Irs ez form 2011 Form 4952 Use Form 4952 to figure your deduction for investment interest. Irs ez form 2011 See Form 4952 for more information. Irs ez form 2011 Exception to use of Form 4952. Irs ez form 2011   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Irs ez form 2011 Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Irs ez form 2011 You do not have any other deductible investment expenses. Irs ez form 2011 You have no carryover of investment interest expense from 2012. Irs ez form 2011   If you meet all of these tests, you can deduct all of your investment interest. Irs ez form 2011    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. Irs ez form 2011 If the bond yields taxable interest, you can choose to amortize the premium. Irs ez form 2011 This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. Irs ez form 2011 If you make this choice, you must reduce your basis in the bond by the amortization for the year. Irs ez form 2011 If the bond yields tax-exempt interest, you must amortize the premium. Irs ez form 2011 This amortized amount is not deductible in determining taxable income. Irs ez form 2011 However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. Irs ez form 2011 Bond premium. Irs ez form 2011   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). Irs ez form 2011 For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. Irs ez form 2011 Special rules to determine amounts payable on a bond. Irs ez form 2011   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Irs ez form 2011 171-3. Irs ez form 2011 Basis. Irs ez form 2011   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. Irs ez form 2011 However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. Irs ez form 2011 See Regulations section 1. Irs ez form 2011 171-1(e). Irs ez form 2011 Dealers. Irs ez form 2011   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. Irs ez form 2011   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. Irs ez form 2011 How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. Irs ez form 2011 Constant yield method. Irs ez form 2011   Figure the bond premium amortization for each accrual period as follows. Irs ez form 2011 Step 1: Determine your yield. Irs ez form 2011   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. Irs ez form 2011 Figure the yield as of the date you got the bond. Irs ez form 2011 It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. Irs ez form 2011   If you do not know the yield, consult your broker or tax advisor. Irs ez form 2011 Databases available to them are likely to show the yield at the date of purchase. Irs ez form 2011 Step 2: Determine the accrual periods. Irs ez form 2011   You can choose the accrual periods to use. Irs ez form 2011 They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. Irs ez form 2011 The computation is simplest if accrual periods are the same as the intervals between interest payment dates. Irs ez form 2011 Step 3: Determine the bond premium for the accrual period. Irs ez form 2011   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. Irs ez form 2011 Then subtract the result from the qualified stated interest for the period. Irs ez form 2011   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. Irs ez form 2011 After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. Irs ez form 2011 Example. Irs ez form 2011 On February 1, 2012, you bought a taxable bond for $110,000. Irs ez form 2011 The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). Irs ez form 2011 The bond pays qualified stated interest of $10,000 on February 1 of each year. Irs ez form 2011 Your yield is 8. Irs ez form 2011 07439% compounded annually. Irs ez form 2011 You choose to use annual accrual periods ending on February 1 of each year. Irs ez form 2011 To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. Irs ez form 2011 When you subtract the result ($8,881. Irs ez form 2011 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. Irs ez form 2011 17. Irs ez form 2011 Special rules to figure amortization. Irs ez form 2011   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Irs ez form 2011 171-3. Irs ez form 2011 Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. Irs ez form 2011 Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. Irs ez form 2011 Straight-line method. Irs ez form 2011   Under this method, the amount of your bond premium amortization is the same each month. Irs ez form 2011 Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. Irs ez form 2011 Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). Irs ez form 2011 This gives you your bond premium amortization for the year. Irs ez form 2011 Revenue Ruling 82-10 method. Irs ez form 2011   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. Irs ez form 2011 This method is explained in Revenue Ruling 82-10, 1982-1 C. Irs ez form 2011 B. Irs ez form 2011 46. Irs ez form 2011 Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. Irs ez form 2011 You should attach a statement to your return that you are making this choice under section 171. Irs ez form 2011 See How To Report Amortization, next. Irs ez form 2011 This choice is binding for the year you make it and for later tax years. Irs ez form 2011 It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. Irs ez form 2011 You can change your decision to amortize bond premium only with the written approval of the IRS. Irs ez form 2011 To request approval, use Form 3115. Irs ez form 2011 For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. Irs ez form 2011 You can find Revenue Procedure 2011-14 at www. Irs ez form 2011 irs. Irs ez form 2011 gov/irb/2011-04_IRB/ar08. Irs ez form 2011 html. Irs ez form 2011 How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. Irs ez form 2011 Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Irs ez form 2011 Under your last entry on line 1, put a subtotal of all interest listed on line 1. Irs ez form 2011 Below this subtotal, print “ABP Adjustment,” and the total interest you received. Irs ez form 2011 Subtract this amount from the subtotal, and enter the result on line 2. Irs ez form 2011 