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Taxact 2011 Login

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Taxact 2011 Login

Taxact 2011 login Publication 557 - Introductory Material Table of Contents What's New Reminders Introduction What's New Proposed regulations on “good faith determinations”. Taxact 2011 login  Proposed regulations modify standards for making a good faith determination that a foreign organization is a charitable organization, grants to which may be qualifying distributions and not taxable expenditures. Taxact 2011 login The proposed regulations identify a broader class of tax practitioners upon whose written advice a private foundation may base a “good faith determination. Taxact 2011 login ” See, Proposed Regulations: Reliance Standards for Making Good Faith Determinations, REG-134974-12, 2012-47 I. Taxact 2011 login R. Taxact 2011 login B. Taxact 2011 login 553. Taxact 2011 login Prop. Taxact 2011 login Regs. Taxact 2011 login on Good Faith Determinations. Taxact 2011 login New Requirements for section 501(c)(3) Hospitals Under the Affordable Care Act. Taxact 2011 login  The Affordable Care Act (ACA), enacted March 23, 2010, added new requirements that hospital organizations must satisfy in order to be described in section 501(c)(3), as well as new reporting requirements and excise taxes. Taxact 2011 login On June 22, 2012, the Service issued a notice of proposed rulemaking that addresses the new requirements enacted by the ACA applicable to section 501(c)(3) hospital organizations. Taxact 2011 login See, Proposed Regulations: Additional Requirements for Charitable Hospitals, REG-13026-11, 77 Fed. Taxact 2011 login Reg. Taxact 2011 login 38148. Taxact 2011 login On April 3, 2013, the Service issued proposed regulations on the ACA's community health needs assessment (CHNA) requirements. Taxact 2011 login The proposed regulations also discuss the related reporting and excise tax requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. Taxact 2011 login See, Proposed Regulations: Community Health Needs Assessments for Charitable Hospitals, REG-106499-12, 78 Fed. Taxact 2011 login Reg. Taxact 2011 login 20,523. Taxact 2011 login Timing of when an Organization is exempt for Federal Tax Purposes. Taxact 2011 login  As noted in section 2. Taxact 2011 login 03(4) of Revenue Procedure 2013-9, 2013-2 I. Taxact 2011 login R. Taxact 2011 login B. Taxact 2011 login 267, the provisions in section 11. Taxact 2011 login 01 regarding the effect of determination letters or rulings recognizing exempt status of organizations described in section 501(c), other than sections 501(c)(3), (9), (17), and (29), have been revised. Taxact 2011 login Prior to this year, and back to 1962, when such organizations applied for recognition, the IRS would usually recognize the organizations as tax exempt from the date of formation, no matter how long the interval between the date of formation and the date of application. Taxact 2011 login In addition to the practical difficulties of ascertaining an organization's purposes and activities for this period, such recognition is now potentially inconsistent with the provisions of section 6033(j), which automatically revokes the exempt status of an organization that fails to file required Form 990 series returns or notices for three consecutive years. Taxact 2011 login The new procedure adopts a practice similar to the rule for section 501(c)(3) organizations for these organizations, generally permitting recognition from the date of formation if the organization has: always met the requirements for exemption, has applied within 27 months from the end of the month in which it was organized, and has not failed to file required Form 990 series returns or notices for three consecutive years. Taxact 2011 login Section 11. Taxact 2011 login 01(3) notes: an organization that otherwise meets the requirements for tax-exempt status and the issuance of a determination letter or ruling that does not meet the requirements for recognition from date of formation will generally be recognized from the postmark date of its application. Taxact 2011 login Exempt Organizations Select Check. Taxact 2011 login  The IRS has developed an on-line search tool, Exempt Organizations Select Check, that allows users to select an exempt organization and check certain information about its federal tax status and filings. Taxact 2011 login It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that: Are eligible to receive tax-deductible charitable contributions (Publication 78 data). Taxact 2011 login Users may rely on this list in determining deductibility of contributions, just as they did when Publication 78 was a separate electronic publication rather than part of Select Check. Taxact 2011 login Have had their tax-exempt status automatically revoked under the law because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List). Taxact 2011 login Have filed a Form 990-N (e-Postcard) annual electronic notice. Taxact 2011 login  In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check. Taxact 2011 login See also Revenue Procedure 2011-33, 2011-25 I. Taxact 2011 login R. Taxact 2011 login B. Taxact 2011 login 887. Taxact 2011 login Future developments. Taxact 2011 login . Taxact 2011 login  The IRS has created a page on IRS. Taxact 2011 login gov for information about Publication 557, at www. Taxact 2011 login irs. Taxact 2011 login gov/pub557. Taxact 2011 login Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page. Taxact 2011 login Reminders The Patient Protection and Affordable Care Act (ACA). Taxact 2011 login   The ACA added several new laws. Taxact 2011 login This includes a new excise tax on indoor tanning services, a small business health care tax credit, additional requirements for tax-exempt hospitals, and the section 501(c)(29) CO-OP program. Taxact 2011 login For more information, go to IRS. Taxact 2011 login gov and select Affordable