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Tax Form For 2011

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Tax Form For 2011

Tax form for 2011 9. Tax form for 2011   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Tax form for 2011 Depletion unit. Tax form for 2011 Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Tax form for 2011 The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Tax form for 2011 There are two ways of figuring depletion: cost depletion and percentage depletion. Tax form for 2011 For mineral property, you generally must use the method that gives you the larger deduction. Tax form for 2011 For standing timber, you must use cost depletion. Tax form for 2011 Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Tax form for 2011 More than one person can have an economic interest in the same mineral deposit or timber. Tax form for 2011 In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Tax form for 2011 You have an economic interest if both the following apply. Tax form for 2011 You have acquired by investment any interest in mineral deposits or standing timber. Tax form for 2011 You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Tax form for 2011 A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Tax form for 2011 A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Tax form for 2011 Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Tax form for 2011 Basis adjustment for depletion. Tax form for 2011   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Tax form for 2011 Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Tax form for 2011 For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Tax form for 2011 You can treat two or more separate interests as one property or as separate properties. Tax form for 2011 See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Tax form for 2011 There are two ways of figuring depletion on mineral property. Tax form for 2011 Cost depletion. Tax form for 2011 Percentage depletion. Tax form for 2011 Generally, you must use the method that gives you the larger deduction. Tax form for 2011 However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Tax form for 2011 See Oil and Gas Wells , later. Tax form for 2011 Cost Depletion To figure cost depletion you must first determine the following. Tax form for 2011 The property's basis for depletion. Tax form for 2011 The total recoverable units of mineral in the property's natural deposit. Tax form for 2011 The number of units of mineral sold during the tax year. Tax form for 2011 Basis for depletion. Tax form for 2011   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Tax form for 2011 Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Tax form for 2011 The residual value of land and improvements at the end of operations. Tax form for 2011 The cost or value of land acquired for purposes other than mineral production. Tax form for 2011 Adjusted basis. Tax form for 2011   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Tax form for 2011 Your adjusted basis can never be less than zero. Tax form for 2011 See Publication 551, Basis of Assets, for more information on adjusted basis. Tax form for 2011 Total recoverable units. Tax form for 2011   The total recoverable units is the sum of the following. Tax form for 2011 The number of units of mineral remaining at the end of the year (including units recovered but not sold). Tax form for 2011 The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Tax form for 2011   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Tax form for 2011 You must include ores and minerals that are developed, in sight, blocked out, or assured. Tax form for 2011 You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Tax form for 2011 But see Elective safe harbor for owners of oil and gas property , later. Tax form for 2011 Number of units sold. Tax form for 2011   You determine the number of units sold during the tax year based on your method of accounting. Tax form for 2011 Use the following table to make this determination. Tax form for 2011    IF you  use . Tax form for 2011 . Tax form for 2011 . Tax form for 2011 THEN the units sold during the year are . Tax form for 2011 . Tax form for 2011 . Tax form for 2011 The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Tax form for 2011 An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Tax form for 2011   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Tax form for 2011 Figuring the cost depletion deduction. Tax form for 2011   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Tax form for 2011 Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Tax form for 2011 Rate per unit. Tax form for 2011 2 Multiply the rate per unit by units sold during the tax year. Tax form for 2011 Cost depletion deduction. Tax form for 2011 You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Tax form for 2011 Elective safe harbor for owners of oil and gas property. Tax form for 2011   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Tax form for 2011 If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Tax form for 2011 For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Tax form for 2011 irs. Tax form for 2011 gov/pub/irs-irbs/irb04-10. Tax form for 2011 pdf. Tax form for 2011   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Tax form for 2011 The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Tax form for 2011 The election, if made, is effective for the tax year in which it is made and all later years. Tax form for 2011 It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Tax form for 2011 Once revoked, it cannot be re-elected for the next 5 years. Tax form for 2011 Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Tax form for 2011 The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Tax form for 2011 Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Tax form for 2011 Gross income. Tax form for 2011   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Tax form for 2011 Any rents or royalties you paid or incurred for the property. Tax form for 2011 The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Tax form for 2011 A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Tax form for 2011   Use the following fraction to figure the part of the bonus you must subtract. Tax form for 2011 No. Tax form for 2011 of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Tax form for 2011 For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Tax form for 2011 Taxable income limit. Tax form for 2011   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Tax form for 2011   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Tax form for 2011 These deductible items include, but are not limited to, the following. Tax form for 2011 Operating expenses. Tax form for 2011 Certain selling expenses. Tax form for 2011 Administrative and financial overhead. Tax form for 2011 Depreciation. Tax form for 2011 Intangible drilling and development costs. Tax form for 2011 Exploration and development expenditures. Tax form for 2011 Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Tax form for 2011 Losses sustained. Tax form for 2011   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Tax form for 2011 Do not deduct any net operating loss deduction from the gross income from the property. Tax form for 2011 Corporations do not deduct charitable contributions