Bond premium amortization more than interest. Irs ez form 2011   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. Irs ez form 2011    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Irs ez form 2011 Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. Irs ez form 2011 Pre-1998 election to amortize bond premium. Irs ez form 2011   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. Irs ez form 2011 Bonds acquired before October 23, 1986. Irs ez form 2011   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. Irs ez form 2011 Bonds acquired after October 22, 1986, but before 1988. Irs ez form 2011    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. Irs ez form 2011 Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). Irs ez form 2011 To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. Irs ez form 2011 The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. Irs ez form 2011 The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. Irs ez form 2011 The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. Irs ez form 2011 For information on how to report expenses of producing income, see How To Report Investment Expenses , later. Irs ez form 2011 Attorney or accounting fees. Irs ez form 2011   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. Irs ez form 2011 However, in some cases, attorney or accounting fees are part of the basis of property. Irs ez form 2011 See Basis of Investment Property in chapter 4. Irs ez form 2011 Automatic investment service and dividend reinvestment plans. Irs ez form 2011   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. Irs ez form 2011 Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. Irs ez form 2011 Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. Irs ez form 2011   A corporation in which you own stock also may have a dividend reinvestment plan. Irs ez form 2011 This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. Irs ez form 2011   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. Irs ez form 2011 If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. Irs ez form 2011 Deduct the charges in the year you pay them. Irs ez form 2011 Clerical help and office rent. Irs ez form 2011   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. Irs ez form 2011 Cost of replacing missing securities. Irs ez form 2011   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. Irs ez form 2011 You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. Irs ez form 2011   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. Irs ez form 2011 Under certain types of insurance policies, you can recover some of the expenses. Irs ez form 2011   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. Irs ez form 2011 If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. Irs ez form 2011 Fees to collect income. Irs ez form 2011   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. Irs ez form 2011 Fees to buy or sell. Irs ez form 2011   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. Irs ez form 2011 You must add the fee to the cost of the property. Irs ez form 2011 See Basis of Investment Property in chapter 4. Irs ez form 2011    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. Irs ez form 2011 They can be used only to figure gain or loss from the sale. Irs ez form 2011 See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. Irs ez form 2011 Investment counsel and advice. Irs ez form 2011   You can deduct fees you pay for counsel and advice about investments that produce taxable income. Irs ez form 2011 This includes amounts you pay for investment advisory services. Irs ez form 2011 Safe deposit box rent. Irs ez form 2011   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. Irs ez form 2011 If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. Irs ez form 2011 See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. Irs ez form 2011 State and local transfer taxes. Irs ez form 2011   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. Irs ez form 2011 If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. Irs ez form 2011 If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. Irs ez form 2011 Trustee's commissions for revocable trust. Irs ez form 2011   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. Irs ez form 2011 However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. Irs ez form 2011   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. Irs ez form 2011 You cannot deduct the entire amount in the year you pay it. Irs ez form 2011 Investment expenses from pass-through entities. Irs ez form 2011   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. Irs ez form 2011 A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). Irs ez form 2011 A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). Irs ez form 2011 Publicly-offered mutual funds are discussed later. Irs ez form 2011   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. Irs ez form 2011 Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). Irs ez form 2011   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. Irs ez form 2011 Including mutual fund or REMIC expenses in income. Irs ez form 2011   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. Irs ez form 2011 You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. Irs ez form 2011 If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). Irs ez form 2011 If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. Irs ez form 2011 If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. Irs ez form 2011 Publicly-offered mutual funds. Irs ez form 2011   Most mutual funds are publicly offered. Irs ez form 2011 These mutual funds, generally, are traded on an established securities exchange. Irs ez form 2011 These funds do not pass investment expenses through to you. Irs ez form 2011 Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. Irs ez form 2011 As a result, you cannot deduct the expenses on your return. Irs ez form 2011   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. Irs ez form 2011    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. Irs ez form 2011 Contact your mutual fund