Care Act Tax Provisions. Taxact 2011 login Electronic filing requirement for large organizations. Taxact 2011 login  For tax years ending on or after December 31, 2006, only organizations that file 250 returns during the calendar year and that have total assets of $10 million or more are required to file Form 990 electronically. Taxact 2011 login For more information, go to e-file for Charities and Non-Profits. Taxact 2011 login Section 501(c)(15) gross receipts. Taxact 2011 login   The definition of gross receipts for purposes of determining whether small insurance companies qualify as tax-exempt under section 501(c)(15) has changed. Taxact 2011 login See Notice 2006-42, 2006-19 I. Taxact 2011 login R. Taxact 2011 login B. Taxact 2011 login 878, Notice 2006-42. Taxact 2011 login Prohibited tax shelter transactions. Taxact 2011 login  New excise taxes are imposed under section 4965 on certain tax-exempt organizations entering into prohibited tax shelter transactions. Taxact 2011 login See T. Taxact 2011 login D. Taxact 2011 login 9492, Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirements, 2010-33 I. Taxact 2011 login R. Taxact 2011 login B. Taxact 2011 login 242. Taxact 2011 login See IRS Issues Final Regulations Regarding Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirement. Taxact 2011 login Pension Protection Act of 2006 tax changes. Taxact 2011 login  The Pension Protection Act of 2006 made numerous changes to the tax law provisions affecting tax-exempt organizations. Taxact 2011 login Unless otherwise noted, most of the changes became effective on August 17, 2006. Taxact 2011 login For key provisions, go to The Pension Protection Act of 2006. Taxact 2011 login Section 501(c)(3) organizations must make their Form 990-T, Exempt Organization Business Tax Return (and proxy tax under section 6033(e)), open for public inspection for a period of 3 years from the date the Form 990-T is required to be filed (determined with regard to any extension of time for filing) or is actually filed, whichever is later. Taxact 2011 login There is an increase in excise taxes relating to public charities, social welfare organizations, and private foundations. Taxact 2011 login There are additional standards for credit counseling organizations. Taxact 2011 login The definition of convention or association of churches has been modified. Taxact 2011 login Entities that are not required to file Form 990 or 990-EZ must file new Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. Taxact 2011 login The requirements of disclosure to state officials relating to exempt organizations has been modified. Taxact 2011 login There are excise taxes imposed on excess benefit transactions involving donor advised funds and sponsoring organizations. Taxact 2011 login There are new excise taxes on prohibited tax shelter transactions. Taxact 2011 login There is a modification of recordkeeping requirements for certain charitable contributions. Taxact 2011 login Introduction This publication discusses the rules and procedures for organizations that seek recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (the Code). Taxact 2011 login It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. Taxact 2011 login To qualify for exemption under the Code, your organization must be organized for one or more of the purposes specifically designated in the Code. Taxact 2011 login Organizations that are exempt under section 501(a) include those organizations described in section 501(c). Taxact 2011 login Section 501(c) organizations are covered in this publication. Taxact 2011 login Chapter 1, Application, Approval, and Appeal Procedures, provides general information about the procedures for obtaining recognition of tax-exempt status. Taxact 2011 login Chapter 2, Filing Requirements and Required Disclosures, contains information about annual filing requirements and other matters that may affect your organization's tax-exempt status. Taxact 2011 login Chapter 3, Section 501(c)(3) Organizations, contains detailed information on various matters affecting section 501(c)(3) organizations, including a section on the determination of private foundation status. Taxact 2011 login Chapter 4, Other Section 501(c) Organizations, includes separate sections for specific types of organizations described in section 501(c). Taxact 2011 login Chapter 5, Excise Taxes, provides information on when excise taxes may be imposed. Taxact 2011 login Organizations not discussed in this publication. Taxact 2011 login   Certain organizations that may qualify for exemption are not discussed in this publication, although they are included in the Organization Reference Chart. Taxact 2011 login These organizations (and the Code sections that apply to them) are as follows. Taxact 2011 login Corporations organized under Acts of Congress 501(c)(1) Teachers' retirement fund associations 501(c)(11) Mutual insurance companies 501(c)(15) Corporations organized to finance crop operations 501(c)(16) Employee funded pension trusts (created before June 25, 1959) 501(c)(18) Withdrawal liability payment fund 501(c)(22) Veterans' organizations (created before 1880) 501(c)(23) National Railroad Retirement Investment Trust 501(c)(28) Religious and apostolic associations 501(d) Cooperative hospital service organizations 501(e) Cooperative service organizations of operating educational organizations 501(f)   Section 501(c)(24) organizations (section 4049 ERISA trusts) are neither discussed in the text nor listed in the Organization Reference Chart. Taxact 2011 login   Similarly, farmers' cooperative associations that qualify for exemption under section 521, qualified state tuition programs described in section 529, and pension, profit-sharing, and stock bonus plans described in section 401(a) are not discussed in this publication. Taxact 2011 login If you think your organization falls within one of these categories, contact the IRS for any additional information