from the gross income from the property. Tax form for 2011 If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Tax form for 2011 See section 1. Tax form for 2011 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Tax form for 2011 Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Tax form for 2011 You are either an independent producer or a royalty owner. Tax form for 2011 The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Tax form for 2011 If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Tax form for 2011 For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Tax form for 2011 Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Tax form for 2011 However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Tax form for 2011 For information on figuring the deduction, see Figuring percentage depletion , later. Tax form for 2011 Refiners who cannot claim percentage depletion. Tax form for 2011   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Tax form for 2011 The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Tax form for 2011 Related person. Tax form for 2011   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Tax form for 2011 For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Tax form for 2011 A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Tax form for 2011 For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Tax form for 2011 The value of the outstanding stock of a corporation. Tax form for 2011 The interest in the profits or capital of a partnership. Tax form for 2011 The beneficial interests in an estate or trust. Tax form for 2011 Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Tax form for 2011 Retailers who cannot claim percentage depletion. Tax form for 2011   You cannot claim percentage depletion if both the following apply. Tax form for 2011 You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Tax form for 2011 Through a retail outlet operated by you or a related person. Tax form for 2011 To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Tax form for 2011 To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Tax form for 2011 The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Tax form for 2011   For the purpose of determining if this rule applies, do not count the following. Tax form for 2011 Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Tax form for 2011 Bulk sales of aviation fuels to the Department of Defense. Tax form for 2011 Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Tax form for 2011 Related person. Tax form for 2011   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Tax form for 2011 Sales through a related person. Tax form for 2011   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Tax form for 2011   You are not considered to be selling through a related person who is a retailer if all the following apply. Tax form for 2011 You do not have a significant ownership interest in the retailer. Tax form for 2011 You sell your production to persons who are not related to either you or the retailer. Tax form for 2011 The retailer does not buy oil or natural gas from your customers or persons related to your customers. Tax form for 2011 There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Tax form for 2011 Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Tax form for 2011 Transferees who cannot claim percentage depletion. Tax form for 2011   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Tax form for 2011 For a definition of the term “transfer,” see section 1. Tax form for 2011 613A-7(n) of the regulations. Tax form for 2011 For a definition of the term “interest in proven oil or gas property,” see section 1. Tax form for 2011 613A-7(p) of the regulations. Tax form for 2011 Figuring percentage depletion. Tax form for 2011   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Tax form for 2011 If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Tax form for 2011 If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Tax form for 2011   In addition, there is a limit on the percentage depletion deduction. Tax form for 2011 See Taxable income limit , later. Tax form for 2011 Average daily production. Tax form for 2011   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Tax form for 2011 Partial interest. Tax form for 2011   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Tax form for 2011   You have a partial interest in the production from a property if you have a net profits interest in the property. Tax form for 2011 To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Tax form for 2011 To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Tax form for 2011 Then multiply the total production from the property by your percentage participation to figure your share of the production. Tax form for 2011 Example. Tax form for 2011 Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Tax form for 2011 During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Tax form for 2011 Javier had expenses of $90,000 attributable to the property. Tax form for 2011 The property generated a net profit of $110,000 ($200,000 − $90,000). Tax form for 2011 Pablo received income of $22,000 ($110,000 × . Tax form for 2011 20) for his net profits interest. Tax form for 2011 Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Tax form for 2011 Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Tax form for 2011 Depletable oil or natural gas quantity. Tax form for 2011   Generally, your depletable oil quantity is 1,000 barrels. Tax form for 2011 Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Tax form for 2011 If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Tax form for 2011 Example. Tax form for 2011 You have both oil and natural gas production. Tax form for 2011 To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Tax form for 2011 Your depletable natural gas quantity is 2. Tax form for 2011 16 million cubic feet of gas (360 × 6000). Tax form for 2011 You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Tax form for 2011 If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Tax form for 2011 Also, see Notice 2012-50, available at www. Tax form for 2011 irs. Tax form for 2011 gov/irb/2012–31_IRB/index. Tax form for 2011 html. Tax form for 2011 Business entities and family members. Tax form for 2011   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Tax form for 2011 Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Tax form for 2011 You and your spouse and minor children. Tax form for 2011 A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Tax form for 2011 Controlled group of corporations. Tax form for 2011   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Tax form for 2011 They share the depletable quantity. Tax form for 2011 A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Tax form for 2011 ” Gross income from the property. Tax form for 2011   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Tax form for 2011 If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Tax form for 2011   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Tax form for 2011   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Tax form for 2011 Average daily production exceeds depletable quantities. Tax form for 2011   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Tax form for 2011 Figure your average daily production of oil or natural gas for the year. Tax form for 