if you are not sure whether it is publicly offered. Irs ez form 2011 Nondeductible Expenses Some expenses that you incur as an investor are not deductible. Irs ez form 2011 Stockholders' meetings. Irs ez form 2011   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. Irs ez form 2011 This is true even if your purpose in attending is to get information that would be useful in making further investments. Irs ez form 2011 Investment-related seminar. Irs ez form 2011   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. Irs ez form 2011 Single-premium life insurance, endowment, and annuity contracts. Irs ez form 2011   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. Irs ez form 2011 Used as collateral. Irs ez form 2011   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. Irs ez form 2011 Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. Irs ez form 2011 Borrowing on insurance. Irs ez form 2011   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. Irs ez form 2011 This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. Irs ez form 2011 Tax-exempt income. Irs ez form 2011   You cannot deduct expenses you incur to produce tax-exempt income. Irs ez form 2011 Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. Irs ez form 2011 Short-sale expenses. Irs ez form 2011   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. Irs ez form 2011 However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. Irs ez form 2011 Short sales are discussed in Short Sales in chapter 4. Irs ez form 2011 Expenses for both tax-exempt and taxable income. Irs ez form 2011   You may have expenses that are for both tax-exempt and taxable income. Irs ez form 2011 If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. Irs ez form 2011 You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. Irs ez form 2011   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. Irs ez form 2011 If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. Irs ez form 2011 To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. Irs ez form 2011 Example. Irs ez form 2011 You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. Irs ez form 2011 In earning this income, you had $500 of expenses. Irs ez form 2011 You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. Irs ez form 2011 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. Irs ez form 2011 You cannot deduct $400 (80% of $500) of the expenses. Irs ez form 2011 You can deduct $100 (the rest of the expenses) because they are for the taxable interest. Irs ez form 2011 State income taxes. Irs ez form 2011   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. Irs ez form 2011 But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. Irs ez form 2011 Interest expense and carrying charges on straddles. Irs ez form 2011   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. Irs ez form 2011 The nondeductible interest and carrying charges are added to the basis of the straddle property. Irs ez form 2011 However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. Irs ez form 2011  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. Irs ez form 2011   Interest includes any amount you pay or incur in connection with personal property used in a short sale. Irs ez form 2011 However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. Irs ez form 2011   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). Irs ez form 2011 Nondeductible amount. Irs ez form 2011   Figure the nondeductible interest and carrying charges on straddle property as follows. Irs ez form 2011 Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. Irs ez form 2011 Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. Irs ez form 2011 Basis adjustment. Irs ez form 2011   Add the nondeductible amount to the basis of your straddle property. Irs ez form 2011 How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Irs ez form 2011 Enter your deductible investment interest expense on Schedule A (Form1040), line 14. Irs ez form 2011 Include any deductible short sale expenses. Irs ez form 2011 (See Short Sales in chapter 4 for information on these expenses. Irs ez form 2011 ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. Irs ez form 2011 Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. Irs ez form 2011 List the type and amount of each expense on the dotted lines next to line 23. Irs ez form 2011 (If necessary, you can show the required information on an attached statement. Irs ez form 2011 ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. Irs ez form 2011 When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. Irs ez form 2011 If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. Irs ez form 2011 Also see When To Deduct Investment Interest , earlier in this chapter. Irs ez form 2011 Unpaid expenses owed to related party. Irs ez form 2011   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. Irs ez form 2011 The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. Irs ez form 2011 If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. Irs ez form 2011   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . Irs ez form 2011 It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. Irs ez form 2011   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. Irs ez form 2011 This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. Irs ez form 2011 Prev  Up  Next   Home   More Online Publications
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The Irs Ez Form 2011