you need. Taxact 2011 login For telephone assistance, call 1-877-829-5500. Taxact 2011 login   Check the Table of Contents at the beginning of this publication to determine whether your organization is described in this publication. Taxact 2011 login If it is, read the chapter (or section) that applies to your type of organization for the specific information you must give when applying for recognition of exemption. Taxact 2011 login Organization Reference Chart. Taxact 2011 login   The Organization Reference Chart enables you to locate at a glance the section of the Code under which your organization might qualify for exemption. Taxact 2011 login It also shows the required application form and, if your organization meets the exemption requirements, the annual return to be filed (if any), and whether or not a contribution to your organization will be deductible by a donor. Taxact 2011 login It also describes each type of qualifying organization and the general nature of its activities. Taxact 2011 login   You may use the Organization Reference Chart to determine the Code section that you think applies to your organization. Taxact 2011 login Any correspondence with the IRS (in requesting forms or otherwise) will be expedited if you indicate in your correspondence the appropriate Code section. Taxact 2011 login Check the IRS website, IRS. Taxact 2011 login gov, for the latest updates, Tax Information for Charities & Other Non-Profits, www. Taxact 2011 login irs. Taxact 2011 login gov/charities/index. Taxact 2011 login html. Taxact 2011 login Comments and suggestions. Taxact 2011 login   We welcome your comments about this publication and your suggestions for future editions. Taxact 2011 login   You can e-mail us while visiting our website at IRS. Taxact 2011 login gov. Taxact 2011 login   You can send your comments to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Taxact 2011 login NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxact 2011 login Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxact 2011 login   If you wish telephone assistance, please call 1-877-829-5500. Taxact 2011 login This toll-free telephone service is available Monday through Friday. Taxact 2011 login Prev  Up  Next   Home   More Online Publications
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The Taxact 2011 Login

Taxact 2011 login 2. Taxact 2011 login   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Taxact 2011 login Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Taxact 2011 login S. Taxact 2011 login or foreign source income. Taxact 2011 login This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Taxact 2011 login S. Taxact 2011 login Virgin Islands (USVI). Taxact 2011 login Generally, the same rules that apply for determining U. Taxact 2011 login S. Taxact 2011 login source income also apply for determining possession source income. Taxact 2011 login However, there are some important exceptions to these rules. Taxact 2011 login Both the general rules and the exceptions are discussed in this chapter. Taxact 2011 login U. Taxact 2011 login S. Taxact 2011 login income rule. Taxact 2011 login   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Taxact 2011 login Table 2-1 shows the general rules for determining whether income is from sources within the United States. Taxact 2011 login Table 2-1. Taxact 2011 login General Rules for Determining U. Taxact 2011 login S. Taxact 2011 login Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Taxact 2011 login Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Taxact 2011 login For more information, see Regulations section 1. Taxact 2011 login 863-1(b). Taxact 2011 login Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Taxact 2011 login Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Taxact 2011 login Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Taxact 2011 login It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Taxact 2011 login Services performed wholly within a relevant possession. Taxact 2011 login   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Taxact 2011 login However, there is an exception for income earned as a member of the U. Taxact 2011 login S. Taxact 2011 login Armed Forces or a civilian spouse. Taxact 2011 login U. Taxact 2011 login S. Taxact 2011 login Armed Forces. Taxact 2011 login   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Taxact 2011 login However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Taxact 2011 login Civilian spouse of active duty member of the U. Taxact 2011 login S. Taxact 2011 login Armed Forces. Taxact 2011 login   If you are a bona fide resident of a U. Taxact 2011 login S. Taxact 2011 login possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Taxact 2011 login Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Taxact 2011 login S. Taxact 2011 login possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Taxact 2011 login Services performed partly inside and partly outside a relevant possession. Taxact 2011 login   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Taxact 2011 login Compensation (other than certain fringe benefits) is sourced on a time basis. Taxact 2011 login Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Taxact 2011 login   Or, you may be permitted to use an alternative basis to determine the source of compensation. Taxact 2011 login See Alternative basis , later. Taxact 2011 login   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Taxact 2011 login In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Taxact 2011 login Time basis. Taxact 2011 login   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Taxact 2011 login Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Taxact 2011 login The time period for which the income is made does not have to be a year. Taxact 2011 login Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Taxact 2011 login Example. Taxact 2011 login In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Taxact 