2011 Figure your depletable oil or natural gas quantity for the year. Tax form for 2011 Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Tax form for 2011 Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Tax form for 2011 This is your depletion allowance for that property for the year. Tax form for 2011 Taxable income limit. Tax form for 2011   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Tax form for 2011 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Tax form for 2011 For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Tax form for 2011 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Tax form for 2011 You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Tax form for 2011 Add it to your depletion allowance (before applying any limits) for the following year. Tax form for 2011 Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Tax form for 2011 (However, see Electing large partnerships must figure depletion allowance , later. Tax form for 2011 ) Each partner or shareholder must decide whether to use cost or percentage depletion. Tax form for 2011 If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Tax form for 2011 Partner's or shareholder's adjusted basis. Tax form for 2011   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Tax form for 2011 The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Tax form for 2011   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Tax form for 2011 However, in some cases, it is figured according to the partner's interest in partnership income. Tax form for 2011   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Tax form for 2011 Recordkeeping. Tax form for 2011 Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Tax form for 2011 The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Tax form for 2011 The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Tax form for 2011 Reporting the deduction. Tax form for 2011   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Tax form for 2011 Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Tax form for 2011 The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Tax form for 2011 The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Tax form for 2011 Form 6198, At-Risk Limitations. Tax form for 2011 Form 8582, Passive Activity Loss Limitations. Tax form for 2011 Electing large partnerships must figure depletion allowance. Tax form for 2011   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Tax form for 2011 The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Tax form for 2011 Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Tax form for 2011   An electing large partnership is one that meets both the following requirements. Tax form for 2011 The partnership had 100 or more partners in the preceding year. Tax form for 2011 The partnership chooses to be an electing large partnership. Tax form for 2011 Disqualified persons. Tax form for 2011   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Tax form for 2011 Disqualified persons must figure it themselves, as explained earlier. Tax form for 2011   All the following are disqualified persons. Tax form for 2011 Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Tax form for 2011 Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Tax form for 2011 Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Tax form for 2011 Average daily production is discussed earlier. Tax form for 2011 Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Tax form for 2011 Natural gas sold under a fixed contract. Tax form for 2011   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Tax form for 2011 This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Tax form for 2011 The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Tax form for 2011 Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Tax form for 2011 Natural gas from geopressured brine. Tax form for 2011   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Tax form for 2011 This is natural gas that is both the following. Tax form for 2011 Produced from a well you began to drill after September 1978 and before 1984. Tax form for 2011 Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Tax form for 2011 Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Tax form for 2011 Mines and other natural deposits. Tax form for 2011   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Tax form for 2011   The following is a list of the percentage depletion rates for the more common minerals. Tax form for 2011 DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Tax form for 2011 Corporate deduction for iron ore and coal. Tax form for 2011   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Tax form for 2011 Gross income from the property. Tax form for 2011   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Tax form for 2011 Mining includes all the following. Tax form for 2011 Extracting ores or minerals from the ground. Tax form for 2011 Applying certain treatment processes described later. Tax form for 2011 Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Tax form for 2011 Excise tax. Tax form for 2011   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Tax form for 2011 Extraction. Tax form for 2011   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Tax form for 2011 This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Tax form for 2011 Treatment processes. Tax form for 2011   The processes included as mining depend on the ore or mineral mined. Tax form for 2011 To qualify as mining, the treatment processes must be applied by the mine owner or operator. Tax form for 2011 For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Tax form for 2011 Transportation of more than 50 miles. Tax form for 2011   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Tax form for 2011    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Tax form for 2011 Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Tax form for 2011 For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Tax form for 2011 irs. Tax form for 2011 gov/irb/2013-01_IRB/ar11. Tax form for 2011 html. Tax form for 2011 Disposal of coal or iron ore. Tax form for 2011   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Tax form for 2011 You disposed of it after holding it for more than 1 year. Tax form for 2011 You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Tax form for 2011 Treat any gain on the disposition as a capital gain. Tax form for 2011 Disposal to related person. Tax form for 2011   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Tax form for 2011 A related person (as listed in chapter 2 of Publication 544). Tax form for 2011 A person owned or controlled by the same interests that own or control you. Tax form for 2011 Geothermal deposits. Tax form for 2011   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Tax form for 2011 A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Tax form for 2011 For percentage depletion purposes, a geothermal deposit is not considered a gas well. Tax form for 2011   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Tax form for 2011 See Gross income from the property , earlier, under Oil and Gas Wells. Tax form for 2011 Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Tax form for 2011 Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Tax form for 2011 A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Tax form for 2011 Bonuses and advanced royalties. Tax form for 2011   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Tax form for 2011 If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Tax form for 2011 Figuring cost depletion. Tax form for 2011   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Tax form for 2011 To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Tax form for 2011 Figuring percentage depletion. Tax form for 2011   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Tax form for 2011 Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Tax form for 2011 However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Tax form for 2011 Ending the lease. Tax form for 2011   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Tax form for 2011 Do this for the year the lease ends or is abandoned. Tax form for 2011 Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Tax form for 2011   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Tax form for 2011 Include this amount in income for the year the lease ends. Tax form for 2011 Increase your adjusted basis in the property by the amount you include in income. Tax form for 2011 Delay rentals. Tax form for 2011   These are payments for deferring development of the property. Tax form for 2011 Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Tax form for 2011 These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Tax form for 2011 Timber You can figure timber depletion only by the cost method. Tax form for 2011 Percentage depletion does not apply to timber. Tax form for 2011 Base your depletion on your cost or other basis in the timber. Tax form for 2011 Your cost does not include the cost of land or any amounts recoverable through depreciation. Tax form for 2011 Depletion takes place when you cut standing timber. Tax form for 2011 You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Tax form for 2011 Figuring cost depletion. Tax form for 2011   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Tax form for 2011 Timber units. Tax form for 2011   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Tax form for 2011 You measure the timber using board feet, log scale, cords, or other units. Tax form for 2011 If you later determine that you have more or less units of timber, you must adjust the original estimate. Tax form for 2011   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Tax form for 2011 Depletion unit. Tax form for 2011   You figure your depletion unit each year by taking the following steps. Tax form for 2011 Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Tax form for 2011 Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Tax form for 2011 Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Tax form for 2011 Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Tax form for 2011 Divide the result of (2) by the result of (3). Tax form for 2011 This is your depletion unit. Tax form for 2011 Example. Tax form for 2011 You bought a timber tract for $160,000 and the land was worth as much as the timber. Tax form for 2011 Your basis for the timber is $80,000. Tax form for 2011 Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Tax form for 2011 If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Tax form for 2011 When to claim depletion. Tax form for 2011   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Tax form for 2011 Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Tax form for 2011 The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Tax form for 2011 Example. Tax form for 2011 The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Tax form for 2011 You would deduct $20,000 of the $40,000 depletion that year. Tax form for 2011 You would add the remaining $20,000 depletion to your closing inventory of timber products. Tax form for 2011 Electing to treat the cutting of timber as a sale or exchange. Tax form for 2011   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Tax form for 2011 You must make the election on your income tax return for the tax year to which it applies. Tax form for 2011 If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Tax form for 2011 You generally report the gain as long-term capital gain. Tax form for 2011 The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Tax form for 2011 For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Tax form for 2011   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Tax form for 2011 The prior election (and revocation) is disregarded for purposes of making a subsequent election. Tax form for 2011 See Form T (Timber), Forest Activities Schedule, for more information. Tax form for 2011 Form T. Tax form for 2011   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Tax form for 2011 Prev  Up  Next   Home   More Online Publications
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The Tax Form For 2011

Tax form for 2011 3. Tax form for 2011   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. Tax form for 2011 Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. Tax form for 2011 Certain contracts held by a charitable remainder trust. Tax form for 2011 Excise Taxes. Tax form for 2011 Indoor tanning services. Tax form for 2011 Application for Recognition of ExemptionPolitical activity. Tax form for 2011 Private delivery service. Tax form for 2011 Amendments to organizing documents required. Tax form for 2011 How to show reasonable action and good faith. Tax form for 2011 Not acting reasonably and in good faith. Tax form for 2011 Prejudicing the interest of the Government. Tax form for 2011 Procedure for requesting extension. Tax form for 2011 More information. Tax form for 2011 Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. Tax form for 2011 Grass roots expenditures. Tax form for 2011 Lobbying nontaxable amount. Tax form for 2011 Grass roots nontaxable amount. Tax form for 2011 Organization that no longer qualifies. Tax form for 2011 Tax on organization. Tax form for 2011 Tax on managers. Tax form for 2011 Taxes on organizations. Tax form for 2011 Taxes on managers. Tax form for 2011 Political expenditures. Tax form for 2011 Correction of expenditure. Tax form for 2011 Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. Tax form for 2011 Religious. Tax form for 2011 Charitable. Tax form for 2011 Scientific. Tax form for 2011 Testing for public safety. Tax form for 2011 Literary. Tax form for 2011 Educational. Tax form for 2011 Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). Tax form for 2011 The prevention of cruelty to children or animals. Tax form for 2011 To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. Tax form for 2011 A trust is a fund or foundation and will qualify. Tax form for 2011 However, an individual or a partnership will not qualify. Tax form for 2011 Examples. Tax form for 2011   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. Tax form for 2011 Child care organizations. Tax form for 2011   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. Tax form for 2011 Instrumentalities. Tax form for 2011   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Tax form for 2011 Examples of a qualifying instrumentality might include state schools, universities, or hospitals. Tax form for 2011 However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. Tax form for 2011 A state or municipality itself does not qualify for exemption. Tax form for 2011 Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. Tax form for 2011 Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. Tax form for 2011 Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. Tax form for 2011 Fundraising events. Tax form for 2011   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. Tax form for 2011 This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. Tax form for 2011   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. Tax form for 2011 If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. Tax form for 2011 You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. Tax form for 2011 See Disclosure of Quid Pro Quo Contributions in chapter 2. Tax form for 2011 Exemption application not filed. Tax form for 2011   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. Tax form for 2011 Separate fund—contributions that are deductible. Tax form for 2011   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Tax form for 2011   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. Tax form for 2011 A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. Tax form for 2011 Personal benefit contracts. Tax form for 2011   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. Tax form for 2011   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. Tax form for 2011 Certain annuity contracts. Tax form for 2011   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). Tax form for 2011 Certain contracts held by a charitable remainder trust. Tax form for 2011   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. Tax form for 2011 Excise tax. Tax form for 2011   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. Tax form for 2011 The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. Tax form for 2011 Excise Taxes. Tax form for 2011   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Tax form for 2011 Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. Tax form for 2011 Indoor tanning services. Tax form for 2011   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. Tax form for 2011 For more information, go to IRS. Tax form for 2011 gov and select Affordable Care Act Tax Provisions. Tax form for 2011 Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. Tax form for 2011 For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. Tax form for 2011 See the organization headings that follow for specific information your organization may need to provide. Tax form for 2011 Form 1023. Tax form for 2011   Your organization must file its application for recognition of exemption on Form 1023. Tax form for 2011 See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. Tax form for 2011 Some organizations are not required to file Form 1023. Tax form for 2011 See Organizations Not Required To File Form 1023, later. Tax form for 2011    Additional information to help you complete your application can be found online. Tax form for 2011 Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. Tax form for 2011 See Exemption Requirements - Section 501(c)(3) Organizations. Tax form for 2011   Form 1023 and accompanying statements must show that all of the following are true. Tax form for 2011 The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. Tax form for 2011 ) specified in the introduction to this chapter. Tax form for 2011 No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. Tax form for 2011 You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. Tax form for 2011 The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. Tax form for 2011 See Political activity, next, and Lobbying Expenditures , near the end of this chapter. Tax form for 2011 Political activity. Tax form for 2011   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). Tax form for 2011 Such participation or intervention includes the publishing or distributing of statements. Tax form for 2011   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Tax form for 2011 Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. Tax form for 2011 Effective date of exemption. Tax form for 2011   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. Tax form for 2011 These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. Tax form for 2011 If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. Tax form for 2011 Otherwise, exemption will be recognized only from the date of receipt. Tax form for 2011 The date of receipt is the date of the U. Tax form for 2011 S. Tax form for 2011 postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. Tax form for 2011 Private delivery service. Tax form for 2011   If a private delivery service designated by the IRS, rather than the U. Tax form for 2011 S. Tax form for 2011 Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. Tax form for 2011 The following private delivery services have been designated by the IRS. Tax form for 2011 DHL Express (DHL): DHL “Same Day” Service. Tax form for 2011 Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Tax form for 2011 United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Tax form for 2011 M. Tax form for 2011 , UPS Worldwide Express Plus, and UPS Worldwide Express. Tax form for 2011 Amendments to organizing documents required. Tax form for 2011   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. Tax form for 2011 If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. Tax form for 2011 Extensions of time for filing. Tax form for 2011   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. Tax form for 2011 Automatic 12-month extension. Tax form for 2011 Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. Tax form for 2011 To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. Tax form for 2011 9100-2. Tax form for 2011 ” Discretionary extensions. Tax form for 2011 An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. Tax form for 2011 How to show reasonable action and good faith. Tax form for 2011   An organization acted reasonably and showed good faith if at least one of the following is true. Tax form for 2011 The organization requests relief before its failure to file is discovered by the IRS. Tax form for 2011 The organization failed to file because of intervening events beyond its control. Tax form for 2011 The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. Tax form for 2011 The organization reasonably relied upon the written advice of the IRS. Tax form for 2011 The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. Tax form for 2011 An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. Tax form for 2011 Not acting reasonably and in good faith. Tax form for 2011   An organization has not acted reasonably and in good faith under the following circumstances. Tax form for 2011 It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. Tax form for 2011 It was informed of the requirement to file and related tax consequences, but chose not to file. Tax form for 2011 It uses hindsight in requesting relief. Tax form for 2011 The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. Tax form for 2011 Prejudicing the interest of the Government. Tax form for 2011   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. Tax form for 2011 Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. Tax form for 2011 The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. Tax form for 2011 The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. Tax form for 2011 Procedure for requesting extension. Tax form for 2011   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. Tax form for 2011 A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. Tax form for 2011 Any documents relevant to the application. Tax form for 2011 An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. Tax form for 2011 If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. Tax form for 2011 This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Tax form for 2011 ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. Tax form for 2011 This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. Tax form for 2011 The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. Tax form for 2011 These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Tax form for 2011 ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. Tax form for 2011 The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. Tax form for 2011 The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. Tax form for 2011   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. Tax form for 2011 Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. Tax form for 2011 More information. Tax form for 2011   For more information about these procedures, see Regulations sections 301. Tax form for 2011 9100-1, 301. Tax form for 2011 9100-2, 301. Tax form for 2011 9100-3, Revenue Procedure 2013-4, section 6. Tax form for 2011 04, 2013-1 I. Tax form for 2011 R. Tax form for 2011 B. Tax form for 2011 126, and Revenue Procedure 2013-8, 2013-1 I. Tax form for 2011 R. Tax form for 2011 B. Tax form for 2011 237. Tax form for 2011 See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. Tax form for 2011 Notification from the IRS. Tax form for 2011   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. Tax form for 2011 Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. Tax form for 2011 These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. Tax form for 2011 Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). Tax form for 2011 These organizations are exempt automatically if they meet the requirements of section 501(c)(3). Tax form for 2011 Filing Form 1023 to establish exemption. Tax form for 2011   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. Tax form for 2011 By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. Tax form for 2011 A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. Tax form for 2011 Private foundations. Tax form for 2011   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. Tax form for 2011 Gross receipts test. Tax form for 2011   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. Tax form for 2011   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. Tax form for 2011 For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. Tax form for 2011 The organization must file Form 1023 within 90 days after the end of its second tax year. Tax form for 2011   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. Tax form for 2011 However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. Tax form for 2011 Example. Tax form for 2011   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. Tax form for 2011 It was incorporated on January 1, 2009, and files returns on a calendar-year basis. Tax form for 2011 It did not file a Form 1023. Tax form for 2011 The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. Tax form for 2011 Therefore, it did not have to file Form 1023 and is exempt for those years. Tax form for 2011 However, for 2010, 2011, and 2012 the total gross receipts were $15,900. Tax form for 2011 Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. Tax form for 2011 If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. Tax form for 2011 The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. Tax form for 2011   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. Tax form for 2011 See the procedures for this extension discussed earlier. Tax form for 2011 Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. Tax form for 2011 This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. Tax form for 2011 Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. Tax form for 2011 These conditions for exemption are referred to as the organizational test. Tax form for 2011 Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. Tax form for 2011 Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). Tax form for 2011 The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. Tax form for 2011 Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Tax form for 2011 Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. Tax form for 2011 In interpreting an organization's articles, the law of the state where the organization was created is controlling. Tax form for 2011 If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. Tax form for 2011 The following are examples illustrating the organizational test. Tax form for 2011 Example 1. Tax form for 2011 Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). Tax form for 2011 These articles appropriately limit the organization's purposes. Tax form for 2011 The organization meets the organizational test. Tax form for 2011 Example 2. Tax form for 2011 An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. Tax form for 2011 The organization will not be properly limited as to its purposes since all research is not scientific. Tax form for 2011 The organization does not meet the organizational test. Tax form for 2011 Example 3. Tax form for 2011 An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). Tax form for 2011 The organization meets the organizational test. Tax form for 2011 Example 4. Tax form for 2011 If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. Tax form for 2011 Example 5. Tax form for 2011 If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. Tax form for 2011 On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. Tax form for 2011 Example 6. Tax form for 2011 If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. Tax form for 2011 Such purposes are vague and may be accomplished other than in an exempt manner. Tax form for 2011 Example 7. Tax form for 2011 A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. Tax form for 2011 A hospital may or may not be exempt depending on the manner in which it is operated. Tax form for 2011 Example 8. Tax form for 2011 An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. Tax form for 2011 Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. Tax form for 2011 This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. Tax form for 2011 If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. Tax form for 2011 Dedication. Tax form for 2011   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. Tax form for 2011 Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. Tax form for 2011 Distribution. Tax form for 2011   Revenue Procedure 82-2, 1982-1 C. Tax form for 2011 B. Tax form for 2011 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. Tax form for 2011 The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. Tax form for 2011   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. Tax form for 2011 Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. Tax form for 2011 Sample articles of organization. Tax form for 2011   See sample articles of organization in the Appendix in the back of this publication. Tax form for 2011 Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. Tax form for 2011 In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. Tax form for 2011 You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. Tax form for 2011 If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. Tax form for 2011 See also Private Schools , discussed later. Tax form for 2011 Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. Tax form for 2011 Advocacy of a position. Tax form for 2011   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. Tax form for 2011 The mere presentation of unsupported opinion is not educational. Tax form for 2011 Method not educational. Tax form for 2011   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). Tax form for 2011 The following factors may indicate that the method is not educational. Tax form for 2011 The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. Tax form for 2011 The facts that purport to support the viewpoint are distorted. Tax form for 2011 The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. Tax form for 2011 The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. Tax form for 2011   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. Tax form for 2011 Qualifying organizations. Tax form for 2011   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. Tax form for 2011 College book stores, cafeterias, restaurants, etc. Tax form for 2011   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. Tax form for 2011 Alumni association. Tax form for 2011   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. Tax form for 2011 If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . Tax form for 2011 Athletic organization. Tax form for 2011   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. Tax form for 2011 If it is not so engaged, your organization may be exempt as a social club described in chapter 4. Tax form for 2011 Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. Tax form for 2011 If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. Tax form for 2011 Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. Tax form for 2011 The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. Tax form for 2011 (This information also must be projected, so far as may be feasible, for the next academic year. Tax form for 2011 ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. Tax form for 2011 A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. Tax form for 2011 A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. Tax form for 2011 The public school district and county in which the school is located. Tax form for 2011 How to determine racial composition. Tax form for 2011   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. Tax form for 2011 Nevertheless, a statement of the method by which the racial composition was determined must be supplied. Tax form for 2011 The identity of individual students or members of the faculty and administrative staff should not be included with this information. Tax form for 2011   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. Tax form for 2011 Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. Tax form for 2011 Also, the school must circulate information that clearly states the school's admission policies. Tax form for 2011 A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. Tax form for 2011 The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. Tax form for 2011 The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. Tax form for 2011 Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. Tax form for 2011 A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. Tax form for 2011 A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. Tax form for 2011 Policy statement. Tax form for 2011   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. Tax form for 2011 Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. Tax form for 2011 Publicity requirement. Tax form for 2011   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. Tax form for 2011 Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. Tax form for 2011 To satisfy this requirement, the school must use one of the following two methods. Tax form for 2011 Method one. Tax form for 2011   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. Tax form for 2011 Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Tax form for 2011 When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. Tax form for 2011 If this method is used, the notice must meet the following printing requirements. Tax form for 2011 It must appear in a section of the newspaper likely to be read by prospective students and their families. Tax form for 2011 It must occupy at least 3 column inches. Tax form for 2011 It must have its title printed in at least 12 point bold face type. Tax form for 2011 It must have the remaining text printed in at least 8 point type. Tax form for 2011 The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. Tax form for 2011 It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. Tax form for 2011   Method two. Tax form for 2011   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. Tax form for 2011 If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. Tax form for 2011 In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. Tax form for 2011 The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. Tax form for 2011 Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Tax form for 2011 Exceptions. Tax form for 2011   The publicity requirements will not apply in the following situations. Tax form for 2011 First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. Tax form for 2011 These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. Tax form for 2011 If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. Tax form for 2011 Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . Tax form for 2011   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. Tax form for 2011 The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. Tax form for 2011   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. Tax form for 2011 Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. Tax form for 2011   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. Tax form for 2011 The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. Tax form for 2011 In this regard, it is each school's responsibility to determine whether either of the exceptions applies. Tax form for 2011 Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. Tax form for 2011 Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. Tax form for 2011 Facilities and programs. Tax form for 2011   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. Tax form for 2011 Scholarship and loan programs. Tax form for 2011   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. Tax form for 2011 This must be known throughout the general community being served by the school and should be referred to in its publicity. Tax form for 2011 Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. Tax form for 2011 Certification. Tax form for 2011   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. Tax form for 2011   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. Tax form for 2011 Recordkeeping requirements. Tax form for 2011 With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. Tax form for 2011 Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. Tax form for 2011 Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. Tax form for 2011 Copies of all materials used by or on behalf of the school to solicit contributions. Tax form for 2011 Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. Tax form for 2011 (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. Tax form for 2011 ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. Tax form for 2011 However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. Tax form for 2011 The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Tax form for 2011 Similarly, the IRS does not require a school to keep records prohibited under state or federal law. Tax form for 2011 Exceptions. Tax form for 2011   The school does not have to independently maintain these records for IRS use if both of the following are true. Tax form for 2011 Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. Tax form for 2011 The school maintains copies of these reports from which this information is readily obtainable. Tax form for 2011 If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. Tax form for 2011 Failure to maintain records. Tax form for 2011   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. Tax form for 2011 Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. Tax form for 2011 However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. Tax form for 2011 Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). Tax form for 2011 Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. Tax form for 2011 Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. Tax form for 2011 Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. Tax form for 2011 The rest of this section contains a description of the information to be provided by certain specific organizations. Tax form for 2011 This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. Tax form for 2011 Each of the following organizations must submit the information described. Tax form for 2011 Charitable organization supporting education. Tax form for 2011   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. Tax form for 2011 Scholarships. Tax form for 2011   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. Tax form for 2011 Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. Tax form for 2011 How and by whom the recipients are or will be selected. Tax form for 2011 If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. Tax form for 2011 If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. Tax form for 2011 A copy of the scholarship application form and any brochures or literature describing the scholarship program. Tax form for 2011 Hospital. Tax form for 2011   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. Tax form for 2011   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. Tax form for 2011 You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. Tax form for 2011 Submit also an appraisal showing the fair rental value of the rented space. Tax form for 2011 Clinic. Tax form for 2011   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. Tax form for 2011 Home for the aged. Tax form for 2011   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. Tax form for 2011 Community nursing bureau. Tax form for 2011   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. Tax form for 2011 Organization providing loans. Tax form for 2011   If you make, or will make, loans for charitable and educational purposes, submit the following information. Tax form for 2011 An explanation of the circumstances under which such loans are, or will be, made. Tax form for 2011 Criteria for selection, including the rules of eligibility. Tax form for 2011 How and by whom the recipients are or will be selected. Tax form for 2011 Manner of repayment of the loan. Tax form for 2011 Security required, if any. Tax form for 2011 Interest charged, if any, and when payable. Tax form for 2011 Copies in duplicate of the loan application and any brochures or literature describing the loan program. Tax form for 2011 Public-interest law firms. Tax form for 2011   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. Tax form for 2011 How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. Tax form for 2011 Whether the organization will accept fees for its services. Tax form for 2011 A description of the cases litigated or to be litigated and how they benefit the public generally. Tax form for 2011 Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. Tax form for 2011 Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. Tax form for 2011 Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. Tax form for 2011 Acceptance of attorneys' fees. Tax form for 2011   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. Tax form for 2011 Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. Tax form for 2011   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. Tax form for 2011 All fee awards must be paid to the organization and not to its individual staff attorneys. Tax form for 2011 Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. Tax form for 2011 Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. Tax form for 2011   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. Tax form for 2011   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. Tax form for 2011 Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. Tax form for 2011 That the particular religious beliefs of the organization are truly and sincerely held. Tax form for 2011 That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. Tax form for 2011 Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. Tax form for 2011 If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. Tax form for 2011 Churches. Tax form for 2011   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. Tax form for 2011 In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. Tax form for 2011   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. Tax form for 2011 Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. Tax form for 2011 The IRS considers the facts and circumstances of each organization applying for church status. Tax form for 2011 Convention or association of churches. Tax form for 2011   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. Tax form for 2011 Integrated auxiliaries. Tax form for 2011   An organization is an integrated auxiliary of a church if all the following are true. Tax form for 2011 The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). Tax form for 2011 It is affiliated with a church or a convention or association of churches. Tax form for 2011 It is internally supported. Tax form for 2011 An organization is internally supported unless both of the following are true. Tax form for 2011 It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). Tax form for 2011 It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. Tax form for 2011 Special rule. Tax form for 2011   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. Tax form for 2011   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. Tax form for 2011   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. Tax form for 2011 Scientific Organizations You must show that your organization's research will be carried on in the public interest. Tax form for 2011 Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. Tax form for 2011 Aiding in the scientific education of college or university students. Tax form for 2011 Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th