Irs ez form 2011 Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. Irs ez form 2011 The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. Irs ez form 2011 If you are requesting relief for more than three tax years, you must file an additional Form 8857. Irs ez form 2011 The IRS will review your Form 8857 and let you know if you qualify. Irs ez form 2011 A completed Form 8857 is shown later. Irs ez form 2011 When to file Form 8857. Irs ez form 2011   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. Irs ez form 2011 The following are some of the ways you may become aware of such a liability. Irs ez form 2011 The IRS is examining your tax return and proposing to increase your tax liability. Irs ez form 2011 The IRS sends you a notice. Irs ez form 2011   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. Irs ez form 2011 (But see the exceptions below for different filing deadlines that apply. Irs ez form 2011 ) For this reason, do not delay filing because you do not have all the documentation. Irs ez form 2011   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. Irs ez form 2011 The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. Irs ez form 2011 This includes the filing of a proof of claim in a bankruptcy proceeding. Irs ez form 2011 The filing of a suit by the United States against you to collect the joint liability. Irs ez form 2011 The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. Irs ez form 2011 The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. Irs ez form 2011 Exception for equitable relief. Irs ez form 2011   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. Irs ez form 2011 irs. Irs ez form 2011 gov/irb/2011-32_IRB/ar11. Irs ez form 2011 html) expanding the amount of time to request equitable relief. Irs ez form 2011 The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Irs ez form 2011 Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. Irs ez form 2011 In certain cases, the 10-year period is suspended. Irs ez form 2011 The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. Irs ez form 2011 See Pub. Irs ez form 2011 594, The IRS Collection Process, for details. Irs ez form 2011 Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Irs ez form 2011 But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. Irs ez form 2011 See Pub. Irs ez form 2011 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. Irs ez form 2011 Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. Irs ez form 2011 Exception for relief based on community property laws. Irs ez form 2011   If you are requesting relief based on community property laws, a different filing deadline applies. Irs ez form 2011 See Relief from liability arising from community property law discussed later under Community Property Laws . Irs ez form 2011 Form 8857 filed by or on behalf of a decedent. Irs ez form 2011   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. Irs ez form 2011 An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. Irs ez form 2011 For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. Irs ez form 2011 Situations in which you are not entitled to relief. Irs ez form 2011   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. Irs ez form 2011 In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. Irs ez form 2011 In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. Irs ez form 2011 You entered into an offer in compromise with the IRS. Irs ez form 2011 You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. Irs ez form 2011 Exception for agreements relating to TEFRA partnership proceedings. Irs ez form 2011   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. Irs ez form 2011 (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. Irs ez form 2011 ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). Irs ez form 2011 Transferee liability not affected by innocent spouse relief provisions. Irs ez form 2011   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. Irs ez form 2011 Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. Irs ez form 2011 Example. Irs ez form 2011 Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. Irs ez form 2011 Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. Irs ez form 2011 In August 2010, the IRS assessed a deficiency for the 2008 return. Irs ez form 2011 The items causing the deficiency belong to Herb. Irs ez form 2011 Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. Irs ez form 2011 However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. Irs ez form 2011 The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. Irs ez form 2011 There are no exceptions, even for victims of spousal abuse or domestic violence. Irs ez form 2011 We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. Irs ez form 2011 If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. Irs ez form 2011 However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. Irs ez form 2011 If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. Irs ez form 2011 Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. Irs ez form 2011 The IRS sends you a final determination letter regarding your request for relief. Irs ez form 2011 You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. Irs ez form 2011 If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. Irs ez form 2011 The United States Tax Court is an independent judicial body and is not part of the IRS. Irs ez form 2011 You must file a petition with the United States Tax Court in order for it to review your request for relief. Irs ez form 2011 You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. Irs ez form 2011 If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. Irs ez form 2011 You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. Irs ez form 2011 ustaxcourt. Irs ez form 2011 gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. Irs ez form 2011 Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Irs ez form 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. Irs ez form 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Irs ez form 2011 Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. Irs ez form 2011 Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. Irs ez form 2011 You did not file a joint return for the tax year. Irs ez form 2011 You did not include the item of community income in gross income. Irs ez form 2011 The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Irs ez form 2011 Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Irs ez form 2011 Your spouse's (or former spouse's) distributive share of partnership income. Irs ez form 2011 Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Irs ez form 2011 Use the appropriate community property law to determine what is separate property. Irs ez form 2011 Any other income that