2011 login Your Puerto Rico source income is $60,000, figured as follows. Taxact 2011 login       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Taxact 2011 login   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Taxact 2011 login Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Taxact 2011 login You determine the period to which the income is attributable based on the facts and circumstances of your case. Taxact 2011 login For more information on multi-year compensation, see Treasury Decision (T. Taxact 2011 login D. Taxact 2011 login ) 9212 and Regulations section 1. Taxact 2011 login 861-4, 2005-35 I. Taxact 2011 login R. Taxact 2011 login B. Taxact 2011 login 429, available at www. Taxact 2011 login irs. Taxact 2011 login gov/irb/2005-35_IRB/ar14. Taxact 2011 login html. Taxact 2011 login Certain fringe benefits sourced on a geographical basis. Taxact 2011 login   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Taxact 2011 login Housing. Taxact 2011 login Education. Taxact 2011 login Local transportation. Taxact 2011 login Tax reimbursement. Taxact 2011 login Hazardous or hardship duty pay. Taxact 2011 login Moving expense reimbursement. Taxact 2011 login For information on determining the source of the fringe benefits listed above, see Regulations section 1. Taxact 2011 login 861-4. Taxact 2011 login Alternative basis. Taxact 2011 login   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Taxact 2011 login If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Taxact 2011 login De minimis exception. Taxact 2011 login   There is an exception to the rule for determining the source of income earned in a possession. Taxact 2011 login Generally, you will not have income from a possession if during a tax year you: Are a U. Taxact 2011 login S. Taxact 2011 login citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Taxact 2011 login This exception began with income earned during your 2008 tax year. Taxact 2011 login Pensions. Taxact 2011 login   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Taxact 2011 login The contribution portion is sourced according to where services were performed that earned the pension. Taxact 2011 login The investment earnings portion is sourced according to the location of the pension trust. Taxact 2011 login Example. Taxact 2011 login You are a U. Taxact 2011 login S. Taxact 2011 login citizen who worked in Puerto Rico for a U. Taxact 2011 login S. Taxact 2011 login company. Taxact 2011 login All services were performed in Puerto Rico. Taxact 2011 login Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Taxact 2011 login S. Taxact 2011 login pension trust of your employer. Taxact 2011 login Distributions from the U. Taxact 2011 login S. Taxact 2011 login pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Taxact 2011 login S. Taxact 2011 login source income. Taxact 2011 login Investment Income This category includes such income as interest, dividends, rents, and royalties. Taxact 2011 login Interest income. Taxact 2011 login   The source of interest income is generally determined by the residence of the payer. Taxact 2011 login Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Taxact 2011 login   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Taxact 2011 login See Regulations section 1. Taxact 2011 login 937-2(i) for more information. Taxact 2011 login Dividends. Taxact 2011 login   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Taxact 2011 login There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Taxact 2011 login For more information, see Regulations section 1. Taxact 2011 login 937-2(g). Taxact 2011 login Rental income. Taxact 2011 login   Rents from property located in a relevant possession are treated as income from sources within that possession. Taxact 2011 login Royalties. Taxact 2011 login   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Taxact 2011 login   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Taxact 2011 login Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Taxact 2011 login The most common situations are discussed below. Taxact 2011 login Real property. Taxact 2011 login   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Taxact 2011 login The location of the property generally determines the source of income from the sale. Taxact 2011 login For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Taxact 2011 login If, however, the home you sold was located in the United States, the gain is U. Taxact 2011 login S. Taxact 2011 login source income. Taxact 2011 login Personal property. Taxact 2011 login   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Taxact 2011 login Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Taxact 2011 login If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Taxact 2011 login   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Taxact 2011 login The rules applying to sales of inventory are discussed below. Taxact 2011 login For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Taxact 2011 login Inventory. Taxact 2011 login   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Taxact 2011 login The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Taxact 2011 login Purchased. Taxact 2011 login   Income from the sale of inventory that you purchased is sourced where you sell the property. Taxact 2011 login Generally, this is where title to the property passes to the buyer. Taxact 2011 login Produced. Taxact 2011 login   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Taxact 2011 login For information on making the allocation, see Regulations section 1. Taxact 2011 login 863-3(f). Taxact 2011 login Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Taxact 2011 login S. Taxact 2011 login citizen or resident alien prior to becoming a bona fide resident of a possession. Taxact 2011 login You are subject to these special rules if you meet both of the following conditions. Taxact 2011 login