belongs to your spouse (or former spouse) under community property law. Irs ez form 2011 You establish that you did not know of, and had no reason to know of, that community income. Irs ez form 2011 See  Actual Knowledge or Reason To Know , below. Irs ez form 2011 Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Irs ez form 2011 See Indications of unfairness for liability arising from community property law, later. Irs ez form 2011 Actual knowledge or reason to know. Irs ez form 2011   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. Irs ez form 2011 Amount of community income unknown. Irs ez form 2011   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. Irs ez form 2011 Not knowing the specific amount is not a basis for relief. Irs ez form 2011 Reason to know. Irs ez form 2011   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. Irs ez form 2011 The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. Irs ez form 2011 The financial situation of you and your spouse (or former spouse). Irs ez form 2011 Your educational background and business experience. Irs ez form 2011 Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Irs ez form 2011 Indications of unfairness for liability arising from community property law. Irs ez form 2011   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. Irs ez form 2011   The following are examples of factors the IRS will consider. Irs ez form 2011 Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). Irs ez form 2011 Whether your spouse (or former spouse) deserted you. Irs ez form 2011 Whether you and your spouse have been divorced or separated. Irs ez form 2011  For other factors see Factors for Determining Whether To Grant Equitable Relief later. Irs ez form 2011 Benefit from omitted item of community income. Irs ez form 2011   A benefit includes normal support, but does not include de minimis (small) amounts. Irs ez form 2011 Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. Irs ez form 2011   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. Irs ez form 2011 Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). Irs ez form 2011 How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. Irs ez form 2011 Fill in Form 8857 according to the instructions. Irs ez form 2011 For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. Irs ez form 2011 However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. Irs ez form 2011 The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. Irs ez form 2011 Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Irs ez form 2011 Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). Irs ez form 2011 However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. Irs ez form 2011 The IRS can collect these amounts from either you or your spouse (or former spouse). Irs ez form 2011 You must meet all of the following conditions to qualify for innocent spouse relief. Irs ez form 2011 You filed a joint return. Irs ez form 2011 There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). Irs ez form 2011 You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). Irs ez form 2011 See Actual Knowledge or Reason To Know, later. Irs ez form 2011 Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. Irs ez form 2011 See Indications of Unfairness for Innocent Spouse Relief , later. Irs ez form 2011 Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. Irs ez form 2011 A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Irs ez form 2011 Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. Irs ez form 2011 Erroneous Items Erroneous items are either of the following. Irs ez form 2011 Unreported income. Irs ez form 2011 This is any gross income item received by your spouse (or former spouse) that is not reported. Irs ez form 2011 Incorrect deduction, credit, or basis. Irs ez form 2011 This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). Irs ez form 2011 The following are examples of erroneous items. Irs ez form 2011 The expense for which the deduction is taken was never paid or incurred. Irs ez form 2011 For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. Irs ez form 2011 The expense does not qualify as a deductible expense. Irs ez form 2011 For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Irs ez form 2011 Fines are not deductible. Irs ez form 2011 No factual argument can be made to support the deductibility of the expense. Irs ez form 2011 For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. Irs ez form 2011 Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. Irs ez form 2011 Actual knowledge. Irs ez form 2011   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Irs ez form 2011 You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Irs ez form 2011 For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. Irs ez form 2011 Reason to know. Irs ez form 2011   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Irs ez form 2011 You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Irs ez form 2011   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. Irs ez form 2011 The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. Irs ez form 2011 The financial situation of you and your spouse (or former spouse). Irs ez form 2011 Your educational background and business experience. Irs ez form 2011 The extent of your participation in the activity that resulted in the erroneous item. Irs ez form 2011 Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. Irs ez form 2011 Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Irs ez form 2011 Partial relief when a portion of erroneous item is unknown. Irs ez form 2011   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. Irs ez form 2011 You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. Irs ez form 2011 Example. Irs ez form 2011 At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. Irs ez form 2011 The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. Irs ez form 2011 You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. Irs ez form 2011 The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. Irs ez form 2011 The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. Irs ez form 2011 Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. Irs ez form 2011 The following are examples of factors the IRS will consider. Irs ez form 2011 Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. Irs ez form 2011 Whether your spouse (or former spouse) deserted you. Irs ez form 2011 Whether you and your spouse have been divorced or separated. Irs ez form 2011 Whether you received a benefit on the return from the understated tax. Irs ez form 2011 For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. Irs ez form 2011 Significant benefit. Irs ez form 2011   A significant benefit is any benefit in excess of normal support. Irs ez form 2011 Normal support depends on your particular circumstances. Irs ez form 2011 Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. Irs ez form 2011 Example. Irs ez form 2011 You receive money from your spouse that is beyond normal support. Irs ez form 2011 The money can be traced to your spouse's lottery winnings that were not reported on your joint return. Irs ez form 2011 You will be considered to have received a significant benefit from that income. Irs ez form 2011 This is true even if your spouse gives you the money several years after he or she received it. Irs ez form 2011 Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). Irs ez form 2011 The understated tax allocated to you is generally the amount you are responsible for. Irs ez form 2011 This type of relief is available only for unpaid liabilities resulting from the understated tax. Irs ez form 2011 Refunds are not allowed. Irs ez form 2011 To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Irs ez form 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Irs ez form 2011 (Under this rule, you are no longer married if you are widowed. Irs ez form 2011 ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. Irs ez form 2011 Members of the same household. Irs ez form 2011   You and your spouse are not members of the same household if you are living apart and are estranged. Irs ez form 2011 However, you and your spouse are considered members of the same household if any of the following conditions are met. Irs ez form 2011 You and your spouse reside in the same dwelling. Irs ez form 2011 You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. Irs ez form 2011 Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Irs ez form 2011 Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. Irs ez form 2011 Burden of proof. Irs ez form 2011   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). Irs ez form 2011 You must also establish the basis for allocating the erroneous items. Irs ez form 2011 Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. Irs ez form 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Irs ez form 2011 A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Irs ez form 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). Irs ez form 2011 For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. Irs ez form 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Irs ez form 2011 See Transfers of Property To Avoid Tax , later. Irs ez form 2011 Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. Irs ez form 2011 You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. Irs ez form 2011 If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. Irs ez form 2011 You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. Irs ez form 2011 (This rule applies whether or not there was a receipt of cash. Irs ez form 2011 ) You knew of the facts that made an incorrect deduction or credit unallowable. Irs ez form 2011 For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. Irs ez form 2011 Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Irs ez form 2011 Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Irs ez form 2011 Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. Irs ez form 2011 Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Irs ez form 2011 Neither is your actual knowledge of how the erroneous item was treated on the tax return. Irs ez form 2011 For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. Irs ez form 2011 Example. Irs ez form 2011 Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. Irs ez form 2011 The IRS audited their return and found that Bill did not report $20,000 of self-employment income. Irs ez form 2011 The additional income resulted in a $6,000 understated tax, plus interest and penalties. Irs ez form 2011 After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. Irs ez form 2011 The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Irs ez form 2011 Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. Irs ez form 2011 Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. Irs ez form 2011 The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. Irs ez form 2011 Factors supporting actual knowledge. Irs ez form 2011   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. Irs ez form 2011 The following are examples of factors the IRS may use. Irs ez form 2011 Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. Irs ez form 2011 Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. Irs ez form 2011 Exception for spousal abuse or domestic violence. Irs ez form 2011   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. Irs ez form 2011   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. Irs ez form 2011 However, you may be required to file a separate return for that tax year. Irs ez form 2011 For more information about duress, see the instructions for Form 8857. Irs ez form 2011 Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. Irs ez form 2011 The increase may not be more than the entire amount of the liability. Irs ez form 2011 A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. Irs ez form 2011 This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. Irs ez form 2011 If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. Irs ez form 2011 Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. Irs ez form 2011 Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. Irs ez form 2011 An underpaid tax is an amount of tax you