For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Taxact 2011 login For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Taxact 2011 login If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Taxact 2011 login Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Taxact 2011 login S. Taxact 2011 login tax return. Taxact 2011 login (See chapter 3 for additional filing information. Taxact 2011 login ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Taxact 2011 login These rules apply to dispositions after April 11, 2005. Taxact 2011 login For details, see Regulations section 1. Taxact 2011 login 937-2(f)(1) and Examples 1 and 2 of section 1. Taxact 2011 login 937-2(k). Taxact 2011 login Example 1. Taxact 2011 login In 2007, Cheryl Jones, a U. Taxact 2011 login S. Taxact 2011 login citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Taxact 2011 login S. Taxact 2011 login corporation listed on the New York Stock Exchange. Taxact 2011 login On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Taxact 2011 login Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Taxact 2011 login On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Taxact 2011 login On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Taxact 2011 login Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Taxact 2011 login The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Taxact 2011 login This existing special rule applies if you are a U. Taxact 2011 login S. Taxact 2011 login citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Taxact 2011 login S. Taxact 2011 login assets during the 10-year period beginning when you became a bona fide resident. Taxact 2011 login The gain is U. Taxact 2011 login S. Taxact 2011 login source income that generally is subject to U. Taxact 2011 login S. Taxact 2011 login tax if the property is either (1) located in the United States; (2) stock issued by a U. Taxact 2011 login S. Taxact 2011 login corporation or a debt obligation of a U. Taxact 2011 login S. Taxact 2011 login person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Taxact 2011 login See chapter 3 for filing information. Taxact 2011 login Special election. Taxact 2011 login   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Taxact 2011 login Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Taxact 2011 login This election overrides both of the special rules discussed earlier. Taxact 2011 login   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Taxact 2011 login Marketable securities. Taxact 2011 login   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Taxact 2011 login Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Taxact 2011 login S. Taxact 2011 login holding periods. Taxact 2011 login   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Taxact 2011 login The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Taxact 2011 login This is your gain (or loss) that is treated as being from sources within the relevant possession. Taxact 2011 login If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Taxact 2011 login Example 2. Taxact 2011 login Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Taxact 2011 login S. Taxact 2011 login and possession holding periods. Taxact 2011 login Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Taxact 2011 login Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Taxact 2011 login By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Taxact 2011 login Other personal property. Taxact 2011 login   For personal property other than marketable securities, use a time-based allocation. Taxact 2011 login Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Taxact 2011 login      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Taxact 2011 login Example 3. Taxact 2011 login In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Taxact 2011 login On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Taxact 2011 login On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Taxact 2011 login She had owned the interest for a total of 1,720 days. Taxact 2011 login Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Taxact 2011 login The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Taxact 2011 login By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Taxact 2011 login Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Taxact 2011 login Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Taxact 2011 login These rules do not apply to amounts paid as salary or other compensation for services. Taxact 2011 login See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Taxact 2011 login Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Taxact 2011 login These circumstances are listed below. Taxact 2011 login You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Taxact 2011 login That office or place of business is a material factor in producing the income. Taxact 2011 login The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Taxact 2011 login An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Taxact 2011 login The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Taxact 2011 login Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Taxact 2011 login Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Taxact 2011 login Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Taxact 2011 login Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Taxact 2011 login Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Taxact 2011 login Example. Taxact 2011 login Marcy Jackson is a bona fide resident of American Samoa. Taxact 2011 login Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Taxact 2011 login A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Taxact 2011 login Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Taxact 2011 login The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Taxact 2011 login However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Taxact 2011 login Prev  Up  Next   Home   More Online Publications