properly reported on your return but you have not paid. Irs ez form 2011 For example, your joint 2009 return shows that you and your spouse owed $5,000. Irs ez form 2011 You paid $2,000 with the return. Irs ez form 2011 You have an underpaid tax of $3,000. Irs ez form 2011 Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. Irs ez form 2011 You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Irs ez form 2011 You have an understated tax or an underpaid tax. Irs ez form 2011 You did not pay the tax. Irs ez form 2011 However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. Irs ez form 2011 You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. Irs ez form 2011 See Factors for Determining Whether To Grant Equitable Relief, later. Irs ez form 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Irs ez form 2011 A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Irs ez form 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Irs ez form 2011 See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. Irs ez form 2011 You did not file or fail to file your return with the intent to commit fraud. Irs ez form 2011 The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. Irs ez form 2011 If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. Irs ez form 2011 If the item is titled in your name, the item is presumed to be attributable to you. Irs ez form 2011 However, you can rebut this presumption based on the facts and circumstances. Irs ez form 2011 You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. Irs ez form 2011 If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). Irs ez form 2011 You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. Irs ez form 2011 If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. Irs ez form 2011 Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. Irs ez form 2011 The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. Irs ez form 2011 The IRS will consider all factors and weigh them appropriately. Irs ez form 2011 Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. Irs ez form 2011 Whether you are separated (whether legally or not) or divorced from your spouse. Irs ez form 2011 A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. Irs ez form 2011 A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Irs ez form 2011 Whether you would suffer a significant economic hardship if relief is not granted. Irs ez form 2011 (In other words, you would not be able to pay your reasonable basic living expenses. Irs ez form 2011 ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. Irs ez form 2011 This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. Irs ez form 2011 Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. Irs ez form 2011 (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. Irs ez form 2011 ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. Irs ez form 2011 Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. Irs ez form 2011 Knowledge or reason to know. Irs ez form 2011   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. Irs ez form 2011   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. Irs ez form 2011 Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. Irs ez form 2011 Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. Irs ez form 2011 This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. Irs ez form 2011 Reason to know. Irs ez form 2011   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. Irs ez form 2011 Example. Irs ez form 2011 You and your spouse filed a joint 2009 return. Irs ez form 2011 That return showed you owed $10,000. Irs ez form 2011 You had $5,000 of your own money and you took out a loan to pay the other $5,000. Irs ez form 2011 You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Irs ez form 2011 Without telling you, your spouse took the $5,000 loan and spent it on himself. Irs ez form 2011 You and your spouse were divorced in 2010. Irs ez form 2011 In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Irs ez form 2011 These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. Irs ez form 2011 The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. Irs ez form 2011 Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. Irs ez form 2011 Whether your spouse (or former spouse) abused you. Irs ez form 2011 Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. Irs ez form 2011 Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . Irs ez form 2011 Not permitted under separation of liability relief. Irs ez form 2011 Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. Irs ez form 2011 Proof Required The IRS will only refund payments you made with your own money. Irs ez form 2011 However, you must provide proof that you made the payments with your own money. Irs ez form 2011 Examples of proof are a copy of your bank statement or a canceled check. Irs ez form 2011 No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. Irs ez form 2011 Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. Irs ez form 2011 Underpaid tax. Irs ez form 2011   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. Irs ez form 2011 However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. Irs ez form 2011 For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. Irs ez form 2011   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. Irs ez form 2011 Understated tax. Irs ez form 2011   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Irs ez form 2011 You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. Irs ez form 2011 Only installment payments made after the date you filed Form 8857 are eligible for a refund. Irs ez form 2011   The amount of the refund is subject to the limit discussed next. Irs ez form 2011 Limit on Amount of Refund The amount of your refund is limited. Irs ez form 2011 Read the following chart to find out the limit. Irs ez form 2011 IF you file Form 8857. Irs ez form 2011 . Irs ez form 2011 . Irs ez form 2011 THEN the refund cannot be more than. Irs ez form 2011 . Irs ez form 2011 . Irs ez form 2011 Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. Irs ez form 2011 After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. Irs ez form 2011 Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. Irs ez form 2011 Janie and Joe Boulder filed a joint tax return for 2007. Irs ez form 2011 They claimed one dependency exemption for their son Michael. Irs ez form 2011 Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. Irs ez form 2011 Janie did not know about the award when the return was filed. Irs ez form 2011 They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). Irs ez form 2011 Janie and Joe were divorced on May 13, 2009. Irs ez form 2011 In February 2010, Janie filed her 2009 federal income tax return as head of household. Irs ez form 2011 She expected a refund of $1,203. Irs ez form 2011 In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. Irs ez form 2011 Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. Irs ez form 2011 Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. Irs ez form 2011 Janie believes she meets the third condition. Irs ez form 2011 She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. Irs ez form 2011 Janie believes she meets the fourth condition. Irs ez form 2011 She believes it would be unfair to be held liable for the tax because she did not benefit from the award. Irs ez form 2011 Joe spent it on personal items for his use only. Irs ez form 2011 Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. Irs ez form 2011 In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. Irs ez form 2011 Part I Line 1. Irs ez form 2011   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. Irs ez form 2011 Line 2. Irs ez form 2011   She checks the box because she wants a refund. Irs ez form 2011 Note. Irs ez form 2011 Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. Irs ez form 2011 Line 3. Irs ez form 2011   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. Irs ez form 2011 Line 4. Irs ez form 2011   She checks the “Yes” box because she filed a joint tax return for tax year 2007. Irs ez form 2011 Line 5. Irs ez form 2011   She skips this line because she checked the “Yes” box on line 4. Irs ez form 2011 Part II Line 6. Irs ez form 2011   She enters her name, address, social security number, county, and best daytime phone number. Irs ez form 2011 Part III Line 7. Irs ez form 2011   She enters Joe's name, address, social security number, and best daytime phone number. Irs ez form 2011 Line 8. Irs ez form 2011   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. Irs ez form 2011 ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. Irs ez form 2011 Line 9. Irs ez form 2011   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. Irs ez form 2011 Line 10. Irs ez form 2011   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. Irs ez form 2011 Line 11. Irs ez form 2011   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. Irs ez form 2011 Line 12. Irs ez form 2011   She checks the “Yes” box because she signed the 2007 joint tax return. Irs ez form 2011 Line 13. Irs ez form 2011   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. Irs ez form 2011 Part IV Line 14. Irs ez form 2011   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. Irs ez form 2011 ” Line 15. Irs ez form 2011   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. Irs ez form 2011 She explains this in the space provided. Irs ez form 2011 Line 16. Irs ez form 2011   She checks the box, “You knew that person had income” because she knew Joe had income from wages. Irs ez form 2011 She also lists Joe's income. Irs ez form 2011 Under “Type of Income” she enters “wages. Irs ez form 2011 ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. Irs ez form 2011 ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. Irs ez form 2011 ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. Irs ez form 2011 Line 17. Irs ez form 2011   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. Irs ez form 2011 Line 18. Irs ez form 2011   She checks the “No” box because, when the return was signed, she was not having financial problems. Irs ez form 2011 Line 19. Irs ez form 2011   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. Irs ez form 2011 She provides additional information in the space provided. Irs ez form 2011 Line 20. Irs ez form 2011   She checks the “No” box because Joe has never transferred money or property to her. Irs ez form 2011 Part V Line 21. Irs ez form 2011   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. Irs ez form 2011 Line 22. Irs ez form 2011   She enters her average monthly income for her entire household. Irs ez form 2011 Line 23. Irs ez form 2011   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. Irs ez form 2011 Signing and mailing Form 8857. Irs ez form 2011    Janie signs and dates the form. Irs ez form 2011 She attaches the copy of her divorce decree (not illustrated) required by line 8. Irs ez form 2011 Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. Irs ez form 2011 This image is too large to be displayed in the current screen. Irs ez form 2011 Please click the link to view the image. Irs ez form 2011 Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. Irs ez form 2011 Please click the link to view the image. Irs ez form 2011 Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. Irs ez form 2011 Please click the link to view the image. Irs ez form 2011 Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. Irs ez form 2011 Please click the link to view the image. Irs ez form 2011 Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. Irs ez form 2011 But do not rely on these flowcharts alone. Irs ez form 2011 Also read the earlier discussions. Irs ez form 2011 Figure A. Irs ez form 2011 Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. Irs ez form 2011 "Do You Qualify for Innocent Spouse Relief?" Figure B. Irs ez form 2011 Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. Irs ez form 2011 "Do You Qualify for Separation of Liability Relief?" Figure C. Irs ez form 2011 Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. Irs ez form 2011 Please click the link to view the image. Irs ez form 2011 "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications