2015 Federal Tax Update Book

NATIONAL SOCIETY OF TAX PROFESSIONALS
2015 Federal Tax Update & Review Course
NSTP guiding you through the
changing landscape of the tax world

The
National Society of
Tax Professionals
Where the Crossroads of Tax Education and
Service to the Tax Professional Meet
Presents
The 2015
Federal Tax Update
and Review
Seminar
Instructors:
Barry Iacono, EA, NTPI Fellow, CFP
Glenda E. Irizarry-Toro, CPA, MBA
Paul La Monaca, CPA, MST
Isaac McRae III, MST, EA, NTPI Fellow
Anita Robinson, EA, Oregon LTC
Nina Tross, MBA, EA
C.J. Wade, CPA
Developed and Written by
Paul La Monaca, CPA, Master of Science in Taxation,
NSTP Director of Education

Seminar materials and seminar presentations are intended to stimulate thought and
discussion and to provide attendees with useful ideas and guidance in the areas of federal
taxation and administration. These materials as well as the comments of the instructors do not
constitute and should not be treated as tax advice regarding the use of any particular tax
procedure, tax planning technique or device or suggestion or any of the tax consequences
associated with them.
Although the author has made every effort to ensure the accuracy of the materials and the
seminar presentation, neither the author, the presenter nor the National Society of Tax
Professionals assumes any responsibility for any individual’s reliance on the written or oral
information presented during the presentation. Each attendee should verify independently all
statements made in the materials and during the seminar presentation before applying them to
a particular fact pattern and should determine independently the tax and other consequences of
using any particular device, technique or suggestion before recommending the same to a client
or implementing the same on a client’s or on his or her own behalf.
Copyright © Paul La Monaca 2015. All Rights Reserved.
These materials may not be reproduced without the express written permission of
Paul La Monaca.

Chapters
I. Reviewing, Understanding and Analyzing the Importance of Adjusted Gross
Income (AGI) and the Impact on the Rest of the Form 1040
II.
III.
IV.
The Year 2016 Tax Season Emergency Room: Data at the Tax Professional’s
Finger Tips
Introduction to Passive Activity Loss Issues Relating to Real Estate Transactions
Taking a Closer Look at the Federal Income Tax Issues of the Affordable Care Act
(ACA): It’s Not Going Away!
V. Review of Selected Provisions from Tax Legislation of the 21 st Century Needed
to Prepare 2015 Tax Returns and Beyond
VI.
VII.
VIII.
IX.
Issues Concerning the “Repair Regulations” and the Impact on Small Business
(T.D. 9636)
Capital Gain and Loss Transaction Issues
Federal Tax Court Cases
IRS Announcements, Rulings, Revenue Procedures, Etc.
Self-Study Course Questions and Answer Sheet
Supplement: 2015 Draft Forms
Glossary

TABLE OF CONTENTS
Page
I. Reviewing, Understanding, and Analyzing the Importance of Adjusted
Gross Income (AGI) and the Impact on the Rest of the Form 1040 ......................... 1-1
A. The Tax Professional’s Role: Focus on AGI ....................................................... 1-1
B. AGI: The Most Important Number on the Tax Return ....................................... 1-2
C. Defining Gross Income and Adjusted Gross Income (AGI) ................................ 1-3
D. Partial Chart of Provisions Affected by AGI or Modified AGI
for the Year 2015 ................................................................................................. 1-5
E. §151 Personal Exemption Amounts and the Issue of Phase-out ........................ 1-13
F. §68 Adjusted Gross Income Thresholds for Reduction of Schedule A
Itemized Deductions .......................................................................................... 1-14
G. §151 Phase-Out Provision for Exemptions ........................................................ 1-16
H. §135 Interest from U.S. Savings Bonds Used to Pay Higher Education
Tuition and Fees ................................................................................................. 1-17
I. §6654 Safe Harbor Rules for Required Estimated Tax Payments ..................... 1-21
J. §25B Tax Credit for Retirement Plans: Saver’s Credit .................................... 1-22
K. §530 Coverdell Education Savings Plans .......................................................... 1-24
L. §221 Student Loan Interest Deduction .............................................................. 1-27
M. §222 Deduction for Qualified Higher Education Expenses ............................... 1-28
N. §219 Traditional IRA Contribution Limits ........................................................ 1-30
O. §408A Roth IRA Contribution Limits ............................................................... 1-32
P. §23 Nonrefundable Adoption Credit and §137 Employer
Adoption Assistance Exclusion ......................................................................... 1-33
Q. Medicare Part B Premiums: Rules For Beneficiaries With
Higher Incomes .................................................................................................. 1-36
i

II.
Page
The Year 2016 Tax Season Emergency Room: Data at the
Tax Professional’s Finger Tips ..................................................................................... 2-1
A. §1 Tax Rate Schedules for 2015 and Proposed Tax Rate Schedules
for 2016 ................................................................................................................ 2-1
B. §63 Standard Deduction Amounts ....................................................................... 2-1
C. §32 Earned Income Credit Limitations ................................................................ 2-2
D. Gift Tax and Estate Exclusion Amounts .............................................................. 2-4
E. Threshold Amounts for Social Security and Specific Pension
Contribution Provisions ....................................................................................... 2-4
F. §6654 Safe Harbor Rules and Waiver of Penalty for Required
Estimated Tax Payments ...................................................................................... 2-5
G. §162(1) Health Insurance Premium Deduction for the Self-Employed
Taxpayer .............................................................................................................. 2-6
H. §213(d)(10) Long Term Insurance Premium Deductions Based on Age ........... 2-7
I. §101(g)(D)(3) Excluded Benefits from Qualified Long-Term Care
Coverage .............................................................................................................. 2-8
J. §274(n)(3) Meal Allowance Deduction for Certain Taxpayers ........................... 2-8
K. §280F Year 2015 Luxury Auto Depreciation Dollar Limits and
Lease Inclusion Add-Back Amounts ................................................................... 2-9
L. §162 Standard Mileage Rates ............................................................................ 2-13
M. §6159 Administrative Relief for Entering Into an Installment
Agreement with the IRS ..................................................................................... 2-14
N. Retirement Fund Portability Rules Provide Taxpayers More Choices .............. 2-16
O. Definition of Limited Partner for Purposes of Self-Employment Tax:
(Proposed Reg. §1.1402-(a)-2(h)(3) ................................................................. 2-18
P. Notice of Inconsistent Treatment: Form 8082 .................................................. 2-19
Q. §465 At Risk Limitations: Schedule C and Schedule E Issues and
Form 6198 Reporting Requirements ................................................................. 2-20
ii

Page
R. Education Program Comparison Sheet .............................................................. 2-24
S. Other Important Threshold Amounts ................................................................. 2-25
T. Helping the Tax Professional in Understanding and Responding to
IRS CP 2000 Notices ......................................................................................... 2-26
U. §213(d) Eligible Medical Expenses ................................................................... 2-29
V. Worksheets for Aiding Clients in Gathering Deductible Tax Data By Types
and Professions: Modeled and Presented through Courtesy of CFS
Tax Tools ........................................................................................................... 2-31
• Airline Personnel Deductions ................................................................ 2-32
• Automobile Salesperson Deductions ..................................................... 2-33
• Business Professional Deductions ......................................................... 2-34
• Clergy Deductions ................................................................................. 2-35
• Construction Worker Deductions .......................................................... 2-36
• Day Care Provider Deductions .............................................................. 2-37
• Direct Seller Deductions ........................................................................ 2-38
• Educator Deductions .............................................................................. 2-39
• Entertainer Deductions ........................................................................... 2-40
• Firefighter Deductions ........................................................................... 2-41
• Hairstylist/Manicurist Deductions ......................................................... 2-42
• Law Enforcement Deductions ................................................................ 2-43
• Long Haul Trucker/Overnight Driver Deductions ................................. 2-44
• Medical Professional Deductions .......................................................... 2-45
• Realtor Deductions................................................................................. 2-46
• Self-Employed Individual Deductions ................................................... 2-47
• Vehicle, Travel & Entertainment Expenses ........................................... 2-48
• Missing Information Sheet ..................................................................... 2-49
iii

Page
III.
Introduction to Passive Activity Loss Issues Relating to Real Estate
Transactions ................................................................................................................... 3-1
A. §469: Passive Activity Loss Limitations ............................................................. 3-1
B. Active Participation in Rental Real Estate Activities .......................................... 3-4
C. Real Estate Professionals and the Exception to the Amount $25,000
Special Allowance Limitation .............................................................................. 3-5
D. Self-Rental Rule Issues ........................................................................................ 3-6
E. Disposition of a Passive Activity via Sale ........................................................... 3-7
F. Disposition of a Passive Activity at Death .......................................................... 3-8
G. Disposition of a Passive Activity by Gift .......................................................... 3-10
H. Transfer of a Passive Activity Due to Divorce .................................................. 3-11
I. Disposition of a Passive Activity via Installment Sale .................................... 3-12
J. Sale of a Passive Activity to a Related Party ................................................... 3-13
K. Passive Activity Changes to Active Participation ............................................. 3-14
L. §1031 Deferred Like-Kind Exchange Transactions and the Treatment
of a Suspended PAL........................................................................................... 3-15
M. Utilizing Passive Losses .................................................................................... 3-15
N. Tax Court Rules Real Estate Agent Equals Real Estate Professional. (SHRI
and Sudha Agarwal vs. Commissioner, T.C. Summary Opinion 2009-29)
Docket No. 12670-072. Filed March 2, 2009 .................................................... 3-16
O. Tax Court Rules Real Estate Agent Not a Real Estate Professional (Gregory
John Bahas and Linda A. Bahas v. Commissioner U.S. Tax Court, T.C.
Summary Opinion 2010-115) Docket No. 29381-092.
Filed August 16, 2010 ........................................................................................ 3-22
P. 9 th Circuit Upholds §469 Self-Rental Regulations (Beecher, CA9, 3/23/2007,
99 AFTR 2d 2207-712) .................................................................................... 3-27
iv

Page
IV.
Taking a Closer Look at the Federal Income Tax Issues of the Affordable Care
Act (ACA): It’s Not Going Away! ................................................................................ 4-1
A. Introduction to the Legislation ............................................................................. 4-1
B. Tax Changes and the Universal Health Care Coverage Requirements ................ 4-1
C. Health Coverage Exemptions .............................................................................. 4-2
D. §36B Premium Assistance Credit ........................................................................ 4-5
E. §36B Details....................................................................................................... 4-12
F. 2015 Congressional Research Service Report to Congress ............................... 4-24
G. Claiming an Exemption from the Mandate ........................................................ 4-28
H. Household Income: 100% - 400% of “Federal Poverty Level” (FPL) .............. 4-28
I. Premium Credit In 2015 ..................................................................................... 4-29
J. Premium Credit Examples: Self Only And Family Coverage ........................... 4-32
K. Discussion of “Self Only Coverage” Examples................................................. 4-35
L. Discussion of “Family Coverage” Examples ..................................................... 4-36
M. Reconciliation of Advanced Premium Credits on IRS Form 8962
Premium Tax Credit ........................................................................................... 4-36
N. Exchange Plan Selection and Premium Credits ................................................. 4-38
O. §4980H Shared Responsibility for Employers Regarding Health Coverage ..... 4-39
P. Partial Chart of Tax Provisions by Code Section .............................................. 4-57
Q. Partial Chart of Tax Provisions by Effective Date ............................................. 4-58
V. Review of Selected Provisions from Tax Legislation of the 21 st Century
Needed to Prepare 2015 Tax Returns and Beyond ..................................................... 5-1
A. Congress Enacts Tax Provisions in a Non Tax Legislative Bill .......................... 5-1
B. §25A Hope Scholarship Credit Gets Some Temporary Modifications ............... 5-8
v

Page
C. §24(d)(4) Refundable Portion of Child Tax Credit ........................................... 5-10
D. §32(b)(3)(A) Earned Income Credit Percentage for Families
with Three or More Qualifying Children ........................................................... 5-12
E. Alternative Minimum Tax (AMT) Issues .......................................................... 5-13
F. Pension Plan Issues: Employer Deferral Plans .................................................. 5-15
G. Employer Deferral Plans and the §401(k), §403(b), §457(b) Roth
Elections ............................................................................................................. 5-17
H. Profit Sharing Plans ........................................................................................... 5-18
I. §408(d)(8) Individuals Retirement Accounts and Qualified
Charitable Distributions ..................................................................................... 5-18
J. §408A(e) Allows More Rollovers to Roth IRA Plans ....................................... 5-21
K. §402(I) Limited Exclusion from Government Pension Plans
Available for Retired Public Safety Officers (PSO) .......................................... 5-22
L. §401(a)(36) Distributions During Working Retirement .................................... 5-25
M. §414(d) Distributions to Qualified Public Safety Employees ........................... 5-26
N. §108 Home Mortgage Debt Relief Expired After 12/31/2014 .......................... 5-27
O. §6050W Returns Relating to Payments Made in Settlement of
Payment Card and Third Party Network Reporting: Form 1099-K .................. 5-31
P. §164(b)(5) Election to Claim an Itemized Deduction for State and
Local Sales Tax .................................................................................................. 5-32
Q. §62(a)(2)(D) Above-The-Line Deduction For Teachers’ Classroom
Expenses ............................................................................................................ 5-32
R. §6721 Penalties for Failure to File Correct Information Returns ...................... 5-33
S. §6722 Penalties for Failure to Furnish Correct Payee Statements ..................... 5-34
T. Dependent Health Benefits Extended for Adult Children Until
Date of 26 th Birthday .......................................................................................... 5-35
vi

Page
U. Employees Get An Exclusion from Income for Employer-Provided Health
Coverage Extended to Cover Adult Children Under Age 27 ............................ 5-36
V. Self-Employed Individuals May Deduct Health Insurance Premiums
Paid for Children Under Age 27 ....................................................................... 5-37
W. 7 ½% Floor on Schedule A Medical Expense Deduction Increased
to 10% with Transaction Rules for Seniors ....................................................... 5-38
X. Annual Contribution to Health Flexible Spending Accounts (FSA)
Capped ............................................................................................................... 5-39
Y. Reimbursements and Distributions of Qualified Medical Expenses
from FSA, HSA, HRA, and Archer MSA Plans Limited for Purposes of
Over-the-Counter Medicines and Drugs ............................................................ 5-40
Z. Additional Medicare Tax Imposed on Wages: Hospital Insurance (HI) ........... 5-41
AA. Additional HI Tax Imposed on Self-Employment Income ............................... 5-45
BB. §164(f) No Income Tax Deduction for the §1401(b)(2) HI Tax ....................... 5-48
CC. Individual Taxpayer’s Net Investment Income Subject to Medicate Tax ......... 5-48
DD. Estates and Trusts Subject to Medicare Tax on Net Investment Income .......... 5-56
EE.
American Taxpayer Relief Act of 2012 Partial Chart of Provision
Changes .............................................................................................................. 5-58
VI.
Issues Concerning the “Repair Regulations” and the Impact on Small Business
(T.D. 9636) ...................................................................................................................... 6-1
A. Background Issues of Current Year Deductibility vs. Capitalization and
Depreciation ............................................................................................................... 6-1
B. Final Regulation Issues .............................................................................................. 6-2
C. Taxpayers with Applicable Financial Statements (AFS) vs Taxpayers
without AFS ............................................................................................................... 6-4
D. Understanding the Deductibility of Materials and Supplies ...................................... 6-7
vii

Page
VII. Capital Gain and Loss Transaction Issues .................................................................. 7-1
A. §1(h) Long Term Capital Gains and Qualified Dividends Provided
Preferential Tax Rates .......................................................................................... 7-1
B. §1(h)(10) Pass-through Entities and the Capital Gain Provisions ....................... 7-5
C. §1250 Unrecaptured Depreciation on the Sales of Rental Real Estate ................ 7-5
D. §55(b)(3) Alternative Minimum Tax (AMT) Rates ............................................ 7-6
E. §1211 Limitation on Capital Losses .................................................................... 7-6
F. §1091 Wash Sale Transactions ............................................................................ 7-7
G. §1233 Gains and Losses from Short Sale Security Transactions ........................ 7-9
H. Character of Capital Gain or Loss on Short Sales ............................................. 7-10
I. §1244 Losses on Small Business Stock ............................................................. 7-11
J. Nonqualified Use of a Principal Residence Disallows §121 Exclusion
of Income ........................................................................................................... 7-13
VIII. Federal Tax Court Cases ............................................................................................... 8-1
A. Individual’s Consulting Activity Not for Profit: Deductions Disallowed and
Penalties Imposed (Kurt Anthony Strode vs. Commissioner, TC Memo,
2015-117) (June 25, 2015) .................................................................................. 8-1
B. Individual’s Unsubstantiated Business Expense Deductions Denied: Penalties
Imposed (E.W. Lau, TC Memo 2015-137) (July 31, 2015) .............................. 8-5
C. Accountant’s Unsubstantiated Deductions Denied: Penalties Imposed (S. Flying
Hawk, TC Memo 2015-139) (August 5, 2015) ................................................. 8-7
D. Poor Substantiation Kills Charitable Deduction for $27,000 of Non-Cash
Contributions (Thad Deshawn vs. Commissioner 108 T.C.M. 384, TC Memo
2014-203) (October 2, 2014) .............................................................................. 8-9
E. Tax Court Denies Individual’s §170 Non-Cash Charitable Contributions
(Roberta Lee Howe vs. Commissioner, U.S. Tax Court, T.C. Summary
Opinion 2015-26) (April 9, 2015). ................................................................... 8-15
viii

Page
F. Noncustodial Parent Denied Dependency Exemption, Child Tax Credit and
Head of Household Filing Status (H.L. Porter, TC Memo 2015-151)
(August 6, 2015) ................................................................................................ 8-23
G. Deduction for Officer Compensation Disallowed Because Check Was Not
Payable due to Insufficient Funds: (Vanney Associates, Inc. v. Commissioner,
U.S. Tax Court, Dkt. No. 25684-11, TC Memo. 2014-184, 108 T.C.M. 265)
(September 11, 2014). ...................................................................................... 8-24
H. Payments to Ex-Spouse Disallowed as Deductible Alimony Payments:
(Fred D. Murray v. Commissioner, U.S. Tax Court, T.C. Summary
Opinion 2013-103) (December 12, 2013) ........................................................ 8-30
I. Taxpayers Denied Deduction for Farmhouse Expenses (D.B. Meinhardt,
CA-8, 2014-250,430 September 12, 2014. Donald B. Meinhardt and
Arvella Meinhardt v. Commissioner, U.S. Tax Court Docket No. 21903-09,
T.C. Memo., 2013-85) (March 27, 2013) ........................................................ 8-41
IX. IRS Announcements, Rulings, Revenue Procedures, Etc. ......................................... 9-1
A. IRS Announcement 2014-32, I.R.B. 2014-48, November 10, 2014 §408
Individual Retirement Accounts: Rollovers: One-Per-Year Rule:
Transition Relief: ................................................................................................. 9-1
B. Alimony-Separate Maintenance Payments: IRS Letter Ruling 201531013
(April 30, 2015) ................................................................................................... 9-4
C. IRS Collection Launches Early Interaction Initiative: Headliner Volume 351
(August 7, 2015) .................................................................................................. 9-7
D. Subchapter S Corporation and §1362 Inadvertent Terminations Due to
Ineligible Shareholders: Private Letter Ruling 201536014 (09/04/2015) ....... 9-10
E. §6035 Basis Information to Persons Acquiring Property from Decedent:
Required Statements and Filing Due Date: Notice 2015-57, 2015-36 IRB,
(8/21/2015) ......................................................................................................... 9-13
F. Taxpayer Receives Waiver of §72(t) penalty for Medical Reasons: §408
Individual Retirement Account Rollover Contribution: IRS Letter Ruling
201431035 (May 06, 2014) ............................................................................... 9-16
G. The Simplified Option for Claiming a Home Office Deduction:
Rev. Proc. 2013-13............................................................................................ 9-20
ix

Page
H. TIGTA Says IRS Needs to Improve Correspondence Audit Selection Process:
(Reference Number: 2013-30-077) (September 6, 2013) ................................ 9-23
Self-Study Course Questions and Answer Sheet
Supplement: Draft Forms
x

I. Reviewing, Understanding
and Analyzing the
Importance of
Adjusted Gross Income
(AGI)
and the Impact on the Rest of
the Form 1040

I. Reviewing, Understanding And Analyzing The Importance Of Adjusted Gross
Income (AGI) And The Impact On The Rest Of The Form 1040
A. The Tax Professional’s Role: Focus On AGI
1. Most taxpayers know that there are deductions available which reduce their
taxable income. Generally these deductions are those that are usually
deductible on Schedule A as specific elected itemized deductions. The tax
professional, however, should be looking for deductions which reduce AGI
on page 1 of Form 1040.
2. In the creation of the Tax Reform Act of 1986 Congress shifted its focus to
provisions affected by AGI. The initial attack was the creation of the §469
passive activity loss rules which disallows rental losses for taxpayers with a
modified AGI greater than $100,000. It is important for the tax professional
to remember that this threshold amount of $100,000 has never been indexed
to inflation.
3. The Tax Reform Act of 1986 also provided for the disallowance of
deductible IRA contributions under §219 when a taxpayer’s modified AGI is
above a certain threshold amount based on the taxpayer's filing status.
4. From there, the pattern continued with subsequent legislative action in the
Budget Reconciliation Act of 1990. This was the legislation which provided
for the phase-out of §68 itemized deductions and phase-out of §151 personal
and dependency exemptions.
5. The Taxpayer Relief Act of 1997 was presented to the American taxpayer as
tax relief to the middle-class. However, Congress did not define middle-class
by standard of living; but, instead by levels of AGI and tied it to the taxpayer’s
filing status.
1-1

6. Many of the provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001 focused on AGI and increased threshold amounts
for many middle class taxpayers who were left behind by the 1997 Act.
Subsequent legislation including the American Recovery and Reinvestment
Act of 2009, the 2010 Health Care Act, and the 2010 Tax Relief Act and
Job Creation Act of 2010 created provisions subject to AGI and modified
AGI phase-out rules. As a result of the 2010 Health Care Act some
taxpayers with an AGI beyond specified thresholds based on filing status will
be subject to an additional Medicare tax of 0.9% on earned income and 3.8%
on their net investment income. Some will even lose their §36B Premium
Assistance Credit which is reported on Form 8962 Premium Tax Credit
(PTC).
7. As a result of the manner in which legislation is crafted, tax professionals
should focus, review and analyze their planning issues around the importance
of AGI. If income can be shifted to a future year in order to take advantage of
current year opportunities, then the taxpayer may be able to save significant
tax dollars.
8. In some cases, a taxpayer may want to shift the income to the current tax year
in order to balance AGI in two tax periods and not hinder the threshold levels
in either year.
B. AGI: The Most Important Number on the Tax Return
1. Because of the various number of phase-out provisions in the law, today’s tax
professional must be more conscious of changes in a client’s tax life than ever
before. The tax professional has to be able to foresee and explain the true tax
effect of an increase or decrease to their client’s AGI.
2. Because of the various phase-in and phase-out provisions in the law, the tax
bracket itself should not be the only focus. The planning of a transaction and
the actual calculations should be taking place well before the time of
preparing the client’s tax return.
1-2

TAX PROFESSIONAL ALERT: The phase-in and phase-out of tax
provisions can result in substantial tax liability that has nothing to do with the
rates themselves. It could be especially critical for Social Security recipients
who normally have little or no inclusion of their Social Security benefits but
could find that a $10,000 capital gain taxed at a zero tax rate catapults their
Social Security benefits into higher tax liability which could cause them to be
severely underpaid for the current year and subject to increased withholding
or estimated tax responsibilities for the next year.
Tax Professional’s Focal Point: The tax professional needs to analyze how
an increase or decrease in a particular client’s AGI affects the net tax
liability for that particular client.
C. Defining Gross Income and Adjusted Gross Income (AGI)
1. Before tax professionals can understand the effects of changes in a taxpayer’s
AGI, they must first understand what is included in gross income and how the
law defines adjusted gross income.
2. §61(a) provides a general rule that gross income means all income from
whatever source derived unless there is a specific exception.
3. §62(a) provides a general rule that the term “adjusted gross income” means
gross income minus the following deductions:
a. §62(a)(1) Trade or business deductions
b. §62(a)(2) Certain trade and business deductions of employees
i. Reimbursed expenses of employees
ii.
iii.
iv.
Certain expenses of performing artists
Certain expenses of officials
Certain expenses of elementary and secondary school teachers
v. Certain expenses of members of reserve components of the Armed
Forces of the United States
c. §62(a)(3) Losses from sale or exchange of property
1-3

d. §62(a)(4) Deductions attributable to rents and royalties
e. §62(a)(5) Certain deductions of life tenants and income beneficiaries
of property
f. §62(a)(6) Pension, profit sharing and annuity plans of self-employed
individuals
g. §62(a)(7) Retirement savings under §219
h. §62(a)(8) Repealed
i. §62(a)(9) Penalties incurred because of premature withdrawal of funds of
time savings accounts or deposits
j. §62(a)(10) Alimony allowed under §215
k. §62(a)(11) Reforestation expenses allowed under §194
l. §62(a)(12) Certain required payments of supplemental unemployment
compensation benefits
m. §62(a)(13) Jury duty pay remitted to employer
n. §62(a)(14) Deduction for clean-fuel vehicles and certain refueling
property under §179A
o. §62(a)(15) Moving expenses allowed under §217
p. §62(a)(16) Archer MSAs allowed under §220
q. §62(a)(17) Interest on education loans allowed under §221
r. §62(a)(18) Higher education expenses allowed under §222
s. §62(a)(19) Health Savings Accounts allowed under §223
t. §62(a)(20) Costs involving discrimination suits involving a claim of
unlawful discrimination as defined under §62(e)
u. §62(a)(21) Attorney’s fees relating to awards to whistle-blowers
1-4

D. Partial Chart of Provisions Affected By AGI or Modified AGI for the Year 2015
The following is a partial chart presenting the provisions subjected to the limitations of AGI
and modified AGI as defined for each separate provision:
Tax Provision
Filing Status
1. §23 Adoption Credit (1)(A) Married Joint/
Surviving Spouse
Single & Head of
Household
Phase-out
Begins
Phase-out
Ends
Range
$201,010 $241,010 $40,000
2. §24 Child Tax Credit (2)
(1 child) Form 1040, Page 2
(WS)
3. §25A Lifetime Learning
Credit (1) Form 8863
4. §25A American Opportunity
Tax Credit (2)(C)
Form 8863
5. §68 Phase-out of Itemized
Deductions Schedule A
(1)(WS)
6. §135 Exclusion of U.S.
Savings Bond Interest for
Qualified Education Expenses
(1) Form 8815
7. §137 Employer Adoption
Assistance (1) Form 8839
Married Separate
Married Joint
Single & Head of
Household
Married Separate
Married Joint
Single & Head of
Household
Married Separate
Married Joint
Single & Head of
Household
Married Separate
Married Joint
Married Separate
Single
Head of Household
Married Joint
Single & Head of
Household
Married Separate
Married Joint/
Surviving Spouse
No credit allowed N/A N/A
$110,000 $129,001 $19,001
$ 75,000 $ 94,001 $19,001
$ 55,000 $ 74,001 $19,001
$110,000 $130,000 $20,000
$ 55,000 $ 65,000 $10,000
No credit allowed N/A N/A
$160,000 $180,000 $20,000
$ 80,000 $ 90,000 $10,000
No credit allowed N/A N/A
$309,900 N/A N/A
$154,950 N/A N/A
$258,250 N/A N/A
$284,050 N/A N/A
$115,750 $145,750 $ 30,000
$ 77,200 $ 92,200 $ 15,000
N/A N/A N/A
$201,010 $241,010 $40,000
Single & Head of
Household
Married Separate
No credit allowed
N/A
N/A
1-5

8. §151 Phase-out of
Exemptions (1) Form 1040,
Page 2 (WS)
9. §219 Deductible IRA (1)
Form 1040, Page 1 (WS)
10. §219 Deductible IRA for
Spouses who are Not Active
Participants (1) Form 1040,
Page 1 (1) (WS)
11. §221 Student Loan Interest
Deduction Form 1040, Page
(1) (WS)
12. §408A Roth IRA
Contribution (1)(WS)
13. §469 Passive Activity Loss
(2) Form 8582
14. §530 Coverdell Educational
Savings Plans (2)(WS)
Married Joint
Single
Head of Household
Married Separate
Married Joint
Single & Head of
Household
Married Separate
$309,900
$258,250
$284,050
$154,950
$ 98,000
$ 61,000
$ -0-
$432,400
$380,750
$406,550
$216,200
$118,000
$ 71,000
$ 10,000
$122,500
$122,500
$122,500
$ 61,250
$ 20,000
$ 10,000
$ 10,000
Married Joint $183,000 $193,000 $ 10,000
Married Joint
Single & Head of
Household
Married Separate
Married Joint
Single & Head of
Household
Married Separate
Married Joint
Single, Head of
Household or
Married Separate
Married Joint
Single & Head of
Household
Married Separate
$130,000
$ 65,000
N/A
$183,000
$116,000
N/A
$100,000
No deduction allowed
$190,000
$ 95,000
N/A
$160,000
$ 80,000
N/A
$193,000
$131,000
N/A
$150,000
N/A
$220,000
$110,000
N/A
$ 30,000
$ 15,000
N/A
$ 10,000
$ 15,000
N/A
$ 50,000
N/A
$ 30,000
$ 15,000
N/A
Other Provisions Affected by AGI or Modified AGI:
Provision
1. §21 Dependent Care Credit (2) Form 2441
2. §22 Credit for the Elderly or Permanently and Totally Disabled (2) Schedule
R
3. §25B Retirement Contributions Savings Credit (1) Form 8880
4. §32 Earned Income Credit (1) Schedule EIC
5. §36B Premium Assistance Credit Form 8962
1-6

6. §67 Miscellaneous Itemized Deduction Allowance after 2% of AGI
disallowance (2) Schedule A (WS)
7. §86 Social Security benefits (2) Form 1040, Page 1 (WS)
8. §165 Casualty and Theft Loss Allowance after 10% of AGI disallowance (2)
Form 4684
9. §213 Medical Deduction Allowance after 10% of AGI (2) Schedule A (B)
(WS)
10. §222 Deduction for qualified higher education expenses (2) Form 8917 (A)
11. §1411(a) Medicare Tax on Net Investment Income of 3.8% Form 8960
12. §3101(b)(2) Medicare tax on wages and self-employment income of 0.9%
Form 8959
13. §6654 Quarterly estimated tax payments safe harbor rules (110%) (2) Form
2210
Legend:
(1) Indexed annually to inflation
(2) Not indexed to inflation
(A) Provision expired after 2014 as of this writing
(B) 10% beginning in 2013 for taxpayers under 65 years old. However, still at
7.5% for taxpayers or spouses 65 and older during 2013-2016
(C) Provision is scheduled to expire as of December 31, 2017
(WS) Worksheet calculation
TAX PROFESSIONAL ALERT: Throughout this course the tax professional should
be aware of AGI and the modifications to AGI as they affect the various provisions
pertaining to each of their clients. While this course discusses the reduction of tax rates
in general and the favorable treatment of capital gains, qualified dividends, accelerated
depreciation, etc., the tax professional cannot lose sight of the big picture. After the tax
professionals educate themselves on focusing on AGI, they must pass this critical
knowledge on to each and every one of their clients. The best surprise is no surprise!
1-7

Scenarios illustrating the importance of AGI
The following are simple examples of how you the tax professional can assist the client
in understanding the issues of AGI and the importance of planning transactions and
preventing unpleasant surprises:
In 2015 Blue and Sunny Skies, a married couple, file a joint return. They have two
children: Bright (age 1) and Not-So-Bright (age 28) who is not a student but qualifies as
a dependent.
Scenario #1
The Skies’ only income is Blue’s salary of $95,000 and the couple takes the
standard deduction. Their situation results in a net tax liability as follows:
Salary ................................................................................................................................................... $95,000
Capital Gain .......................................................................................................................................... - 0 -
AGI ........................................................................................................................................................ 95,000
Less: Basic Standard Deduction ......................................................................................................... (12,600)
Personal Exemptions (4 x $4,000) ............................................................................... (16,000)
Taxable Income ........................................................................................................... $66,400
Calculation of Income Tax:
Taxable
Income
Tax
10% Bracket on first $18,450 $1,845
15% Bracket on next 47,950 7,193
Total $66,400 $9,038
Less:
§25A Education Credit ...................................................................................... ( -0- )
§24 Child Tax Credit .......................................................................................... (1,000)
Net Tax Liability ............................................................................................................. $8,038
Result: Their marginal tax bracket is 15%. The effective tax rate is 12.11%
($8,038/$66,400)
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Scenario #2
In 2015, Not-So-Bright, who is an off and on lifetime student, went off to graduate school.
The tuition is $10,000 which was paid from a savings account. This results in a §25A
Education Credit of $2,000 reported on Form 8863 using the election for the Lifetime
Learning Credit. The Lifetime Learning Credit is 20% of the first $10,000 of qualified
education expenditures. As a result, the AGI, taxable income and tax remain the same.
However, the §25A $2,000 Lifetime Learning Credit reduces the net tax liability.
Scenario #1 Scenario #2 Change
AGI $95,000 $95,000 $ -0-
Taxable Income $66,400 $66,400 $ -0-
Tax $ 9,038 $ 9,038 $ -0-
Less:
§25A Education ( -0- ) ( 2,000 ) ( 2,000 )
Credit
§24 Child Tax (1,000) ( 1,000 ) - 0 -
Credit
Net Tax Liability $ 8,038 $ 6,038 ( $2,000 )
Result: The $10,000 did not increase gross income. The effective tax rate is 9.09%
($6,038/$66,400). The net tax liability decreases by $2,000.
Scenario #3
Instead of withdrawing money from a savings account, the $10,000 is now the result of
the taxpayers cashing in stock with a zero basis which results in long-term capital gain.
Scenario #1 Scenario #3 Change
Salary $95,000 $ 95,000 $ -0-
Long-Term Capital Gain - 0 - 10,000 10,000
AGI $95,000 $105,000 $10,000
Taxable Income $66,400 $ 76,400 $10,000
Tax $ 9,038 $ 9,263 $ 225
Less:
§25A Education Credit ( -0- ) ( 2,000) (2,000)
§24 Child Tax Credit ( 1,000) ( 1,000) ( -0- )
Net Tax Liability $ 8,038 $ 6,263 ($ 1,775)
The $10,000 of long-term capital gain is taxed at preferential rates.
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The overall effective rate is now 8.2% ($6,263/$76,400). However, the net tax liability
drops by $1,775 because of the $2,000 Lifetime Learning Credit.
Scenario #4
Income Tax Calculation: Taxable Income Tax
10% Bracket on first $18,450 $1,845
15% Bracket on next 47,950 7,193
0% Tax rate on LTCG in 15% tax bracket 8,500 -0-
Subtotal $74,900 $9,038
15% Tax rate on LTCG in 25% tax bracket $ 1,500 $ 225
Totals $76,400 $9,263
Instead of cashing in the stock, Blue gets a part-time job where he makes $10,000 in
salary which results as follows:
Scenario #1 Scenario #4 Change
Salary $95,000 $105,000 $10,000
Capital Gain -0- -0- -0-
AGI $95,000 $105,000 $10,000
Taxable Income $66,400 $ 76,400 $10,000
Tax $ 9,038 $ 10,688 $ 1,650
Less:
§25A Education Credit ( -0- ) ( 2,000 ) ( 2,000 )
§24 Child Tax Credit ( 1,000 ) ( 1,000 ) ( -0- )
Net Tax Liability $ 8,038 $ 7,688 $ ( 350 )
Before the education credit is taken, the first $8,500 of increased salary is taxed at 15%
and the remaining $1,500 is taxed at 25%.
Result: The effective rate on the $10,000 is 16.5%. However, because of the credit, the
net tax decreases by $350 between Scenario #1 and Scenario #4. The overall effective
rate is now 10.06% ($7,688/$76,400).
Income Tax Calculation: Taxable Income Tax
10% bracket on first $18,450 $ 1,845
15% bracket on next 56,450 8,468
Subtotals $74,900 $10,313
25% bracket on next $ 1,500 $ 375
Totals $76,400 $10,688
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Scenario #5
The taxpayers are so amazed at the results in Scenario #4 that they decide to work even
harder for the next $10,000 of salary and get the following results:
Scenario #1 Scenario #5 Change
Salary $95,000 $115,000 $20,000
Capital Gain -0- -0- -0-
AGI $95,000 $115,000 $20,000
Taxable Income $66,400 $ 86,400 $20,000
Tax $ 9,038 $ 13,188 $ 4,150
Less:
§25A Education Credit ( -0- ) (1,500) (1,500)
§24 Child Tax Credit ( 1,000 ) ( 750) 250
Net Tax Liability $ 8,038 $ 10,938 $2,900
Now the $20,000 increase in salary causes the phase-out of the §25A Lifetime Learning
Credit which begins being phased out at $110,000 of AGI over a range of $20,000 for a
married couple filing a joint return. Therefore the credit is reduced by $500 because of
the phase-out range.
AGI $115,000
Threshold amount (110,000)
Phase-out amount $ 5,000
Phase-out amount = $ 5,000 = 25% x $2,000 = $500
Phase-out range $ 20,000
Total credit $ 2,000
Less: phase-out (500)
Available credit $ 1,500
At this point the §24 Child Tax Credit (CTC) is also subject to phase out which begins
beyond $110,000 of AGI and is phased out $50 for each $1,000 above $110,000 or
fraction theory. Therefore at $115,000 of AGI the taxpayer will lose $250 of their $1,000
Child Tax Credit giving them only $750 of credit.
Result: The marginal tax rate on the first $10,000 is 16.5% and the next $10,000 is still
taxed at 25% therefore resulting in a $2,500 tax.
The effective rate is 20.75% ($4,150/$20,000).
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The overall effective rate is 12.66% ($10,938/$86,400).
Income Tax Calculation:
10% on $18,450 = $1,845
15% on 56,450 = 8,468
25% on 11,470 = 2,868
Total $86,400 $13,181
TAX PROFESSIONAL ALERT: The real issue dealing with AGI for these taxpayers
is the phase-out of the Lifetime Learning Credit when comparing the ordinary income
increase between Scenario #4 and #5 as follows:
Scenario #4 Scenario #5 Change
Salary $105,000 $115,000 $10,000
Capital Gain -0- -0- -0-
AGI $105,000 $115,000 $10,000
Taxable Income $ 76,400 $ 86,400 $10,000
Tax $ 10,688 $ 13,188 $ 2,500
Less:
§25A Education Credit ( 2,000 ) ( 1,500 ) 500
§24 Child Tax Credit ( 1,000 ) ( 750 ) 250
Net Tax Liability $ 7,688 $ 10,938 $ 3,250
Result: Now the $10,000 increase in salary causes a $3,250 tax increase at the 25%
marginal brackets and the increase in AGI causes the phase-out of the education credit
and reduces it by $500 causing an effective rate of 12.66% and phases out the §24 Child
Tax Credit by $250.
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Comparison of all Scenarios
Scenario #1 Scenario #2 Scenario #3 Scenario #4 Scenario #5
Salary $95,000 $95,000 $ 95,000 $105,000 $115,000
Capital Gain - 0 - - 0 - - 0 - - 0 - - 0 -
AGI $95,000 $95,000 $105,000 $105,000 $115,000
Less: Standard Deduction ( 12,600 ) ( 12,600 ) ( 12,600 ) ( 12,600 ) ( 12,600 )
Personal Exemptions ( 16,000 ) ( 16,000 ) ( 16,000 ) ( 16,000 ) ( 16,000 )
Taxable Income $66,400 $66,400 $ 76,400 $ 76,400 $ 86,400
Income Tax $ 9,038 $ 9,038 $ 9,263 $ 10,688 $ 13,188
Less: §25A Education Credit ( - 0 - ) ( 2,000 ) ( 2,000 ) ( 2,000 ) ( 1,500 )
§24 Child Tax Credit ( 1,000 ) ( 1,000 ) ( 1,000 ) ( 1,000 ) ( 750 )
Net Tax Liability $ 8,038 $ 6,038 $ 6,263 $ 7,688 $ 10,938
Effective Tax Rate 12.11% 9.09% 8.29% 10.06% 12.66%
E. §151 Personal Exemption Amounts and the Issue of Phase-Out
1. The personal exemption amounts are indexed annually for inflation based on
the average of the Consumer Price Index (CPI) for all urban consumers
published by the Department of Labor for each month in the 12-month period
ending on August 31, 2015. Official figures are required to be released by
December 15, 2015. For tax years 2012-2016 these amounts are as follows:
Year
Amount
2012 $3,800
2013 $3,900
2014 $3,950
2015 $4,000
2016 $4,050
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2. The phase-out of the personal exemptions for 2012-2016 begins at the
following threshold amounts:
Filing Status 2012 2013 2014 2015 2016
Married Joint/Surviving Spouse N/A $300,000 $305,050 $309,900 $311,300
Married Separate N/A $150,000 $152,525 $154,950 $155,650
Single N/A $250,000 $254,200 $258,250 $259,400
Head of Household N/A $275,000 $279,650 $284,050 $285,350
F. §68 Adjusted Gross Income Thresholds for Reduction of Schedule A
Itemized Deductions
1. §68(a) provides a general rule that in the case of an individual whose adjusted
gross income (AGI) exceeds the applicable amount, the amount of itemized
deductions otherwise allowable for the taxable year shall be reduced by the
lesser of:
a. 3% of the excess of AGI over the applicable amount, or
b. 80% of the amount of the itemized deductions otherwise allowable for
such tax year.
2. §68(b) provides that the term “applicable amount” means $100,000 ($50,000
for a married individual filing a separate return). The “applicable amount” is
indexed to inflation for tax years beginning after 1991.
3. §68(c) provides exceptions for certain itemized deductions because they each
have separate limitations under their own provisions. Therefore for purposes
of the §68(a) limitation, the term “itemized deductions” does not include:
a. §213 medical deductions
b. §163(d) investment interest
c. §165(a) casualty or theft losses
d. §165(d) wagering losses
1-14

4. §68(d) provides that the application of the 3% limitation shall be applied after
the application of the allowance of any itemized deduction.
5. The threshold amounts that phase out itemized deductions are adjusted
annually. The adjusted gross income threshold amounts for tax years 2012-
2016 are as follows:
Filing Status 2012 2013 2014 2015 2016
Married Joint/Surviving Spouse N/A $300,000 $305,050 $309,900 $311,300
Married Separate N/A $150,000 $152,525 $154,950 $155,650
Single N/A $250,000 $254,200 $258,250 $259,400
Head of Household N/A $275,000 $279,650 $284,050 $285,350
EXAMPLE: In tax years 2012-2016, the taxpayer has the same AGI of $349,000
and total itemized deductions of $20,000. His total itemized deductions are
reduced as follows:
2012 2013 2014 2015 2016
AGI $349,000 $349,000 $349,000 $349,000 $349,000
Less: Threshold Amount ( N/A ) ( 300,000 ) ( 305,050 ) ( 309,900 ) $311,300
Excess Over AGI $ N/A $ 49,000 $ 43,950 $ 39,100 $37,700
3% Limitation Test 3% 3% 3% 3% 3%
Phase-out of Itemized
Deductions $ N/A $ 1,470 $ 1,319 $ 1,173 $ 1,131
Total Deductions $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
Less: Lost Deductions ( -0- ) ( 1,470 ) ( 1,319 ) ( 1,173 ) $ 1,131
Deductible Itemized Amount
After Limitation $ 20,000 $ 18,350 $ 18,681 $ 18,827 $ 18,831
1-15

G. §151 Phase-Out Provisions for Exemptions
1. Beginning in 2006 the law began to provide some relief for taxpayers with
high-income affected by the 1990 Budget and Reconciliation Act which
prevented them from fully benefitting from their §151 deduction for personal
exemptions.
2. For years 2010-2012, §151(d)(3) provided that personal exemptions were
not phased out based on AGI.
3. For purposes of the exemption phase-out, §151(d)(3)(E) provided that a
taxpayer did not lose any exemption amounts in 2010-2012.
4. Beginning in 2013 the law reinstated the phase-out of personal exemptions.
EXAMPLE #1: For 2015, a married couple with two dependents had an AGI
of $349,000. Their total deduction amount for exemptions (before applying
the phase out rule) is $16,000 which is the 2015 basic exemption amount of
$4,000 times 4 exemptions. Since the couple’s AGI of $349,000 exceeds the
applicable inflation adjusted threshold amount of $309,900, their total
deduction for exemptions of $16,000 must be reduced to $10,800 under the
phase out rule as follows:
a. Taxpayers’ AGI: $349,000
b. Applicable threshold amount for 2015 ($309,900)
c. $349,000 - $309,900 = excess AGI over the threshold amount of $39,100
d. Excess AGI in multiples of $2,500
($39,100/$2,500 = 15.64, rounded up = 16)
e. Reduction percentage (.02 x multiple of 16 = .32)
f. Reduction amount (.32 x $16,000 = $5,120)
g. Reduced exemption allowance: $16,000 - $5,120 = $10,800
Tax Professional Research Recommendation: For more information refer
to IRS Publications: 3, 501, 505, and 554.
1-16

H. §135 Interest from U.S. Savings Bonds Used To Pay Higher Education
Tuition and Fees
1. §135(a) provides a general rule that in the case of an individual who pays
qualified higher education expenses during the taxable year, no amount shall
be includible in gross income by reason of the redemption during such year of
any qualified United States Savings Bond. The exclusion is phased out based
on modified AGI.
2. §135(d)(3) provides that no exclusion is available for married taxpayers filing
separately.
3. §135(b)(2) provides that the phase-out level is adjusted annually for inflation.
The starting and ending thresholds for 2012-2016 are as follows:
Single
Joint
Year Begins Ends Range Begins Ends Range
2012 $72,850 - $87,850 = $15,000 $109,300 - $139,300 = $30,000
2013 $74,700 - $89,700 = $15,000 $112,050 - $142,050 = $30,000
2014 $76,000 - $91,000 = $15,000 $113,950 - $143,950 = $30,000
2015 $77,200 - $92,200 = $15,000 $115,750 - $145,750 = $30,000
2016 $77,550 - $92,550 = $15,000 $116,300 - $146,300 = $30,000
4. §135(c)(1) defines the term “qualified United States savings bond” to mean
any United States savings bond issued:
a. after December 31, 1989,
b. to an individual who has attained age 24 before the date of issuance,
and
c. it is a Series EE or Series I bond.
NOTE: A bond acquired by a parent or a grandparent issued in the name
of a child under age 24 does not qualify for the exclusion by the parent,
grandparent or child.
1-17

5. §135(c)(2)(A) provides that “qualified higher educational expenses” means
tuition and fees required for enrollment or attendance for the taxpayer, spouse,
or dependent (for whom you can claim an exemption) at an eligible
educational institution.
6. §135(c)(2)(C) provides that qualified expenses include any contribution made
to a §529 qualified tuition program or to a §530 Coverdell Education Savings
Account (ESA).
7. §135(c)(2)(B) provides that qualified expenses do not include expenses for
room and board or for courses involving sports, games, or hobbies that are not
part of a degree or certificate granting program.
8. §135(c)(3) provides that “eligible educational institution” means most
public, private, and nonprofit universities, colleges and vocational schools that
are accredited and are eligible to participate in student aid programs run by
the Department of Education. This is the same meaning as under §529.
9. §135(d) provides for the reduction for certain benefits. The taxpayer must
reduce the qualified higher educational expenses by all of the following taxfree
benefits:
a. Tax-free part of scholarships and fellowships,
b. Expenses used to calculate the tax-free portion of distributions from a
§530 Coverdell ESA,
c. Any tax-free payments (other than gifts or inheritances) received for
educational expenses, such as:
i. Veterans’ educational assistance benefits,
ii. qualified tuition reductions,
iii. employer-provided educational assistance, or
iv. any expense used in calculating the §25A Hope and Lifetime
Learning Credits as well as the §25A American Opportunity Tax
Credit.
1-18

10. If the total proceeds (interest and principal) from the qualified U.S. Savings
Bonds redeemed during the year are not more than the adjusted qualified
higher educational expenses for the year, then the taxpayer may be able to
exclude all of the interest. If the proceeds are more than the expenses, then the
taxpayer may be able to exclude only part of the interest.
In order to determine the excludable amount, the taxpayer uses the following
formula:
Total
Interest
Received
x
Qualified Higher Educational
Expenses (QHEE)
Total Proceeds (TP)
= Exclusion
Amount
EXAMPLE #1: In February 2015, Don and Donna cashed a qualified Series
EE U.S. Savings Bond they bought in April 1999. They received proceeds of
$7,512, representing principal of $5,000 and interest of $2,512. In 2015, they
paid $4,000 for their daughter’s college tuition. They are not claiming an
education credit for that amount, and their daughter does not have any tax-free
educational assistance. They can exclude $1,338 of interest in 2015. The
exclusion amount is calculated on Form 8815 as follows:
Total Amount
Received
$2,512 x QHEE
TP
$4,000
$7,512
= $1,338 Exclusion
Amount
They must include the remaining interest of $1,174 in gross income calculated
as follows:
Form 1099 INT Box 3 Amount - Schedule B, line 1 $ 2,512
Less: §135 Exclusion Amount - Schedule B, line 3 (1,338)
Inclusion for Gross Income - Schedule B, line 4 $ 1,174
1-19

11. §135(b) provides for a limitation of excludable interest. In 2015 the interest
exclusion is limited if modified adjusted gross income (modified AGI) is
$77,200 - $92,200 for taxpayers filing single or head of household, and
$115,750 - $145,750 for married taxpayers filing jointly or for a qualifying
widow(er) with dependent child.
The taxpayer will not qualify for the interest exclusion if the modified AGI is
equal to or more than the upper limit for a filing status.
12. §135(c)(4) provides that modified AGI, for purposes of this exclusion, is
adjusted gross income calculated before the interest exclusion and modified
by adding back any:
a. §137 Exclusion for adoption benefits received under an employer’s
adoption assistance program,
b. §199 Deduction for domestic production activities,
c. §221 Deduction for student loan interest,
d. §222 Deduction for tuition and fees,
e. §911 Foreign earned income exclusion,
f. §911 Foreign housing exclusion and deduction,
g. §931 Exclusion of income for bona fide residents of American Samoa, or
h. §933 Exclusion for income from Puerto Rico.
Tax Professional Education Point: The phase-out range for a married couple
filing jointly is $30,000. Use the worksheet in the instructions for line 9, Form
8815, in order to calculate the modified AGI and the phase out of the
excludable interest.
EXAMPLE #2: In the example above, if Don and Donna had a modified AGI
of $115,750 or less, then all of the $1,338 would be excludable from gross
income. However, if their modified AGI was greater than $145,750, then they
would have no exclusion. But, if their modified AGI was $125,750, then only
part of the $1,338 would be excluded and the amount would be calculated on
Form 8815 as follows:
1-20

Modified AGI
Less: Beginning of phase-out for 2015
$125,750
(115,750)
Excess $ 10,000
Excess $10,000 x $1,338 = includible = $ 446
Range $30,000
Total interest allowable for exclusion $ 1,338
Less: Exclusion amount phase-out (446)
Excluded amount reported on
Schedule B, line 3
$ 892
Tax Professional Record Keeping Recommendation: If the taxpayer claims
the interest exclusion, then they must keep a written record of the qualified
U.S. Savings Bonds redeemed. The record must include the serial number,
issue date, face value and total redemption proceeds (principal and interest) of
each bond. You can use Form 8818, Optional Form to Record Redemption of
Series EE and I U.S. Savings Bonds Issued after 1989, to record this
information. The taxpayer should also keep bills, receipts, canceled checks, or
other documentation such as Form 1098-T that show the paid qualified higher
educational expenses during the year.
I. §6654 Safe Harbor Rules for Required Estimated Tax Payments
1. For purposes of avoiding an estimated tax penalty the law provides for a safe
harbor amount to be paid which is the lesser of:
a. 100% of the prior year tax, or
b. 90% of the current year tax.
2. For individuals whose adjusted gross income for the preceding tax year was
more than $150,000, the 100% is increased to 110%.
Tax Professional Education Point: Since this is an easy method for the government
to raise revenue without raising tax rates, many states have followed this practice and
have imposed the same provisions or a similar provision
1-21

J. §25B Tax Credit for Retirement Plans: Saver’s Credit
§25B Tax Credit for Retirement Plan Contributions
• Tax credit for contributions to retirement plans, including Traditional
IRAs and Roth IRAs
• Credit equals 10% to 50% of contribution depending on adjusted gross
income and filing status
• Maximum credit is $1,000 per person
• Form 8880 Credit for Qualified Retirement Savings Contributions
• Permanent provision as a result of the Pension Protection Act of 2006
• Indexed to inflation since 2007
• Eligible for married filing separate status
1. §25B was created in the 2001 Tax Act and it introduced a provision aimed at
encouraging taxpayers with low levels of income to contribute to IRAs or
employer-sponsored retirement plans. This credit is popularly known as the
“saver’s credit.”
2. The Pension Protection Act of 2006 provided that the provision is now
permanent.
3. Eligible taxpayers can claim a nonrefundable tax credit for contributions or
elective deferrals made to any of the following retirement plans:
a. §219 traditional IRA,
b. §401(k),
c. §403(b),
d. §408 Roth IRA,
e. §408 SIMPLE plans,
f. §408 SEPs, or
g. §457 plans.
TAX PROFESSIONAL ALERT: Because a Roth IRA contribution is not a
reportable entry on the tax return, the credit could be lost. Therefore, the tax
professional should inquire if a Roth IRA contribution was made. A
recommendation is to consider asking this question on a client questionnaire
or client organizer.
1-22

4. The credit is in addition to any income tax deduction, deferral or
exclusion that otherwise applies.
5. The rate of the credit is 10% to 50% of the contribution, however no more
than $2,000 of contributions per person can be considered. Therefore, the
maximum credit is $1,000 per person.
6. The allowable credit is reduced if the taxpayer receives any distributions:
a. from these retirement plans during the current or prior two tax years, or
b. through the due date for filing the current year return (including
extensions).
7. In order to claim the credit, the taxpayer:
a. must be over age 17, and
b. cannot be a full-time student or claimed as a dependent on another
taxpayer’s return.
8. In 2015 the credit is not available when a married couple’s modified AGI
exceeds $61,000 and when a single taxpayer’s modified AGI exceeds
$30,500. For head of household, the amount is $45,750.
EXAMPLE: A married couple’s modified AGI is $40,000 and each
contributes $2,000 to their own traditional IRA. For the contributions, the
couple deducts $4,000 and claims a tax credit of $400. Based on their modified
AGI, the credit equals 10% of contributions.
9. The provision has been indexed to inflation since 2007, with the indexed
amounts rounded to the nearest multiple of $500.
Tax Credit for Retirement Plan Contributions in 2015
• Credit amount is based on modified AGI as follows:
Joint Filers Single & Separate Head of Household Credit Rate
$ -0- - $36,500 $ -0- - $18,250 $ -0- - $27,375 50%
$36,501 - $39,500 $18,251 - $19,750 $27,376 - $29,625 20%
$39,501 - $61,000 $19,751 - $30,500 $29,626 - $45,750 10%
Over $61,000 Over $30,500 Over $45,750 0%
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Tax Credit for Retirement Plan Contributions in 2016
• Credit amount is based on Modified AGI as follows:
Joint Filers Single & Separate Head of Household Credit Rate
$ -0- - $37,000 $ -0- - $18,500 $ -0- - $ 27,750 50%
$37,001 - $40,000 $18,501 - $20,000 $27,751 - $30,000 20%
$40,001 - $61,500 $20,001 - $30,750 $30,001 - $46,125 10%
Over $ 61,500 Over $30,750 Over $46,125 0%
Tax Professional Research Recommendation: For more information refer to
IRS Publication 590.
K. §530 Coverdell Education Savings Plans
§530 Coverdell Education Savings Plans
• Maximum $2,000 nondeductible annual contribution limit for beneficiaries under age 18
• Tax-deferred growth on contributions
• Tax-free distributions for qualified expenses
• Funds can be used to pay qualifying education expenses for K-12 plus post-secondary
education
• Qualified Education Expenses include room and board
• Contribution deadline: April 15th after the close of the tax year
• Subject to phase-out provisions
• Beneficiary owns and retains ownership of account
• Permanent provision as the result of American Taxpayer Relief Act
• Not indexed to inflation
1. The Taxpayer Relief Act of 1997 created a provision which allowed
taxpayers to contribute to an education plan called an “Educational IRA” with
a maximum annual contribution of $500 which had to be deposited into the
account by December 31 of the tax year.
2. The 2001 Tax Act changed the name to Coverdell Education Savings Plan
and made significant changes which include:
a. increasing the annual contribution limit to $2,000 per beneficiary, and
b. allowing the contribution to be made up to the due date of the return
without extensions.
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3. The $2,000 amount is not indexed to inflation.
4. §530(c)(1) provides that the contributions are phased-out as modified AGI
increases beyond certain thresholds. The phase-out range for a married couple
begins as modified AGI rises above $190,000 which is twice the $95,000
amount allowed for single taxpayers. The threshold amounts are not indexed
to inflation.
Coverdell Phase-Out Ranges
Filing Status
Phase-Out
Begins
Phase-Out
Ends
Range
Married Joint $190,000 $220,000 $30,000
Married Separate N/A N/A N/A
Single $ 95,000 $110,000 $15,000
Head of Household $ 95,000 $110,000 $15,000
Tax Professional Note: For purposes of this test modified AGI adds back the
amounts excluded under §911, §931 or §933 as follows:
§911 Excluded income of citizens or residents of the United States living
abroad
§931 Income from sources within Guam, American Samoa or the Northern
Mariana Islands
§933 Income from sources within Puerto Rico
5. The 2001 Tax Act expanded the definition of qualified education costs to
include not only college costs but also tuition, fees and expenses for
kindergarten through 12th grades. This education can be provided at a public,
private or religious school. It also includes uniforms, transportation and
supplementary items or services.
6. The law also provides that the cost to purchase computers or other
technological equipment used by the student while in school will be qualified
educational expenses. This cost includes internet access and related services.
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7. The 2001 Tax Act also repealed the rule that prevented contributions to
Coverdell Plans in the same year that contributions are made to a §529
Qualified Tuition Program for the same beneficiary.
8. The law allows a taxpayer to take tax-free distributions from a Coverdell
Plan and still claim the Hope or Lifetime Learning Credits in the same tax
year. This provision applies only if they are not the same expenses.
9. The law provides that the deadline for making Coverdell Savings Plan
contributions is April 15th of the following tax year which is the due date of
the original return.
Provisions For Special Needs Beneficiaries:
1. §530(b)(1)(E) provides a general rule that funds remaining in a Coverdell Plan
after the beneficiary reaches age 30 must be distributed to the beneficiary
within 30 days after the beneficiary reaches age 30.
2. There is an exception for a “special needs beneficiary” and the distribution
deadline is not applicable.
3. In addition, Congress also provided that the rule prohibiting contributions to
a Coverdell Plan after the beneficiary reaches age 18 does not apply to a
“special needs beneficiary.”
4. Regulations define “special needs beneficiary” to include an individual who
requires additional time to complete education because of a physical, mental
or emotional condition including a learning disability.
Tax Professional Research Recommendation: For more information refer to
IRS Publication 970: Tax Benefits for Education.
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L. §221 Student Loan Interest Deduction
§221 Student Loan Interest Deduction
• AGI phase-out ranges: Begins at $60,000 for singles and head of households, and $130,000 for joint
filers in 2015 and 2016
• Permanent provisions as a result of the American Taxpayer Relief Act of 2012
• Maximum deduction $2,500 for all taxpayers except married filing separate
• Student Loan Interest Deduction Phase-Out Ranges:
2015 2016
Filing Status Begins Ends Range Begins Ends Range
Married Joint $130,000 $160,000 $30,000 $130,000 $160,000 $30,000
Married Separate N/A N/A N/A N/A N/A N/A
Single and Head
of Household
$ 65,000 $ 80,000 $15,000 $ 65,000 $ 80,000 $15,000
1. §221 provides that taxpayers can claim an above-the-line deduction of up
to $2,500 for interest paid on qualified education loans.
2. In 2015 the deduction phase-out begins at $65,000 of modified AGI for
single taxpayers and $130,000 for joint filers.
Tax Professional Note: The maximum deduction that can be claimed is the
same $2,500 for both joint and single filers.
Tax Professional Education Point: For purposes of this deduction modified
AGI means AGI determined without regard to:
§199 Income attributable to domestic production activities,
§222 Deduction for qualified tuition and fees,
§911 Excluded income of citizens or residents of the U.S. living
abroad, and
§933 Excluded income from sources within Puerto Rico;
and after the application of:
§86 Social Security and Tier 1 Railroad Retirement Benefits,
§135 Income from U.S. Savings Bonds used to pay higher education
tuition and fees,
§137 Exclusion of amounts received for adoption assistance programs,
§219 Deductible IRA contributions, and
§469 Passive activity loss deductions.
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Tax Professional Research Recommendation: For more information refer to
IRS Publication 970 Tax Benefits for Education.
M. §222 Deduction for Qualified Higher Education Expenses
§222 Deduction for Qualified
Higher Education Expenses*
*As of this writing this provision has expired; awaiting legislation
• Above-the-line deduction for college tuition and required fees
• Amount of deduction depends:
o $2,000: Partial Deduction
o $4,000: Full Deduction
• AGI restrictions apply: a step phase-out range
• Form 8917
1. §222 provides that taxpayers who meet certain modified adjusted gross
income threshold limitations and pay college tuition and related expenses
can claim an “above-the-line” deduction for a limited amount of the
qualified expenses.
2. In 2014, the maximum deduction is $4,000. However, for married taxpayers
filing a joint return with a modified AGI between $130,000 and $160,000,
the deduction was reduced to $2,000. When the modified AGI is greater
than $160,000 the deduction was completely phased out.
Tax Professional Education Point: This provision includes a “step” phase-out
range. The deduction could be an all or nothing for some taxpayers depending
on their modified AGI. For other taxpayers, it is a partial deduction.
As a result, tax planning is especially critical here if the modified AGI is at or
near the threshold amount and the taxpayer is going to have qualified college
expenses.
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2014 Modified AGI Limits for Determining AGI
for §222 Qualified Education Expenses Based on Filing Status
Single
Maximum
Head of Household Married Joint Deduction
Modified AGI < $65,000 $130,000 $4,000
Modified >
$65,000 but <
Modified AGI >
$130,000 but <
$80,000 N/A $2,000
N/A $160,000 $2,000
Modified AGI > $80,000 N/A $ -0-
Modified AGI > N/A $160,000 $ -0-
EXAMPLE: Don is single and has a modified AGI of exactly $65,000 and has
qualified education expenses of exactly $4,000. As a result, he can deduct the
full $4,000 on page 1 of Form 1040. Before completing the return Don informs
you that he has received a statement from his credit union that he earned $1.12
of interest. This increases his modified AGI to $65,001. Because this amount is
greater than $65,000 he can only deduct the partial amount of $2,000. If Don is
in the 25% marginal bracket, then this will cause the extra $1.12 of income to
increase his tax by $500.
Tax Professional Education Point: For purposes of this deduction modified
AGI is determined without regard to this section §222 and:
§199 Income attributable to domestic production activities,
§911 Excluded income of citizens or residents of the U.S. living abroad, and
§933 Excluded income from sources within Puerto Rico;
and after the application of:
§86 Social Security and Tier 1 Railroad Retirement benefits,
§135 Income from U.S. Savings Bonds used to pay higher education tuition and
fees,
§137 Exclusion of amounts received for adoption assistance programs,
§219 Deductible IRA contributions,
§221 Interest on education loans, and
§469 Passive activity loss deductions.
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Tax Professional Research Recommendation: For more information refer to
IRS Publication 970 Tax Benefits for Education.
N. §219 Traditional IRA Contribution Limits
§219 IRA Contribution Limits
• The maximum deductible contribution amount is $5,500 in 2015
• No increase for 2016: $5,500
• Additional contribution of $1,000 for age 50 and above
• Phase-out ranges adjusted for inflation beginning in 2007 in $1,000
multiples as a result of 2006 Pension Protection Act
1. §219(b)(5)(D) provides that the contribution limit is adjusted for inflation in
multiples of $500. There is no adjustment for 2015 so the maximum
contribution is $5,500 for 2015. For a married couple filing a separate return,
the phase-out range is $ -0- to $10,000.
2. §219(g)(8) provides that the contribution phase-out limit will be rounded to
the nearest multiple of $1,000. The other limitations for making IRA
contributions still apply. These limitations include the requirement that the
taxpayer (or spouse) have earned income and modified AGI limits applied as
follows:
Phase-Out Range Based on Filing Status
Year Married Joint Range
Single/Head of
Household
Range
2012 $92,000 - $112,000 $20,000 $58,000 - $68,000 $10,000
2013 $95,000 - $115,000 $20,000 $59,000 - $69,000 $10,000
2014 $96,000 - $116,000 $20,000 $60,000 - $70,000 $10,000
2015 $98,000 - $118,000 $20,000 $61,000 - $71,000 $10,000
2016 $98,000 - $118,000 $20,000 $61,000 - $71,000 $10,000
Note: For a married couple filing separate returns, the phase out range is $-0- to $10,000
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3. §219(g)(7) provides that if an individual is not an active participant in an
employer-sponsored retirement plan but his spouse is, then the deduction for
the contribution to the traditional IRA is phased out if the joint return reports
modified AGI between $183,000 - $193,000 in 2015.
4. §219(g)(8) provides that this provision is indexed to inflation beginning in
2007 using 2005 as a base for the indexing. Therefore, the amount in 2015 is
$183,000 and in 2016 is $184,000.
Married Joint Phase-Out Range
Year Begins Ends Range
2012 $173,000 $183,000 $10,000
2013 $178,000 $188,000 $10,000
2014 $181,000 $191,000 $10,000
2015 $183,000 $193,000 $10,000
2016 $184,000 $194,000 $10,000
Tax Professional Education Fact: For purposes of this provision, §219(g)(3)
provides that AGI is determined after the application of:
§86 Social Security and Tier 1 Railroad Retirement benefits and
§469 Passive activity losses;
and without regard to:
§135 Income from U.S. Savings Bonds used to pay higher education tuition
and fees,
§137 Exclusion of amounts received for adoption assistance programs,
§199 Income attributable to domestic production activities,
§219 Deductible IRA contributions,
§221 Interest on education loans,
§222 Deduction for qualified tuition and fees, and
§911 Excluded income of citizens or residents of the U.S. living abroad.
Tax Professional Research Recommendation: For more information refer
to IRS Publications 590-A Individual Retirement Accounts (IRAs).
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O. §408A Roth IRA Contribution Limits
• Contribution amount: $5,500 in 2015
§408A Roth IRA Contribution Limits
• Additional contribution of $1,000 for age 50 and above
• The threshold amounts for phase-out: adjusted for inflation in $1,000 increments
• 2015 phase-out range:
Filing Status Begins Ends Range
Married Joint $183,000 $193,000 $10,000
Single $116,000 $131,000 $15,000
• 2016 phase-out range:
Filing Status Begins Ends Range
Married Joint
$184,000 $194,000 $10,000
Single
$117,000 $132,000 $15,000
• No contribution allowed for spouses filing separately if they lived together on any day
during the tax year.
1. §408A(c)(3)(C)(i) provides that a taxpayer may make a contribution to a Roth
IRA as long as the modified AGI does not exceed the “applicable dollar
amount.”
2. The contribution amount is $5,500 in 2015.
3. The “applicable dollar amounts” are indexed to inflation rounded to the
nearest increment of $1,000. The phase-out amount in 2015 begins at
$183,000 for married joint and $116,000 for all others except married
separate. For 2016 these amounts are $184,000 and $117,000.
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P. §23 Nonrefundable Adoption Credit and §137 Employer Adoption
Assistance Exclusion
Adoption Benefits
• §23 and §137 benefits are permanent provisions
• Nonrefundable credit with a 5 year carryforward period
• Indexed to inflation since 2003
• Phase-out based on modified AGI
• Higher phase-out ranges as the result of indexing:
Year Phase-out Threshold Range
2012 $189,710 - $229,710 $40,000
2013 $194,580 - $234,580 $40,000
2014 $197,880 - $237,800 $40,000
2015 $201,010 - $241,010 $40,000
2016 $201,920 - $241,920 $40,000
• Form 8839
• IRS Publication 968
1. In 2002 the provisions allowing the §23 adoption credit and the §137
employer-provided adoption assistance exclusion were made permanent and
the maximum amount of the adoption credit or exclusion increased to $10,000
per eligible child (including special needs children). The $10,000 amount was
indexed to inflation beginning in year 2003.
2. In 2003 the income threshold at which taxpayers began to lose these adoption
benefits increased to $150,000 and were indexed to inflation. The threshold
amount for 2015 is $201,010 and increases to $201,920 for 2016.
3. The credit is not allowed for taxpayers with a modified AGI greater than
$241,010 in 2015 and $241,920 in 2016.
Year Modified AGI Ranges Maximum
2012 $189,710 - $229,710 = $40,000 $12,650*
2013 $194,580 - $234,580 = $40,000 $12,970
2014 $197,880 - $237,880 = $40,000 $13,190
2015 $201,010 - $241,010 = $40,000 $13,400
2016 $201,920 - $241,920 = $40,000 $13,460
*Indexed for inflation after 2012.
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4. §23(a)(3) provides that the credit for a special needs adoption is allowed in
the year the adoption is final regardless of whether the taxpayer has qualified
adoption expenses. No credit is allowed for the adoption of a special needs
child if the adoption is not finalized.
EXAMPLE: Don and Donna adopt a special needs child and the adoption
becomes final in 2015. Their actual expenses totaled $5,325. Their total
adoption credit is the full $13,400 maximum amount.
When to Take the Credit or Exclusion:
The year in which a taxpayer can take the adoption credit or exclusion
depends on whether the eligible child is a citizen or resident of the United
States (including U.S. possessions) at the time the adoption effort begins.
Child who is a U.S. citizen or resident: If the eligible child is a U.S. citizen
or resident, then the taxpayer can take the adoption credit or exclusion even if
the adoption never becomes final. The taxpayer can take the credit or the
exclusion as shown in the following tables:
If taxpayer pays qualifying expenses in: Then take the §23 credit in:
1. Any year before the year the
1. The year after the year of the payment
adoption becomes final
2. The year the adoption becomes final 2. The year the adoption becomes final
3. Any year after the year the adoption 3. The year of the payment
becomes final
If the employer pays for qualifying expenses under an adoption assistance
program in any year, then the exclusion is taken in the year of the payment.
Foreign child: If the eligible child is not a U.S. citizen or resident, then the
taxpayer cannot take the adoption credit or exclusion unless the adoption
becomes final. The taxpayer takes the credit or exclusion as shown in the
following tables:
If taxpayer pays qualifying expenses Then take §23 the credit in:
i
1. Any year before the year the
1. The year the adoption becomes final
adoption becomes final
2. The year the adoption becomes final 2. The year the adoption becomes final
3. Any year after the year the adoption
becomes final
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3. The year of the payment

If the employer pays for qualifying
expenses under a §137 adoption
1. Any year before the year the
adoption becomes final
Then take the §137 exclusion in:
1. The year the adoption becomes final
2. The year the adoption becomes final 2. The year the adoption becomes final
3. Any year after the year the adoption
becomes final
3. The year of payment
1. If the employer makes adoption assistance payments in a year before the
adoption of a foreign child is final, then the taxpayer must include the
payments in income in the year of payment. On the return for the year the
adoption becomes final, the taxpayer can make an adjustment to take the
exclusion. See Form 8839 and its instructions.
TAX PROFESSIONAL ALERT: The employer is not required to withhold
income tax on payments for qualifying expenses under a §137 adoption
assistance program. If the taxpayer must include the payments in income in
the year paid because the adoption of a foreign child is not final, then the
withholding may not be enough to cover the tax on those payments. The
taxpayer may need to give the employer a new Form W-4 to adjust
withholding, or make estimated tax payments to avoid a penalty for
underpayment of estimated tax.
Finality of Foreign Adoption Safe Harbor Provided (Ann. 2005 45; Rev.
Proc. 2005-31)
The IRS has provided a safe harbor for determining the finality of a foreign
adoption for purposes of the adoption expenses credit under §23 and §137. The
procedure finalized the procedure proposed in Notice 2003-15, 2003-9 IRB with
some modification made to address various comments received.
The procedure modifies Notice 2003-15 by providing that a foreign-born child
who receives an IR-2, IR-3 or IR-4 visa and enters the United States under a
decree of simple adoption from the child’s home country will be treated as finally
adopted either:
1. In the tax year in which competent authority enters the decree of adoption, or
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2. In the tax year in which a state enters a decree of re-adoption or otherwise
enters an order recognizing the adoption decree of the child’s home country,
if that occurs within two tax years after competent authority enters its decree.
Taxpayers may rely on either Notice 2003-15 or this procedure to determine when
the adoption of a foreign-born child is final for purposes of taking the adoption
expenses credit.
TAX PROFESSIONAL ALERT: This procedure does not apply to adoptions
the finality of which are determined by the Intercountry Adoption Act of 2000
(P.L. 106-279) or the Hague Convention on Protection of Children and Cooperation
in respect to Intercountry Adoption.
This procedure is effective for qualified adoption expenses paid or incurred after
June 15, 2005. In addition, the IRS will not challenge taxpayers who claim the
credit using Notice 2003-15.
NOTE: IRS Notice 2003-15, 2003-9 IRB also provided definitions to the safe
harbor visa rules for the status of IR-2, IR-3 and IR-4.
Q. Medicare Part B Premiums: Rules for Beneficiaries with Higher Incomes
1. The Medicare Modernization Act of 2003 changed how Medicare Part B
premiums are calculated for some higher income beneficiaries. According to
the Social Security Administration (SSA) the majority of Medicare
beneficiaries are not affected.
2. For most beneficiaries the government pays 75% of Part B standard
premiums and the beneficiary pays 25% of the premium.
3. Since 2007, higher income beneficiaries have been paying a larger percentage
of their Part B premium based on the income they reported to the IRS on their
tax return from two years prior to when the premiums are due. Therefore a
Medicare beneficiary’s 2015 premiums are based on their modified AGI
reported on their 2013 Form 1040. If the SSA does not have information from
a 2013 return, then they will use the information from the 2012 return.
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4. In 2015 higher income beneficiaries are paying a monthly premium equal to
35-80% of the total premium cost depending on their AGI from 2013.
According to the SSA less than 5% of Medicare beneficiaries are affected.
5. Modified AGI is defined as AGI plus:
a. Tax-exempt interest,
b. §135 excluded EE Bond interest, and
c. §911 foreign earned income and housing exclusion.
6. The IRS gives the taxpayer’s filing status and modified AGI to the Social
Security Administration to determine if the taxpayer has an “income related
monthly adjustment amount” (IRMAA). The Social Security Administration
will then assess any additional monthly premium.
The 2015 standard premium is $104.90. The following chart reports the amounts
of monthly Medicare Part B Premiums for 2015 based on modified AGI and
filing status from the taxpayer’s 2013 Form 1040:
Filing
Modified AGI
Monthly
Premiums
Increase Per
Beneficiary
Cumulative
Increase
Single & Head $214,000 $335.70 $ 63.00 $230.80
Married Joint: $428,000 $335.70 $125.90 $230.80
Married Separate: $129,000 $335.70 $ 63.00 $335.70
Tax Professional Note: If the taxpayer is affected by the IRMAA, then they are
also subject to increased Part D premiums.
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Tax Professional Educational Point: For more information on issues dealing
with appeals, subsequent changes in income, filing status and one-time increases
to income go to the Social Security Administration website at
www.ssa.gov/Pubs/10536.html or call toll-free at 1-800-772-1213.
Tax Professional Detail: What if the beneficiary disagrees with the additional
assessment?
If the beneficiary disagrees with the decision regarding income-related monthly
adjustment amounts, then they have the right to appeal. Request an appeal in
writing by completing a Request for Reconsideration (Form SSA-561-U2) or
contact the local Social Security office to file an appeal. The appeal form is online
at www.socialsecurity.gov/online or request a copy through the toll-free number
at 1-800-772-1213 (TTY 1-800-325-0778). The recipient does not need to file an
appeal if they are requesting a new decision because they experienced one of the
events listed below and it made the income go down or if the recipient has shown
the Social Security Administration the information used is incorrect.
If one disagrees with the amount of MAGI received from the IRS, then the
information has to be corrected with the IRS. If the SSA determines that the
beneficiary must pay a higher amount for Medicare prescription drug coverage
and the beneficiary does not have this coverage, then call the Centers for Medicare
& Medicaid Services (CMS) at 1-800-MEDICARE (1-800-633-4227; TTY 1-
877-486-2048) to make a correction. Social Security receives the information
about prescription drug coverage from CMS.
What If the Beneficiary’s Income has gone down?
If the beneficiary’s income has gone down due to any of the following situations
and the change makes a difference in the income level that SSA considers, then
contact the SSA to explain the new information. The beneficiary may need a new
decision about the income-related monthly adjustment amount if:
• Beneficiary married, divorced, or became widowed;
• Beneficiary or spouse stopped working or reduced work hours;
• Beneficiary or spouse lost income-producing property due to a disaster or
other event beyond their control;
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• Beneficiary or spouse experienced a scheduled cessation, termination, or
reorganization of an employer’s pension plan; or
• Beneficiary or spouse received a settlement from an employer or former
employer because of the employer’s closure, bankruptcy, or reorganization.
If any of the above applies, then the SSA needs to see documentation verifying
the event and the reduction in income. The documentation provided should relate
to the event and may include a death certificate, a letter from an employer about
retirement, or something similar. If the beneficiary filed a federal income tax
return for the year in question, then a signed copy of the return needs to be shown
to the SSA.
Chapter I - Review Questions
1. Which of the following expenses are allowed to be paid with a Coverdell
distribution?
a. School uniforms
b. Computers and internet expenses
c. Fees for attending college
d. All of the above
Answer:
a. is correct. The 2001 Act expanded the definition of qualified education
costs to include uniforms, transportation and supplementary items or
services.
b. is correct. The cost to purchase computers or other technological
equipment used by the student while in school is a qualified educational
expense. This cost includes internet access and related services.
c. is also correct. The 2001 Act expanded the definition of qualified
education costs to include not only college costs but also tuition, fees and
expenses for kindergarten through 12th grades.
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Therefore, d. is the correct answer. The 2001 Act expanded the
definition of qualified education costs to include not only college costs
but also tuition, fees and expenses for kindergarten through 12 th grades.
This education can be provided at a public, private or religious school. It
also includes uniforms, transportation and supplementary items or
services. The law also provides that the cost to purchase computers or
other technological equipment used by the student while in school will
be qualified educational costs. This cost includes internet access and
related services
2. Which of the following is a correct statement?
a. The taxpayer can take the adoption credit in the year the adoption
effort begins.
b. If the eligible child is a U.S. citizen or resident, then the taxpayer can
take the adoption credit or exclusion even if the adoption never
becomes final.
c. If the employer pays for qualifying expenses under an adoption
assistance program in any year then the taxpayer is also eligible to
take the credit.
d. If the child is not a U.S. citizen or resident, then the taxpayer cannot
take the adoption credit or exclusion.
Answer:
a. is partially correct. The year in which a taxpayer can take the adoption
credit or exclusion depends on whether the eligible child is a citizen or
resident of the United States (including U.S. possessions) at the time the
adoption effort begins.
b. is correct. If the eligible child is a U.S. citizen or resident, then the
taxpayer can take the adoption credit or exclusion even if the adoption
never becomes final.
c. is incorrect. If the employer pays for qualifying expenses under an
adoption assistance program in any year then the exclusion is taken in the
year of the payment, and the credit is not allowed.
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d. is incorrect. If the eligible child is not a U.S. citizen or resident, then the
taxpayer cannot take the adoption credit or exclusion unless the adoption
becomes final.
3. In 2015 a 65 year old taxpayer may claim a medical deduction on
Schedule A for any amount in excess of
a. 2% of AGI.
b. 7.5% of AGI.
c. 10% of AGI.
d. None of the above
Answer:
a. is incorrect. 2% is the threshold for miscellaneous deductions on
Schedule A.
b. is correct. For tax years 2013 through 2016 taxpayers over age 65 can
deduct medical expenses in excess of 7.5 % of AGI.
c. is incorrect. Beginning in 2013 taxpayers under the age of 65 may deduct
medical expenses in excess of 10% of AGI.
d. is incorrect because b is the correct answer, therefore it cannot be ‘none
of the above’
1-41

II. The Year 2016 Tax Season
Emergency Room:
Data at The Tax Professional’s
Fingertips

II. The Year 2016 Tax Season Emergency Room: Data at the Tax Professional’s Fingertips
A. §1 Tax Rate Schedules for 2015 and Proposed Tax Rate Schedules for 2016
Filing Status
2015 Taxable Incomes and Bracket Threshold
10% 15% 25% 28% 33% 35% 39.6%
Single $ 9,225 $37,450 $ 90,750 $189,300 $411,500 $413,200 >$413,200
Head of Household $13,150 $50,200 $129,600 $209,850 $411,500 $439,000 >$439,000
Married Joint &
Surviving
Spouse
$18,450 $74,900 $151,200 $230,450 $411,500 $464,850 >$464,850
Married Separate $ 9,225 $37,450 $ 75,600 $115,225 $205,750 $232,425 >$232,425
Estates & Trust $ -0- $ 2,500 $ 5,900 $ 9,050 $ 12,300 N/A >$ 12,300
Filing Status
2016 Taxable Incomes and Bracket Threshold Limits*
10% 15% 25% 28% 33% 35% 39.6%
Single $ 9,275 $37,650 $ 91,150 $190,150 $413,350 $415,050 >$415,050
Head of Household $13,250 $50,400 $130.150 $210,800 $413,350 $441,000 >$441,000
Married Joint &
Surviving Spouse $18,550 $75,300 $151,900 $231,450 $413,350 $466,950 >$466,950
Married Separate $ 9,275 $37,650 $ 75,950 $115,725 $206,675 $233,475 >$233,475
Estates & Trust N/A $ 2,550 $ 5,950 $ 9,050 $ 12,400 N/A >$ 12,400
*Required to be finalized by December 15, 2015.
B. §63 Standard Deduction Amounts
1. The basic standard deduction amounts are indexed to inflation and for years
2012-2016 as follows:
Filing Status 2012 2013 2014 2015 2016
Joint return or Surviving Spouse $11,900 $12,200 $12,400 $12,600 $12,600
Single (other than Head of
Household or Surviving Spouse)
$ 5,950 $ 6,100 $ 6,200 $ 6,300 $ 6,300
Head of Household $ 8,700 $ 8,950 $ 9,100 $ 9,250 $ 9,300
Married Filing Separate Returns $ 5,950 $ 6,100 $ 6,200 $ 6,300 $ 6,300
2-1

2. For purposes of the unearned income of a minor child taxed at the parent’s
rate (Kiddie Tax) §63(c)(5)(A) and §1(g)(4)(A)(ii) provide that for an
individual who can be claimed as a dependent on another's return, the basic
standard deduction for 2015 and 2016 will be the greater of:
2015 2016
a. $1,050 $1,050
or
or
b. $ 350 $ 350
plus the individual's earned income.
However, the standard deduction may not exceed the regular standard
deduction for that individual which is $6,300 in 2015 and in 2016.
3. The additional standard deduction for married taxpayers 65 or over or blind
is $1,250 in 2015 and 2016.
4. For a single taxpayer or head of household who is 65 or over or blind the
additional standard deduction is $1,550 in 2015 and 2016.
C. §32 Earned Income Credit Limitations
1. The following is the minimum amount of earned income for which the
maximum Earned Income Tax Credit is allowed:
Number of
Qualifying Children
Credit
Percentage
Earned
Income
Amount
Maximum
Credit
0 7.65% $ 6,580 $ 503
1 34% $ 9,880 $3,359
2 40% $13,870 $5,548
3 or more 45% $13,870 $6,242
2-2

2. The phase-out of allowable EIC for single, head of household, and surviving
spouse taxpayers begins and ends as follows:
Number of Phase-out Phase-out Begins and Ends
Qualifying Children Percentage Begins Ends
0 7.65% $ 8,240 $ 870
1 15.98% $18,110 $39,131
2 21.06% $18,110 $44,454
3 or more 21.06% $18,110 $47,747
3. The phase-out of allowable EIC for joint filers begins and ends as follows:
Number of Phase-out Phase-out Begins and Ends
Qualifying Children Percentage Begins Ends
0 7.65% $13,760 $20,330
1 15.98% $23,630 $44,651
2 21.06% $23,630 $49,974
3 or more 21.06% $23,630 $53,267
4. §32(i) provides that in 2015 the amount of disqualified income (generally
investment income) that a taxpayer may have before losing the entire EIC is
$3,400.
Tax Professional Educational Point: Those taxpayers without a qualifying
child must be age 25 but under age 65 at the end of the tax year and may not
qualify as a dependent of another taxpayer.
Tax Professional Research Recommendation: For more information refer
to IRS publications:
Pub. 3:
Pub. 596:
Pub. 596SP:
Armed Forces Tax Guide
Earned Income Credit (EIC)
Earned Income Credit in Spanish
2-3

D. Gift Tax and Estate Tax Exclusion Amounts
1. The general rule states that taxpayers are required to file Form 709 U.S. Gift
Tax Return for transfers of property to any donee.
2. There is an annual gift tax exclusion per donee of $14,000 in 2015 in 2016.
3. Married couples can exclude up to $28,000 in 2015 and in 2016.
4. The exclusion amount is indexed annually but subjected to an incremental
increase amount of $1,000 before the exclusion amount is increased. These
annual exclusion amounts can be transferred without filing a gift tax return
Form 709. Transfers of gifts to citizen spouses have an unlimited exclusion
amount and Form 709 is not required to be filed.
5. In 2015 gifts to non-citizen spouses are limited to $147,000. The amount is
$148,000 in 2016.
6. The estate and gift tax applicable exclusion is $5,430,000 in 2015 and
$5,450,000 in 2016.
7. §6039F(a) provides that for 2015, a U.S. person receiving aggregate foreign
gifts exceeding $100,000 from a nonresident alien individual or a foreign
estate of more than $15,601 from foreign corporations or partnerships must
file Form 3520. In 2016, the amount is increased to $15,671.
E. Threshold Amounts for Social Security and Specific Pension Contribution
Provisions
1. Social Security wage base in 2015 is $118,500. The maximum FICA tax is
$7,347.
2. §401(k) Elective deferral is $18,000 in 2015 and $__________ in 2016.
3. §403(b) Elective deferral is $18,000 in 2015 and $__________ in 2016.
Tax Professional Note: For §401(k) and §403(b) plans, a catch-up
contribution provision is available for those taxpayers who are age 50 or older
by the last day of tax year. The amount is $6,000 in 2015 and $_______ in
2016.
2-4

4. §457(b)(2) and §457(c)(1) Tax-exempt and government plans: The
limitation on deferrals under deferred compensation plans of state and local
governments and tax-exempt organizations increased to $18,000 in 2015 and
$__________ in 2016.
5. §415(c)(1)(A) Defined contribution plan limit is $53,000 in 2015 and
$__________ in 2016. This includes self-employed SEPs.
6. §401(a)(17) Annual compensation limit on the amount of a plan participant's
compensation that can be eligible in determining contributions and benefits is
$265,000 in 2015 and $_________ in 2016.
7. §408(k)(2)(C) SEP participation threshold: The amount of compensation
an otherwise eligible employee must have in order to be a simplified employee
pension plan participant is $600 in 2015 and $_________ in 2016.
8. §408(p)(2)(A)(ii) SIMPLE plans: The maximum elective employee salary
reduction contribution to a SIMPLE plan is increased to $12,500 in 2015.
In 2015 the age 50 and older catch-up provision allows an additional
contribution of $3,000.
Tax Professional Research Recommendation: For more information refer
to IRS Publication 560 Retirement Plans for Small Business (SEP, SIMPLE
and Qualified Plans.)
F. §6654 Safe Harbor Rules and Waiver of Penalty for Required Estimated Tax
Payments
1. Individuals will not incur a penalty for underpayment of estimated tax if the
total liability for the year is less than $1,000.
• For purposes of avoiding an estimated tax penalty the law also provides
for a safe harbor amount which is the lesser of:
a. 100% of the prior year tax, or
b. 90% of the current year tax.
2-5

• For individuals whose adjusted gross income for the preceding tax year
was more than $150,000, the 100% is increased to 110%.
2. §6654(e)(3) provides for a “waiver” of penalty for an individual who has:
a. retired after attaining age 62, or
b. become disabled in the tax year for which the estimated tax payment was
due or in the preceding tax year. It is required that the underpayment was
due to reasonable cause and not to willful neglect.
TAX PROFESSIONAL ALERT: The waiver is requested on Form 2210 by
checking the box marked “reasonable cause” and by attaching a document that
shows the date of the retirement and age or the date the taxpayer was
determined to be disabled.
3. The penalty can also be eliminated or reduced if the taxpayer’s income is
annualized and Form 2210 page 3 is attached reporting the calculations.
Tax Professional Research Recommendation: For more information refer
to IRS Publication 505 Tax Withholding and Estimated Tax.
G. §162(l) Health Insurance Premium Deduction for the Self-Employed
Taxpayer
1. §162(l)(1)(A) provides that health insurance premiums for a self-employed
taxpayer are deductible as an adjustment for determining AGI on Form 1040
page 1.
2. §162(l)(2)(C) provides that long-term care insurance premiums are deemed to
be health insurance premiums and, therefore, are also deductible as an
adjustment for determining AGI for a self-employed taxpayer subject to the
age limitation amounts in §213(d)(10) (see section H in this chapter).
2-6

3. In 2010 the IRS changed its position on deductibility of Medicare premiums
by self-employed individuals as an adjustment in calculating Adjusted Gross
Income. Publication 535 now states that Medicare premiums that the taxpayer
voluntarily pays to obtain insurance that is similar to qualifying private health
insurance can be used to calculate the deduction on Form 1040, line 29.
For Medicare recipients all Medicare parts and supplemental premiums are
considered self-employed premiums under §162(e)
4. The publication also states that if the taxpayer previously filed a return without
using Medicare premiums to calculate the deduction, an amended return can
be filed to recalculate the deduction for any tax year where the statute of
limitations has not expired.
H. §213(d)(10) Long-Term Care Insurance Premium Deductions Based on Age
§213(d)(10) provides a general rule that the amounts paid for insurance that
cover the costs of qualified long-term care services are deductible as medical
expenses up to a specified dollar amount based on the taxpayer’s age at the
end of the tax year. Those limits for years 2012-2016 are as follows:
Age
Limit
2012 2013 2014 2015 2016
70 $4,370 $4,550 $4,660 $4,750 $4,870
Tax Professional Research Recommendation: For more information refer to
IRS Publication 502 Medical and Dental Expenses.
2-7

I. §101(g)(3)(D) Excluded Benefits from Qualified Long-Term Care Coverage
1. §101(g)(3)(D) provides that amounts received under a qualified long-term
care insurance contract are generally excluded as amounts received for
personal injuries and sickness subject to a per diem limitation for years 2012-
2016 as follows:
Year
Amount
2012 $310
2013 $320
2014 $330
2015 $330
2016 $330
Note: If payments are specific reimbursements, then these limits do not apply.
The gross LTC Benefits paid are reported to the taxpayer on Form 1099-LTC
in Box 1.
J. §274(n) Meal Allowance Deductions for Certain Taxpayers
1. §274(n)(1) provides a general rule that the amount allowable as a deduction
for food or beverages and entertainment shall not exceed 50% of the amount
of such expense.
2. §274(n)(2)(B) provides that the 50% limitation does not apply in the case of
an expense for food or beverages provided to employees as a de minimis
fringe benefit. Therefore, the allowable deduction is 100%.
3. In addition, the deductible percentage of the cost of meals consumed by
employees subject to the Department of Transportation (DOT) hours of
service rules is 80%.
2-8

4. The meal deduction is available for food or beverages consumed while away
from their tax home by an individual during, or incident to, a period of duty
subject to the DOT's hours of service limitations. Individuals subject to the
hours of service limitations include:
a. certain air transportation employees, such as pilots, crew, dispatchers,
mechanics, and control tower operators;
b. interstate truck operators and interstate bus drivers;
c. certain railroad employees, such as engineers, conductors, train crews,
dispatchers, and control operations personnel; and
d. certain merchant mariners.
Tax Professional Research Recommendation: Refer to IRS Publication 463
Travel, Entertainment, Gift and Car Expenses.
K. §280F Year 2015 Luxury Auto Depreciation Dollar Limits and Lease
Inclusion Add-Back Amounts
1. The IRS annually issues the inflation-adjusted depreciation limits for business
autos placed in service during the current tax year and the annual income
inclusion amounts for business autos first leased during the current tax year.
The information is updated in Rev. Proc. 2015-19.
2. There are separate amounts for business autos running primarily on electricity.
3. §280F provides that annual depreciation and expensing deductions for luxury
autos are limited to specific dollar amounts. These amounts are adjusted each
year for changes to the automobile component of the Consumer Price Index.
4. The depreciation limits for luxury autos placed in service during 2013-2015
are as follows:
2013 2014 2015
1 st tax year $3,160 $3,160 $3,160
2 nd tax year $5,100 $5,100 $5,100
3 rd tax year $3,050 $3,050 $3,050
Each succeeding year $1,875 $1,875 $1,875
2-9

Tax Professional Note: The applicable first-year depreciation limit is $3,160.
The $8,000 for qualifying vehicles under §168(k) bonus depreciation expired
for tax years after December 31, 2014. The provision is being considered for
extension for 2015.
5. For light trucks and vans (defined as those passenger autos built on a truck
chassis, including minivans and sport utility vehicles (SUVs) built on a truck
chassis) placed in service in calendar years 2013-2015 the amounts are as
follows:
If placed in service in 2013 – 2015
2013 2014 2015
1 st tax year $3,360 $3,460 $3,460
2 nd tax year $5,400 $5,500 $5,600
3 rd tax year $3,250 $3,350 $3,350
Each succeeding year $1,975 $1,975 $1,975
Tax Professional Note: The applicable first-year depreciation limit is $3,460.
The $8,000 for qualifying vehicles under §168(k) bonus depreciation expired
as of December 31, 2014 and is being considered for reinstatement as of this
writing.
Tax Professional Reminder: Heavy SUVs (defined as those that are built on
a truck chassis and are rated at more than 6,000 pounds gross loaded vehicle
weight) are exempt from the luxury-auto dollar caps because they fall outside
of the §280F(d)(5) definition of a passenger auto.
Under §179(b)(6), not more than $25,000 of the cost of a heavy SUV placed
in service after October 22, 2004 and used 100% for business may be
expensed under §179. The balance of the heavy SUVs cost may be depreciated
under the regular rules that apply to 5-year MACRS property (e.g., a 20%
first-year depreciation allowance if the half-year convention applies for the
placed in service year). However, SUVs are MACRS property and therefore
the 50% bonus depreciation rules apply.
2-10

6. Luxury auto dollar limits must be reduced proportionately if business and/or
investment use is less than 100%.
EXAMPLE: If a self-employed person places a luxury auto in service during
2015 and uses it 60% for business and 40% for personal driving, then the first
year dollar limit would be $1,896 (60% of $3,160).
7. If qualified business use of a luxury auto in its placed-in-service year does not
exceed 50% of total use, then it must be depreciated via straight-line ADS
instead of accelerated MACRS. The luxury auto dollar caps still apply.
EXAMPLE: If a self-employed person uses her $25,000 car 40% for
business, then the first year cost-recovery allowance using the half-year
convention would be $1,000 which is the lesser of:
a. $1,000 (which is 10% first year straight-line allowance for 5-year property
applied to the $10,000, which is the 40% business-use portion of the
$25,000 cost of the car), or
b. $1,264 (40% of the $3,160 first-year dollar cap).
NOTE: The dollar limits artificially cap the depreciation deductions normally
available for five-year property. For example, without the dollar caps, first
year MACRS depreciation on a $25,000 non-electric auto used 100% for
business generally would be $5,000 (i.e., 20% of $25,000).
8. §280F(b)(2) provides that if qualified business use declines to 50% or less of
total use after the first year, then the taxpayer must switch to straight-line
depreciation in that year, and there may be some recapture as well. The
recapture amount is reported on Form 4797, Page 2, Part IV. The result is
then reported on the “other income” line of all business returns. If the taxpayer
is a sole proprietorship, then the inclusion amount is reported as “other
income” on Schedule C, line 6, which would then increase the selfemployment
income.
2-11

9. If a taxpayer leases a business auto, then they may deduct the part of the lease
payment representing its business/investment use. If the business/investment
use is 100%, then the full lease cost is deductible. However, §280F(c)
provides that taxpayers must include a certain amount in income during each
year of the lease to partially offset the lease deduction. The add-back amount
varies with the initial fair market value of the leased auto and the year of the
lease, and is adjusted for inflation each year.
10. Tables are available that report the lease income inclusion amount for
passenger autos, light trucks and vans with a lease term beginning in 2015.
The lease income inclusion tables do not apply at all unless the FMV of a
passenger auto exceeds $17,500. For trucks and vans the amount is also
$18,500. (See Rev. Proc. 2015-19, Table 3 and 4.)
11. The inclusion amount is reported on the “other income” line of all business
returns. If the taxpayer is a sole proprietorship then the inclusion amount is
reported on Schedule C, line 6, and also increases the self-employment
income. If the taxpayer is an employee then it is reported on Form 2106, line
24(b).
EXAMPLE: Don leases an automobile beginning April 1, 2015, for 24
months and the FMV of the auto on the date placed in service is $26,000.
According to the table provided in the Revenue Procedure by the IRS, the
inclusion amount is $15 in the first year of the lease and $34 in the second
year of the lease if the vehicle were to be used 100% business. His total miles
driven were 10,000 and Don uses the vehicle 90% for business according to
his records. Therefore, his inclusion amount for the period April 1, 2015 to
December 31, 2015 (which is 275 days) is only $10 using the worksheet
provided in IRS Publication 463.
2-12

§280F(c) AUTO LEASE INCLUSION AMOUNT
NAME: Don
ID#: XXX-XX-1234
Vehicle Description:
1. Date of lease 4/1/2015
2. Term of lease (months) 24
3. Current tax year 2015
4. Fair market value (FMV) $26,000
5. Number of days leased in current tax year 275
6. Business/investment mileage 9,000
7. Total mileage 10,000
8. Dollar amount from table $ 15
9. Business/investment mileage percentage (L6/L7) 90%
10. Percent of days leased in current tax year (L5/365) 75%
11. Lease inclusion amount for tax year (L8 X L9 X L10) $ 10
L. §162 Standard Mileage Rates:
Mileage
2013 2014 2015 2016
Business 56.5 cents 56 cents 57.5 cents ?
Medical 24 cents 23.5 cents 23 cents ?
Moving 24 cents 23.5 cents 23 cents ?
Charitable 14 cents 14 cents 14 cents ?
Tax Professional Research Recommendation: For more information refer to
IRS Publication 463 Travel, Entertainment, Gift and Car Expenses.
2-13

M. §6159 Administrative Relief for Entering Into an Installment Agreement
with the IRS
1. §6159(a) provides that individual taxpayers have a right to pay their taxes in
installments provided the liability is not more than $10,000.
2. §6159(c) provides that the taxes must be paid in three years and that the
taxpayer is current on all other taxes due.
3. The IRS provides a more liberal administrative policy. It grants installment
payments to taxpayers who agree to pay a balance due of $50,000 or less in
tax, penalties and interest within a six-year period and these agreements
do not require a collection manager's approval and do not involve the filing
of liens. Businesses must owe $25,000 or less in payroll taxes and have filed
all required returns.
4. Taxpayers may enter into an agreement in person, by phone, by
correspondence or online.
5. Taxpayers may ask for an installment plan using Form 9465 Installment
Agreement Request. The taxpayer should list the proposed monthly payment
amount and the payment day on Form 9465. Alternatively, taxpayers may
choose to have the payments taken automatically from their bank account. IRS
normally responds to an installment payment request within 30 days.
Tax Professional Reminder: In order to be able to enter into an installment
agreement all current tax returns must be filed and all current taxes must be
paid.
6. Generally, there is a $120 fee for setting up the installment agreement.
However, the fee is only $52 if the payments are directly deducted from a
taxpayer’s bank account.
TAX PROFESSIONAL ALERT: If the amount due is greater than $25,000,
but not more than $50,000, then the taxpayer must make payments by direct
debit from their checking account. In addition a taxpayer can make payments
by a payroll deduction by completing and attaching Form 2159 Payroll
Deduction Agreement to Form 9465.
2-14

7. The regulations allow a low-income taxpayer exception which assesses only
a $43 fee for qualifying taxpayers. A qualifying taxpayer is defined as one
whose income falls at or below 250% of the dollar poverty level established
by the U.S. Department of Health and Human Services.
8. Taxpayers on an installment agreement also must pay interest, compounded
daily. Regulation §300.1(b) states that the fee to restructure an existing or
reinstate a defaulted installment agreement is $50 in all cases.
TAX PROFESSIONAL ALERT: Under the general rule taxpayers must pay
a monthly late penalty payment charge of .5% of the balance due. This
monthly penalty drops to .25% for taxpayers with an installment agreement,
provided the taxpayer filed on time and did not receive a notice that IRS
intended to enforce collection through a levy.
9. The application for Online Payment Agreement (OPA) use can be prepared
by the taxpayer or an authorized representative who has a Power of Attorney
on file with the IRS. When applying for an online payment agreement the
application reminds taxpayers and representatives that the total amount owed
must be $50,000 or less in combined tax, penalties and interest.
• The following data is required to be entered:
a. Social security number or individual TIN,
b. Date of birth,
c. Caller ID number, shown at the top of the taxpayer’s recent IRS
notice,
d. PIN, if there is one. If not, then AGI for the year involved,
e. Highest amount that can be paid and when it can be paid, and
f. Have the tax return available to verify information.
• When those steps are satisfied the application is submitted and an
immediate notification of approval will be received if all is correct.
Tax Professional Research Recommendation: Refer to IRS Publication
594: What You Should Know About the IRS Collection Process.
2-15

N. Retirement Fund Portability Rules Provide Taxpayers More Choices
1. With the enactment of the Pension Protection Act of 2006, the law has come
close to achieving the goal of assuring that taxpayers have flexibility in
deciding the type of vehicle for their tax-favored retirement funds (e.g.,
qualified plan, IRA, Roth IRA, etc.) and how these funds are invested.
2. With flexibility comes complexity. The rollover choices (and the conditions
attached to them) are numerous, making it difficult to track.
3. The rollover chart below is adapted from a chart posted on the IRS website. It
summarizes the rollover choices available for each type of tax-favored
retirement vehicle, and the basic conditions that may apply.
4. Many of the types of allowable rollovers are subject to complex conditions
that a chart of this nature cannot address. For example, §408(d)(3)(B) provides
that a rollover from a regular IRA to another regular IRA must be completed
in 60 days, and may be made only once in a 12-month period.
Tax Professional Research Recommendation: For additional details on
pension rollover issues the IRS website provides “Retirement Topics-
Rollovers of Retirement Plan Distributions” which provides data on rollover
and waiver issues in certain situations: www.IRS.gov/retirement.
2-16

Pension and Retirement Fund Portability Chart
Roll From
Roll To
IRA SEP-IRA SIMPLE
IRA
Roth IRA
457(b)
(Government)
403(b)
Qualified
Plan
(Pre-Tax)
Designated
Roth
Account
§401(k)
§403(b)
§457(b)
IRA YES YES NO YES, must
include in
income.
SEP-IRA YES YES NO YES, must
include in
income.
YES, must
have separate
accounts.
YES, must
have separate
accounts.
YES YES NO
YES YES NO
SIMPLE
IRA
YES, after
two years.
YES, after
two years.
YES
YES, after
two years.
Must include
in income.
YES, after
two years.
Must have
separate
accounts.
YES, after
two years.
YES, after
two years.
Roth IRA NO NO NO YES NO NO NO NO
NO
457(b)
(Government)
YES YES NO YES
Must include
in income.
YES YES YES YES
Must
include in
income.
Must be an
in-plan
rollover.
403(b)
(Pre-Tax)
YES YES NO YES
Must include
in income.
YES
Must have
separate
accounts.
YES YES YES
Must
include in
income.
Must be an
in-plan
rollover.
Qualified
Plan
(Pre-Tax)
YES YES NO YES. Must
include in
income.
YES. Must
have separate
accounts.
YES YES YES
Must
include in
income.
Must be an
in-plan
rollover.
Designated
Roth
Account
§401(k)
§403(b)
§457(b)
NO NO NO YES NO NO NO YES, if a
direct
trustee to
trustee
transfer.
2-17

O. Definition of Limited Partner for Purposes of Self-Employment Tax:
(Proposed Reg. §1.1402-(a)-2(h)(3))
1. IRS proposed regulations provide guidance as to whether a member of an LLC
is considered a “limited partner” for purposes of self-employment tax.
2. The regulations adopt an approach which depends on the relationship between
the member, the LLC and the LLC’s business.
NOTE: State law characterizations of an individual as a “limited partner” are
not determinative.
3. Generally, an individual will be treated as a “limited partner” under the
proposed regulation unless the individual:
a. Has personal liability for the debts of or claims against the LLC by reason
of being a member, or
b. Has authority to contract on behalf of the LLC under the statute or law
pursuant to which the partnership is organized, or
c. Participates in the LLC’s trade or business for more than 500 hours during
the taxable year.
4. If, however, substantially all of the activities of the LLC involve the
performance of services (Service Partnerships) in the fields of:
a. Health,
b. Law,
c. Engineering,
d. Architecture,
e. Accounting,
f. Actuarial science, or
g. Consulting,
then any individual (service partner) who provides services as part of that
trade or business will not be considered a limited partner for purposes of the
self-employment tax.
2-18

5. By adopting these functional tests, the proposed regulations ensure that
similarly situated individuals owning interests in entities formed under
different statutes or different jurisdictions will be treated similarly.
6. A functional approach is necessary to ensure that the self-employment tax
consequences to similarly situated taxpayers do not differ depending where
the partnership or LLC is organized.
Service Partner Defined:
1. A “service partner” is a partner who provides services to or on behalf of the
“service partnership’s” trade or business.
2. A partner is not considered to be a service partner if that partner only provides
a de minimis amount of services to or on behalf of a partnership.
Tax Professional Note: The proposed regulations do not define a de minimis
amount.
Tax Professional Research Recommendation: Refer to IRS Publication 533
Self-Employment Tax.
P. Notice of Inconsistent Treatment: Form 8082
1. Pass-through entities such as partnerships, Subchapter S corporations, estates
and trusts require that the result of any net income, net loss deductions or
credits, etc. are reported to the partners, S Corporation shareholders and
beneficiaries. These items of income, loss and/or credits, etc. are required to
be reported to the owners and beneficiaries on a Schedule K-1 and these
recipients are required to report these items in a consistent manner with the
way they were reported by the entity on the Schedule K-1. However, there
may be reasons that the recipient may wish to report these items differently
and if this is the case, then the recipient could use Form 8082 for this purpose.
2. Form 8082 is used to notify the IRS of any inconsistency between the
taxpayer’s treatment of an item reported by the entity on Schedule K-1 and
how the taxpayer is actually reporting that particular item on their return.
2-19

3. The taxpayer would also use Form 8082 if a Schedule K-1 was not received
from the entity.
4. A taxpayer would use Form 8082 if they believed that:
a. An item was not properly reported on Schedule K-1, or
b. An item was reported on Schedule K-1 that should not be reported on
the taxpayer’s return.
5. For example, if the taxpayer believes that the percentage shown as the
ownership percentage of capital at the end of the year was not properly
reflected on Schedule K-1, then file Form 8082 even though the taxpayer is
not otherwise required to report that percentage on the tax return.
6. If the issue of inconsistency is discovered after filing the original return, then
a taxpayer could file an amended return to report it. In the space provided on
the amended return for writing an explanation enter “See Attached Form
8082.” If the correction does not affect the tax return, then no amounts need
to be reported on the amended return if the Form 8082 is the only purpose for
filing the amended return.
7. The taxpayer would also file a Form 8082 if the pass-through entity has not
filed a tax return or provided the taxpayer with the required Schedule K-1 by
the time that the taxpayer is required to file his tax return (including
extensions) and there are items of income, loss, deductions and credits that the
taxpayer is required to report on his return.
Q. §465 At Risk Limitations: Schedule C and Schedule E Issues and Form
6198 Reporting Requirements
1. §465(a)(1) provides a general rule that in the case of an individual engaged in
an activity to which this section applies, any loss from such entity for the
taxable year shall be allowed only to the extent of the aggregate amount with
respect to which the taxpayer is at risk for such activity at the close of the
taxable year.
2-20

2. §465(a)(2) provides that any loss from an activity not allowed in the current
year shall be treated as a deduction in the succeeding year if the taxpayer is
then at risk at the end of the tax year.
3. §465(b) addresses the amounts which are considered at risk and in §465(b)(1)
provides that in general a taxpayer shall be considered at risk for an activity
with respect to amounts including:
a. The amount of money and the adjusted basis of other property contributed
to the activity, and
b. Amounts borrowed with respect to such activity.
4. §465(b)(2) provides that for purposes of this section, a taxpayer shall be
considered at risk with respect to amounts borrowed for use in an activity to
the extent that the taxpayer:
a. Is personally liable for the repayment of such amount, or
b. Has pledged property, other than property used in such activity, as security
for such borrowed amount (to the extent of the net fair market value of the
taxpayer’s interest in such property).
5. If the debt on property contributed is nonrecourse debt, then no property shall
be taken into account as security if such property is directly or indirectly
financed by indebtedness which is secured only by the property.
6. §465(b)(3)(A) provides that certain borrowed amounts are excluded and shall
not be considered to be at risk with respect to an activity if such amounts are
borrowed from any person who has an interest in such activity or from a
related person.
7. §465(b)(3)(C) defines a related person for this purpose to be any person if the
person bears a relationship to the taxpayer as specified in §267(b) or
§707(b)(1).
2-21

8. §267(b) addresses the issue of various relationships to the taxpayer.
§267(b)(1) specifically provides rules dealing with a member of the
taxpayer’s family which would include only the taxpayer’s brothers and
sisters (whether by whole or half-blood) spouse, ancestors and lineal
descendants.
Tax Professional Education Point: Recourse debt means that the taxpayer
has an obligation to repay the debt in full even if the underlying property’s
value on the date of enforcement of the loan is insufficient to cover the loan.
With a nonrecourse debt the taxpayer is not responsible for paying an amount
greater than the value of the underlying property.
EXAMPLE #1: In 2015 Ennis T. Pea borrows $25,000 from his brother to
finance his Schedule C business which had a net loss of $40,000. Of this
$40,000 only $15,000 is considered at risk because the money borrowed from
his brother is not considered at risk.
Ennis would be required to check box 32b of Schedule C and attach Form
6198, entering $40,000 as the current year ordinary loss in Part I on line 1
and calculating his investment of everything except the $25,000 he borrowed
from his brother, which in this example is $15,000. Part IV of Form 6198
would report that his deductible loss is the lower of the ordinary loss of
$40,000 or his personal investment of $15,000. In 2016 when Ennis repays
his brother $4,000 he will be allowed to increase his amount at risk only by
the actual $4,000 repaid.
EXAMPLE #2: In 2016 Ennis has a net loss of $40,000 and he borrowed
$25,000 from ABC Bank. He will report a net loss of $44,000 which includes
the $4,000 repayment to his brother. Ennis will continue to increase his
deductible loss as he makes payments on the loan to his brother. If he never
repays the loan to his brother, then he will never be able to deduct the
additional $21,000.
2-22

EXAMPLE #3: Same data as Example #1 except Ennis borrowed the money
from ABC Bank and his brother co-signed the loan. Ennis is at risk for the full
$25,000 as long as his brother does not pay for any of the debt. If the brother
made a $1,000 payment, then Ennis would not be at risk for the $1,000 paid
to the bank by his brother.
Tax Professional Educational Fact: §267(b) addresses other relationships to
the taxpayer such as corporate ownership, fiduciary issues, partnership, etc.
§707(b)(1) addresses the relationship of partners to a partnership.
Tax Professional Note: These at-risk rules will apply equally to borrowed
amounts which are used for operating a rental property.
2-23

R. Education Program Comparison Sheet
2014 Comparison of: §25A American Opportunity Tax Credit, §25A
Lifetime Learning Credit, §222 Higher Education Deduction, §529
Qualified Tuition Program, and §530 Coverdell Savings Plan
American
Opportunity
Tax Credit (A)
Lifetime
Learning Credit
Higher
Education
Deduction
(B)
Qualified
Tuition
Program
Coverdell Savings
Plan
Internal Revenue Code §25A(i) §25A(c) §222 §529 §530
Benefit phased out at
certain level of AGI
Yes Yes Yes No Yes
Phase-out range based
on AGI:
Married taxpayers filing
joint return
$160,000 - $180,000 $110,000-$130,000 $130,000 5 N/A $190,000 - $220,000
Single and Head
of Household
$ 80,000 - $ 90,000 $ 55,000-$ 65,000 $ 65,000 5 N/A $ 95,000 - $110,000
Married Separate No credit allowed No credit allowed No deduction
allowed
Maximum annual credit,
investment or deduction
Qualified education
expenses include room
and board
Qualified education
expenses include
elementary and
secondary costs
Can claim credits in
same year as distribution
or deduction
Can use in same year as
distribution from §530
Coverdell Plan
Can use in same year as
distribution from §529
plan
$2,500 credit $2,000
Lifetime
Learning credit
$2,000 part
deduction
$4,000 full
deduction
Yes
N/A
No No No Yes Yes
No No No No Yes
N/A N/A No Yes 2 Yes 2
Yes 2 Yes 2 Yes 2 Yes N/A
Yes 2 Yes 2 Yes 4 N/A Yes
No contribution
allowed
$2,000 investment
1
Per Prop. Reg. 1.25A-1(g), parents may elect to forego claiming student as dependent to allow the
education credit in child’s return
2
Same tuition and fee expenses cannot be used for both provisions.
3
Except no higher education deduction is allowable for amounts distributed from a §530 Coverdell
Plan.
4
Except no higher education deduction is allowable for amounts distributed from a §529 plan.
5
Full deduction with partial deduction allowed at different thresholds of $80,000 and $160,000.
(A) Extended through December 31, 2017.
(B) Expired after 2014 (awaiting legislative update)
6
If required or provided by a public, private or religious school in connection with such enrollment of
alterdence §530(b)(3)(A)(i.i)
2-24

S. Other Important Threshold Amounts
1. Health Savings Accounts: In 2015 and 2016, the annual limitation on
deductions for an individual with self-only coverage under a high deductible
plan is $3,350. The annual limitation for an individual with family coverage
under a high deductible plan is $6,650. In 2016 the amount is $6,750 (Rev.
Proc. 2015-30). The catch up provisions for those taxpayers 55 and older is
$1,000.
2. Flexible spending arrangements (FSA) limitations: the limitation on the
amount of salary reductions that an employee may elect to contribute to a §125
Cafeteria plan is $2,550 for 2015 and 2016.
3. §911 Foreign earned exclusion and foreign housing deduction: For 2015,
the foreign earned income exclusion is $100,800 and the housing deduction
maximum is $30,240. In 2016, foreign earned income inclusion amount is
increased to $101,300 and the housing deduction maximum is increased to
$30,390. The maximum housing deduction is generally 30% of the §911
Foreign Income Exclusion Amount. These limit are increased for high cost
areas. See instructions to Form 2555 for more information.
4. Qualified transportation fringe benefits: In 2015, an employee is allowed
to exclude up to $250 a month for qualified parking expenses. In 2016 it is
$255. In addition, employees are also allowed an exclusion from gross income
of up to $130 a month of the combined value of travel passes and
transportation in a commuter highway vehicle for 2015 and 2016. Employees
are also able to exclude up to $20 per month for each qualified bicycle
commuting month (but only if they do not receive any of the other
transportation benefits).
2-25

T. Helping the Tax Professional in Understanding and Responding to IRS CP
2000 Notices
1. The Internal Revenue Service issues millions of notices to taxpayers each year
and when a taxpayer receives any correspondence from the IRS it generally
causes tremendous alarm. There is anxiety because the client anticipates a
change in the tax bill. Also, the client sometimes assumes that the tax
professional did something wrong requiring the tax professional to provide
assurances to the taxpayer that the issue can be resolved in an orderly and
timely manner.
2. The Collection Process (CP) notice that most taxpayers and tax professionals
will encounter is the CP 2000. It is a computer generated document which is
issued by the IRS’s Automated Under-Reporter (AUR) group. The CP 2000
normally involves document matching. They report the differences between
information reported to the IRS by 3rd party documents and the information
reported on the actual return that was filed.
3. According to the IRS, the correspondence examinations efficiently address
non-compliance with the tax law. It constitutes a significant percentage of the
Service’s audit coverage. Since year 2000 it has increased significantly.
Correspondence audits in year 2000 were about 375,000, while in 2014 it is
about 1,400,000. The role of the correspondence audit is to limit potential need
for a face-to-face interview or discussion with the taxpayer or the tax
professional.
4. The CP 2000 is initially issued as “proposed changes” to the return. In most
cases a human being has not looked at the return. The Service refers to the
CP2000 as ICL (Initial Contact Letter). The ICL is used to notify the taxpayer
of the opening of an audit without proposing a balance due. The Service
generally starts to send them in April for the returns filed in the prior year. For
example, in April 2014 the Service began sending CP 2000 notices for year
2012 returns filed in 2013. The CP 2000 is a 30-day letter.
2-26

TAX PROFESSIONAL ALERT: If the taxpayer receives a “Combo
Letter,” then there is more to be concerned about because the “Combo
Letter” includes an examination report with the notification of the audit. It is
used where the Service is reasonably certain of a potential liability.
5. If the tax professional does not have a Power of Attorney (POA) on file for
the client, then one should be prepared and submitted to the client immediately
and then sent to the IRS immediately upon receiving signature(s) from the
client. The IRS will enter the POA in the CAF (consolidated agent’s file) of
the tax professional. If the POA is faxed, then it is currently taking the Service
up to 15 days to enter it into the system.
6. In situations where the tax professional has already filed IRS Form 2848, a
Power of Attorney (POA) for a client, the tax professional is supposed to
receive a copy of any correspondence and may be able to remove much of the
anxiety and stress immediately by being able to contact the client before the
client contacts the tax professional.
Tax Professional Note: Form 2848 requires that a box is checked
requesting such correspondence be sent to the holder of the POA.
7. By reviewing the issue prior to the client contact, the understanding of the
issue addressed in the correspondence or notice will help put the client at ease
even if the client may owe additional tax, interest and penalty.
8. If the tax professional has copies of documents referred to in the client file,
then the process of responding could be easier because the time requirements
could be better satisfied. If the matter at hand requires additional
documentation not in the client file, then the time requirement to respond by
the stated deadline begins to be more of an issue.
9. If there is a POA on file, then the tax professional should attempt to contact
the client within a 24 hour period to make the client aware that the notice is
something to be taken seriously even when the tax professional knows that the
issue can be resolved without an assessment.
2-27

10. Since automated systems are used by the IRS, the system generates a second
response within a given time period. Telephone contact is encouraged by the
IRS. Audit contacts with no response are systematically advanced through the
audit process. Receipt of mail by the IRS precludes subsequent notices from
being issued. If the first notice is not acknowledged, then the severity of the
next notice increases. The IRS encourages the taxpayer to respond by the due
date listed in the notice.
11. Each IRS notice is identified using a CP, which stands for “collection
process.” This name by itself signifies importance because the Service sends
it out to “collect” data or money. Each CP notice number is found in the upper
right hand corner with a title in bold print in the center of page one of the
notice.
12. Each notice is specific and generally offers specific instructions on what the
Service requires to satisfy the matter at hand and close the case.
13. The tax professional must remember that many of the IRS employees
receiving responses to notices are not well rounded in understanding the tax
law since their role is to process and administer. Therefore, it is important that
the tax professional detail the response in the clearest and most concise
manner using the proper terms and references so that the reader can
understand the response and have confidence that the response is correct. Tax
examiners use judgment when evaluating responses.
14. If a response has the proper attachments enclosed, then the IRS representative
will be able to follow the trail and close the case, making their job easier.
15. Make sure all issues in the notice are addressed for both “agreed” and
“disagreed” items. The tax professional needs to remember that this is an exam
so it should be treated as if the IRS representative was sitting in front of you
asking for details.
16. If it is a “disagreed” item, then state it up front. Provide the reasons why,
thoroughly detail the reasons, support them with verification and enclose with
the response.
2-28

17. List the issues in the same order that the CP notice has followed whenever you
can. The IRS encourages responders to answer all questions on the notice and
enclose the response page from the CP notice. The IRS encourages the
responder to provide a good telephone number, use the envelope enclosed
whenever possible and use the complete address shown on the notice.
U. §213(d) Eligible Medical Expenses
An eligible expense is defined as those expenses paid for care as described in
§213(d) of the Internal Revenue Code. Below are two lists which may help
determine whether an expense is eligible.
For more detailed information, please refer to IRS Publication 502 titled,
“Medical and Dental Expenses.” If tax advice is required, you should seek the
services of a competent professional.
2-29

Deductible Medical Expenses
• Abdominal Supports
• Abortion
• Acupuncture
• Air Conditioner (when necessary
for relief from difficulty in
breathing)
• Alcoholism treatment
• Ambulance
• Anesthetist
• Arch Supports
• Artificial limbs
• Autoette (when used for relief of
sickness/disability)
• Birth control pills (by
prescription)
• Blood tests
• Blood transfusions
• Braces
• Cardiographs
• Chiropractor
• Christian Science practitioner
• Contact lenses
• Contraceptive devices (by
prescription)
• Convalescent home (for medical
treatment only)
• Crutches
• Dental treatment
• Dental X-rays
• Dentures
• Dermatologist
• Diagnostic fees
• Diathermy
• Drug addiction therapy
• Drugs (prescription)
• Elastic hosiery (prescription)
• Eyeglasses
• Fees paid to health institute
prescribed by a doctor
• FICA and FUTA tax paid for
medical care service
• Fluoridation unit
• Guide dog
• Gum treatment
• Gynecologist
• Healing services
• Hearing aids and batteries
• Hospital bills
• Hydrotherapy
• Insulin treatment
• Lab tests
• Lead pain removal
• Legal fees
• Lodging (away from home for
outpatient care)
• Metabolism tests
• Neurologist
• Nursing (including board and
meals)
• Obstetrician
• Operating room costs
• Ophthalmologist
• Optician
• Optometrist
• Oral surgery
• Organ transplant (including
donor’s expenses)
• Orthopedic shoes
• Osteopath
• Oxygen and oxygen equipment
• Pediatrician
• Physician
• Physiotherapist
• Podiatrist
• Postnatal treatments
• Practical nurse for medical
services
• Prenatal care
• Prescription medicines
• Psychiatrist
• Psychoanalyst
• Psychologist
• Psychotherapy
• Radium therapy
• Registered nurse
• Special school costs for the
handicapped
• Spinal fluid test
• Splints
• Sterilization
• Surgeon
• Telephone or TV equipment to
assist the hard-of-hearing
• Therapy equipment
• Transportation expenses
• Ultra-violet ray treatment
• Vaccines
• Vasectomy
• Vitamins (if prescribed)
• Wheel chair
• X-rays
Non-Deductible Medical Expenses
• Advance payment for services to be rendered next
year
• Athletic Club membership
• Automobile insurance premium allocable to medical
coverage
• Boarding school fees
• Bottled water
• Commuting expenses of a disabled person
• Cosmetic surgery and procedures
• Cosmetic, hygiene products and similar items
• Funeral, cremation, or burial expenses
• Health programs offered by resort hotels, health clubs,
and
gyms
• Illegal operations and treatments
• Illegally procured drugs
• Maternity clothes
• Non-prescription medication
• Premiums for life insurance, income protection,
disability, loss of limbs, sight or similar benefits
• Scientology counseling
• Social activities
• Special foods and beverages
• Specially designed car for the handicapped other than an
autoette or special equipment
• Stop-smoking programs
• Swimming pool
• Travel for general health improvement
• Tuition and travel expenses to send a problem child to a
particular school
• Weight loss program
2-30

V. Worksheets for Aiding Clients in Gathering Deductible Tax Data by Types
and Professions: Modeled and Presented through Courtesy of CFS Tax Tools
The following contain data on:
• Airline personnel deductions
• Automobile salesperson deductions
• Business professional deductions
• Clergy deductions
• Construction worker deductions
• Day care provider deductions
• Direct seller deductions
• Educator deductions
• Entertainer deductions
• Firefighter deductions
• Hairstylist/manicurist deductions
• Law enforcement deductions
• Long haul trucker/overnight driver deductions
• Medical professional deductions
• Realtor deductions
• Self-employed individual deductions
• Vehicle, travel & entertainment expenses
• Missing information sheet
2-31

AIRLINE PERSONNEL DEDUCTIONS
Client: ID# Tax Year
Uniforms
Alterations/Repairs
Belts
Emblems/Insignia/Wings
Gloves
Hat
Jacket/Overcoat
Laundry/DryCleaning
Pants
Shirts/Blouses
Shoes/Boots
Sweater/Vest
Ties/Scarf
Other
Other
Total
Professional
Bidding/Software/Fees
Books/Manuals/Tapes
Business Cards
Internet
FAA Medical Exam
ID Replacement
Licenses
Passport/Photo/Visa
Professional dues
Subscriptions/Publications
Training Expense
Union dues/Assessments
Union Ofcr./Committee
Other
Other
Total
FAA Physical
Company Physical
Training
Other
Total
Mileage
Miles
Miles
Miles
Miles
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Equipment
Alarm Clock/Portable
Calculators
Cockpit Keys
Ear Piece/Protectors
Flashlight/Batteries
Flight Bag
Jet Bridge Keys
Log Book
Luggage/Garmet Bag
Maps/Charts
Name Tags
Portable Security Device
Sunglasses
Translators
Voltage Converter
Watch/Batteries
Other
Other
Other
Other
Other
Total
Second Line
Long distance
Pay phone
Cellular
Answering machine
Fax line
Pager
Other
Total
Telephone
Prepared By:
2-32

AUTOMOBILE SALESPERSON DEDUCTIONS
Client: ID# Tax Year
Sales Expenses
Advertising
Agency Charges
Bank Charges
Batteries - Pager, Flashlight
Business Cards
Clerical
Client Gifts
Commission
Courier Service
Customer Refreshments
Entertainment, Tickets
Film/Processing
Flashlight
Flowers/Cards
Food & Beverages
Gasoline, Customer's Vehicle
Office Expense
Postage
Printing
Promotional Items
Referrals
Repairs
Sales Assistants
Sales Inducements
Signs, Flags, Banners
Stationery
Support Shoes & Hosiery
Team Sales Incentives
Tips - Lot Porters & Detailer
Tools
Travel - Overnight
Uniforms - Dealer Required
Washes/Waxes, Customer
Other
Other
Total
Continuing Ed
Dues
E & O Insurance
Legal Fees
Licenses
Memberships
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Publications
Resumes
Seminars
Other
Other
Other
Attache Case
Calculator
Camera
Cell Phone
Telephone
Pager
Other
Total
Other
Total
Cellular Phone
Long Distance
Pay Phone
Other
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Professional
Equipment
Telephone
Prepared By:
2-33

BUSINESS PROFESSIONALS DEDUCTIONS
Client: ID# Tax Year
2014
The purpose of this worksheet is to help you organize your tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been reimbursed, expect to be reimbursed, or are reimbursable.
Miscellaneous
Business Cards
Clerical
Computer Supplies
Customer Lists
Gifts
Office Supplies
Postage
Photocopying
Printing
Repairs
Shipping
Stationery
Other
Other
Total
Dues
E & O Insurance
Legal & Professional
Licenses
Memberships
Publications
Seminars
Continuing Ed
Resumes
Other
Other
Total
Professional
Other Information
Long Distance
Faxes
Pay phone
Cellular
2nd Line
Beeper/Pager
Answering Service
Other
Other
Total
Attache Case
Calculator
Camera
Desk
Chair
Filing Cabinet
Cell Phone
Software
Tape Recorder
Telephone
Other
Other
Total
Telephone
Equipment
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Prepared By:
2-34

.
CLERGY DEDUCTIONS
Client: ID# Tax Year
Parsonage Allowance
Interest - home
Allowance received
Taxes - home
Rent - home
Repairs - home
Insurance - home
Utilities - home
Other_______________
Other_______________
Other_______________
Other_______________
Other_______________
Other_______________
Total
Professional dues
Religous subscriptions
Business Associations
Secretarial
Bookkeeper
Other
Other
Total
Professional
Continuing Education
Correspondence Course
Course Registration
Materials & supplies
Photocopy
Reference material
Seminar fees
Textbooks
Other
Other
Total
Equipment
Other
Total
Insurance
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
See Vehicle, Travel & Entertainment Worksheet
Supplies/Equipment
Music books
Theology books
Business cards
Clerical service
Greeting cards
Insurance
Legal & professional fees
Map book
Pager
Photocopy
Postage
Software
Office equipment
Office supplies
Computer
Vestments
Vestments - cleaning
Vestments - repair
Other______________
Other______________
Other
Other
Total
Answering machine
Answering Service
Cellular
Pay Phone
Toll Calls
Fax line
Other
Total
Vehicle & Travel
Telephone
Prepared By:
2-35

CONSTRUCTION WORKERS DEDUCTIONS
Client: ID# Tax Year
Equipment/Supplies
Batteries (Non - Automotive)
Bed Liner, Truck
Blades, Replacement
Brooms, Mops, etc.
Brushes
Buckets
Chain Saw, Electric/Gas
Cleaning Supplies
Compressor, Air
Equipment Rentals
Flashlght
Gasoline, Equipment
Gear, Rain
Generator
Hammers, All Types
Ladders
Propane, All Types
Repairs, All Types (Attach List)
Rope, All Types
Safety Equipment (Attach List)
Saws, Electric/Gas
Shovels
Tape
Tool Bags, All Types
Tool Boxes, All Types
Tools
Other
Other
Other
Other
Other
Other
Other
Other
Total
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Licenses & Permits
Subscriptions
Union Dues
Other
Other
Other
Other
Other
Coveralls
Hardhats, etc.
Uniforms, Shirts, Pants
Safety Boots
Other
Other
Other
Total
Pager
Other
Other
Other
Total
Cell Phone
Long Distance
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Professional
Uniforms
Telephone
Prepared By:
2-36

DAY CARE PROVIDER
Client: ID# Tax Year
The purpose of this worksheet is to help you organize your tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been reimbursed, expect to be reimbursed, or are reimbursable.
Ordinary Supplies
Advertising
Books & Magazines
Business Tax
Child Proofing Devices
Continuing Education (child care)
CPR Training
Food & Snacks
Insurance: Bond
Insurance: Business
Insurance: Liability
License & Permits
Payroll: Wages
Payroll: Taxes
Professional Fees: Legal
Professional Fees: Tax Preparation
Repairs
Replacements
Supplies: Art
Supplies: Bottles, Formulas, Diapers
Supplies: Cleaning
Supplies: Household
Supplies: Laundry
Supplies: Office
Supplies: Party
Telephone: Cell
Telephone: House
Telephone: Pager
Tickets, Fees, etc. - Field Trips
Toys
Video Rentals
Other:
Other:
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Major Purchases
Car Seats
Cribs
High Chairs
Riding Equipment
Swing Set/Slides
Other:
Other:
Purchases (Subject to Percentage of Business Use)
Computer Equipment
Dishwasher
Dryer
Fencing
Refrigerator
Television
VCR
Washer
Other:
Other:
Total
Business Use of Home
Total Square Feet of Home
Business Area of Home
Business Hours (Total for Year)
Home Mortgage Interest
Property Taxes
Insurance
Rents
Allocated Expenses (Subject to Percentage of Business Use)
Cleaning Service
Gardner
Maintenance & Repairs
Pool Service & Supplies
Repairs
Utilities: Cable
Utilities: Gas & Electric
Utilities: Trash
Utilities: Water
Other:
Other:
Total
Other Information
Prepared By:
2-37

DIRECT SELLER DEDUCTIONS
Client: ID# Tax Year
Inventory
Inventory at Beginning of Year
Purchases
Cost of Items for Personal Use
Other Costs
Inventory at End of Year
Sales Expenses
Advertising
Business Cards
Bank Charges
Catalogues
Commissions
Demos
Freight
Gifts
Kits
Map Books
Postage
Refunds
Sales Aids
Sales Assistants
Samples & Promotional Items
Seminars & Trade Shows
Service Charges
Snacks & Beverages
Storage Containers
Storage Fees
Supplies - Meeting\Party
Supplies - Misc
Supplies - Office
Other
Other
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Dues
Insurance
License
Publications
Other
Other
Total
Long Distance
Faxes
Pay phone
Cellular
2nd Line
Beeper/Pager
Answering Service
Other
Other
Total
Attache Case
Calculator
Desk
Display Tables
Camera
Filing Cabinet
Cell Phone
Telephone
Other
Other
Total
Professional
Telephone
Equipment
Prepared By:
2-38

EDUCATOR DEDUCTIONS
Client: ID# Tax Year
Classroom
Attendance Books
Arts & Crafts
Audio Visual
Books
Decorations
Food
Grade Books
Rentals
Software
Film/Processing
Photocopying/Printing
Publications
Party Supplies
Tools
Trophies, Prizes & Awards
Stationery
Other
Total
Professional
Conventions
Dues
E & O Insurance
Job Seeking
Legal Fees
Licenses
Memberships
Seminars/Continuing Education
Continuing Education
Resumes
School Functions
Total
Telephone
Long Distance
Faxes
Pay Phone
Cellular
Beeper/Pager
Answering Service
Other
Total
Equipment
Calculator
Camera
Desk
Chair
Filing Cabinet
Cell Phone
Tape Recorder
Other
Total
Uniforms
Dry Cleaning
Laundry
Lab Coats
Other
Total
Other Costs
Postage
Storage
Other
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
2-39

ENTERTAINER DEDUCTIONS
Client: ID# Tax Year
Promotional
Agent Commission
Audition Expense
Business Cards
Film Processing
Fan Mail Service
Paging Service
Photos – Professional
Portfolio Expense
Publicity Agent
Resume
Other
Other
Total
Professional
Office Supplies
Photocopy – Scripts, etc.
Professional Dues
Secretarial
Trade Publications
Union Dues
Other
Other
Total
Continuing Education
Coaching
Dance Training
Music Arrangement
Music Tapes, Recordings
Music Training
Rents – Rehearsal Hall
Voice Training
Other
Other
Total
Insurance
Equipment
Other
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Supplies/Equipment
Alternations – Repairs
Cleaning (Costumes)
Hair Care
Makeup
Manicure
Props, Stunt Supplies
Equipment Repairs
Amplifier
Audio Systems
Musical Instruments
Pager
Recorder
Speaker Systems
Shoes – Special
Tapes
Tools
Wigs
Other
Other
Total
Telephone
Answering Machine
Answering Service
Cellular
Pay Phone
Toll Calls
Fax Line
Other
Total
2-40

FIREFIGHTER DEDUCTIONS
Client: ID# Tax Year
Uniforms
Belts
Boots, shoes
Gloves
Hat, helmet
Jacket
Pants
Shirts
Ties
Emblems, insignia
Dry Cleaning
Laundry
Other
Other
Total
Union dues
Association dues
Professional dues
Subscriptions
Other
Other
Total
Seminars
Workshops
Books, manuals
Supplies
Other
Other
Uniforms
Professional
Continuing Education
Total
Insurance
Errors & Omissions
Other
Total
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
See Vehicle, Travel & Entertainment Worksheet
Equipment
Badges, name tags
Briefcase
Binoculars
Flashlight, bulbs, batteries
Maps
Notebook
Pager, beeper
Equipment repairs
Safety equipment
Tape recorder
Tapes
Other
Other
Total
Meals
House dues
Business meals on-the-job
Other
Other
Total
2nd Line
Long distance
Pay phone
Cellular
Answering machine
Fax line
Other
Total
Vehicle & Travel
Telephone
Prepared By:
2-41

HAIRSTYLIST/MANICURIST DEDUCTIONS
Client: ID# Tax Year
The purpose of this worksheet is to help you organize your tax deductible hairstylist/manicurist expenses. In order for an
expense to be deductible, it must be considered an ''ordinary and necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been reimbursed, expect to be reimbursed, or are reimbursable.
Miscellaneous
Business Cards
Public Relations/Photos
Refreshments for Customers
Client Gifts
Office Supplies
Postage
Rent
Assistant Fees
Shampoo Person Expenses
Laundry
Cleaning Expense
Other
Other
Total
Professional
Dues & Professional Fees
Liability Insurance
Legal & Professional
Licenses
Business Tax
Memberships
Publications
Hair Shows
Seminars
Other
Other
Total
Other Information
Telephone
Answering Service
Pager/Voice mail
Cellular Phone
Pay Phone
Long Distance
Other
Other
Telephone
Total
Equipment & Supplies
Hairdryers, Drills, etc.
Hair Products
Nail Products
Misc. Supplies
Telephone
Cell Phone
Pager
Equipment Repairs
Equipment Rental
Other
Other
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Prepared By:
2-42

LAW ENFORCEMENT DEDUCTIONS
Client: ID# Tax Year
Uniforms
Belts
Boots, shoes
Gloves
Hat, helmet
Jacket
Pants
Shirts
Ties
Emblems, insignia
Dry Cleaning
Laundry
Rain gear
Other
Other
Total
Registration
Fingerprinting
Licenses & permits
Union dues
Association dues
Professional dues
Range dues
Subscriptions
Textbooks
Seminars
Workshops
Books, manuals
Supplies
Other
Other
Total
Bond
Errors & Omissions
Other
Other
Total
Uniforms
Professional
Insurance
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
See Vehicle, Travel & Entertainment Worksheet
Equipment/Supplies
Ammo pouch
Ammunition
Badges, name tags
Baton
Briefcase
Bulletproof vest
Ear protectors
Camera
Film & processing
Flashlight, bulbs, batteries
Guns
Mace
Maps
Notebook
Pager, beeper
Equipment repairs
Safety equipment
Tape recorder
Tapes
Whistle
Other
Other
Total
2nd Line
Long distance
Pay phone
Cellular
Answering machine
Fax line
Other
Other
Total
Vehicle & Travel
Telephone
Prepared By:
2-43

LONG HAUL TRUCKER/OVERNIGHT DRIVER
Client: ID# Tax Year
The purpose of this worksheet is to help you organize your tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been reimbursed, expect to be reimbursed, or are reimbursable.
Out of Town Travel Expenses
Baggage & Shipping
Bath/Shower
Car Rental & Gas
Laundry/Laundry Supplies
Locker Fees
Lodging
Meals (Actual Cost)
Parking & Tolls
Taxi, Commuter Bus, Shuttles
Telephone/Fax
Tips
Toiletries
Transportation-Air Fare, Bus, Train
Other
Owner Operator Truck Expenses
Description of Truck
Date Placed in Service
Odometer-Beginning of Year
Odometer-End of Year
Interest Paid
Gas, Lube, Oil
Repairs & Maintenance
Tires
Insurance
License/Registration Fee
Other
Dues & Fees
License
Permits/Fees
Security Bond
Trade Association Dues
Travel Card Fees
Union Dues
Other
Other Information
Miscellaneous Expenses
Business Cards & Stationary
Delivery Expenses-Postage
Insurance-Business
Legal & Professional Services
Office Supplies
Safety Classes
Secretarial Services
Testing-Job Related
Other
Supplies
Back Supporter
Batteries
Cellular Phone
Citizens Band Radio
Compass/GPS
Fire Extinguisher
First Aid Kit
Flares
Flashlight
Glasses-Safety & Sun
Gloves
Ice Chest/Thermos
Map/Map Book
Radio
Safety Boots/Shoes
Seat Cushion
Tools
Trade Publications
Uniforms & Maintenance
Weather Receiver
Other
Other
Other
Other
.
Prepared By:
2-44

.
MEDICAL PROFESSIONAL DEDUCTIONS
Client: ID# Tax Year
Uniforms
Alterations & repairs
Dry cleaning
Hat, cap
Laundry
Pants
Scrubs
Shoes
Other
Other
Total
Professional
Alumni dues
Medical Association dues
Professional dues
Referral service
Subscriptions
Union dues
Other
Other
Total
Continuing Education
Correspondence courses
Lab fees
Materials & supplies
Photocopy
Reference material
Registration fees
Seminars
Transcripts
Tuition
Textbooks
Other
Other
Other
Total
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Bag - medical
Briefcase
Business cards
Medical equipment
Office supplies
Pager, beeper
Equipment repairs
Stationery
Tape recorder, tapes
Other
Other
Other
Total
Malpractice insurance
Legal fees
Liability insurance
Other
Other
2nd Line
Long distance
Pay phone
Cellular
Answering machine
Fax line
Other
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Total
Total
Supplies
Other Expenses
Telephone
Prepared By:
2-45

REALTOR DEDUCTIONS
Client: ID# Tax Year
Advertising
Appraisal Fees
Business cards
Bank charges
Clerical
Client Gifts
Courier Service
Fees:
Commissions Paid
Escrow/Loan Fees
Referrals
Film/Processing
Flowers/Cards
Keys/Locksmith
Lock Boxes
Map Books
Office Expense
Open House
Rent
Sales Assistants
Repairs
Signs, Flags, Banners
Food
Software
Photocopying
Printing
Tools
Stationery
Other
Other
Total
Dues
E & O Insurance
Legal Fees
Licenses
Memberships
Multiple Listing
Publications
Sales
Professional
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Seminars
Continuing Ed
Resumes
Other
Other
Total
Long Distance
Faxes
Pay phone
Cellular
2nd Line
Beeper/Pager
Answering Service
Other
Other
Total
Attache Case
Calculator
Desk
Camera
Chair
Filing Cabinet
Cell Phone
Tape Recorder
Telephone
Other
Other
Total
Professional
Telephone
Equipment
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Prepared By:
2-46

SELF-EMPLOYED INDIVIDUAL DEDUCTIONS
Client: ID# Tax Year
Advertising
Bank Charges
Business Cards
Catalogues
Cleaning & Maintenance
Commissions
Demos
Depreciation & Sect. 179
Employee Benefits
Freight
Gifts
Interest
Map Books
Office Expense
Pension/Profit Sharing
Operating Expenses
Postage/Delivery Expenses
Printing
Refunds
Rent (Machinery/Equip)
Rent (Other)
Repairs
Sales
Samples & Promotional
Seminars & Trade Shows
Service Charges
Software
Storage Fees
Supplies
Taxes
Tools
Utilities
Wages
Other
Other
Other
Other
Total
Other Information
The purpose of this worksheet is to help you organize your
tax deductible business expenses. In order for an expense
to be deductible, it must be considered an ''ordinary and
necessary'' expense. You may include other applicable
expenses. Do not include expenses for which you have been
reimbursed, expect to be reimbursed, or are reimbursable.
Cost Of Goods
Cost of Items for Personal Use
Cost of Labor
Inventory at Beginning of Year
Inventory at End of Year
Materials and Supplies
Outside Service
Purchases
Other
Other
Total
Equipment
Furniture
Other
Total
Dues
Insurance
Legal & Professional
License
Publications
Other
Other
Total
Cellular Phone
Long Distance
Pay Phone
Other
Total
Vehicle & Travel
See Vehicle, Travel & Entertainment Worksheet
Equipment
Professional
Telephone
Prepared By:
2-47

VEHICLE, TRAVEL, & ENTERTAINMENT EXPENSES
Client: ID# Tax Year
Vehicle Information
Description of Vehicle
Date Placed in Service
Odometer Reading – Beginning of Year
Odometer Reading – End of Year
Total Miles
Business Miles
Commute Miles
Daily Average Round-Trip Commute
Personal Miles
Is Car Leased?
Is Car Owned?
Was this vehicle depreciated in a prior year?
Vehicle Expenses
Gas, Lube, Oil
Repairs & Maintenance
Tires
Towing
Insurance
Auto License/Registration
Personal Property Tax
Lease Payments
Interest
Auto Club
Warranty
Washes
Smog Certificate
Other
Total
Yes__________
No___________
Yes__________
No___________
Travel & Entertainment Expense
Airfare, Train
Car Rental & Gas
Parking & Tolls
Taxi, Bus, Shuttles
Lodging
Meals
Entertainment
Tips
Telephone
Dry Cleaning
Other
Total
2-48

Missing Information Sheet
Name:
Tel. (Home):
Tel. (Work):
Fax:
Date:
09/25/2015
2014
Tax Year:
The following information is required to complete your return:
INCOME
W-2's
1099R's (Pensions, IRAs, etc.)
INTEREST:
DIVIDENDS (1099DIV, 1099-B)
K-1 FORMS: (Partnerships, etc.)
OTHER INCOME: (unemployment, jury duty, etc.)
HEALTH INSURANCE: (1095-A, 1095-B, 1095-C)
Medical
Sales Tax paid on vehicle, boat, etc.
DEDUCTIONS
Interest Paid:
Real Estate Taxes
Charitable contributions:
Personal Property Tax
Other deductions:
Other Taxes
Dependent Care: Name
Address
Name
Address
Child's Name
Child's Name
Escrow Settlement/Closing Statement for
Escrow Settlement/Closing Statement for
Other Information:
OTHER DEDUCTIONS
ID#
Amount $
ID#
Amount $
Amount $
Amount $
Prepared By:
2-49

Chapter II - Review Questions
1. Which of the following statements about contributions to qualified tuition programs
(QTPs) is true?
a. There is no annual limit to the amount that can be contributed.
b. No contributions can be made once the beneficiary is 18.
c. Contributions are deductible on your federal tax return.
d. Contributions are phased out if the contributor’s modified AGI is between
$95,000 and $110,000 ($190,000 and $220,000 MFJ).
Answer:
a. is correct. Unlike Coverdell Education Savings Accounts, there is no annual limit
on the amount that can be contributed to a QTP.
b. is incorrect. This is a provision for a Coverdell Education Savings Account. There is
no age limit to contribute to a QTP.
c. is incorrect. Contributions do not qualify for a federal tax deduction; however they
might qualify as a deduction on some state tax return.
d. is incorrect. There are no AGI limits for contributions to QTPs.
2-50

2. A self-employed taxpayer pays the following for medical insurance:
$420 dental insurance
$516 Alfac cancer policy
$$6,444 medical insurance for his spouse
$3,800 long-term care insurance
$4,884 Medicare Part A
$1258.80 Medicare Part B
How much if any may the taxpayer deduct as self-employed health insurance?
a. $6,562.80
b. $7,702.80
c. $10,362.80
d. $17,322.80
Answer:
a. is incorrect. $6,562.80 represents only dental and Medicare A and B.
b. is incorrect. $7,702.80 represents dental, cancer policy, long-term care insurance,
and Medicare Part A. Medicare Part B and the medical insurance for the spouse are also
deductible, however the Aflac cancer policy is not deductible as self-employed health
insurance.
c. is correct. §162(I)(1)(A) provides that health insurance premiums for a selfemployed
taxpayer are deductible as an adjustment to income. This includes dental
insurance, medical insurance for the spouse and any dependents, long-term care
insurance (§162(l)(2)(C)) and all parts of Medicare (Pub 535).
d is incorrect. $17,322.80 represents the sum of all the amounts above. Because Aflac
is not medical insurance the premiums are not deductible.
2-51

3. How much can an employee exclude from taxable wages for education assistance
provided by the employer?
a. $ 130
b. $2,550
c. $5,000
d. $5,250
Answer:
a. is incorrect. §132(f) provides a $130 exclusion per month for employer provided
transportation cost.
b. is incorrect, §125 provides a $2,550 exclusion for flexible spending accounts.
c. is incorrect. §129 provides a $5,000 exclusion for dependent care benefits.
d. correct. §127 provides a $5,250 education assistance exclusion.
2-52

III. Introduction to
Passive Activity Loss
Issues Relating to Real
Estate Transactions

III. Introduction to Passive Activity Loss Issues Relating to Real Estate Transactions
A. §469: Passive Activity Loss Limitations
1. §469(a) provides a general rule that passive activity losses are not allowed to
offset income from non-passive activities. If the passive activity losses are not
deducted in the current tax year, then they are carried forward indefinitely.
The passive activity losses can only be offset against passive income.
2. §469(c) generally defines a passive activity as:
a. Any activity which involves the conduct of a trade or business in which
the taxpayer does not materially participate, and
b. Any rental activity regardless of the level of participation.
3. The law provides a general rule that after the taxpayer has classified all items
of passive rental income and loss, the excess passive losses can not offset
income from active and portfolio sources.
4. §469(a)(2) provides that passive loss rules apply to individuals, estates, trusts,
closely-held corporations, and personal service corporations.
5. Although passive activity losses cannot be used to offset income from nonpassive
activities, passive losses are allowed to offset income or net profit
from other passive activities.
6. There is an exception to the general rule that excess passive losses cannot
offset other sources of income. There is a maximum $25,000 special
allowance for rental real estate activities with active participation which
allows additional losses even if the losses exceed passive income.
7. Losses associated with passive activities that are disallowed because of the
passive loss limitation rules are "suspended" and carried forward indefinitely.
They are treated as a passive activity deduction in subsequent years.
8. “Suspended” passive activity losses are also allowed to be deducted in full in
the tax year that the entire interest in the passive activity is disposed of and
the transaction results in a fully taxable event.
3-1

9. §469(i) provides special relief and allows taxpayers to offset up to $25,000 of
non-passive income by utilizing losses from rental real estate activities.
10. In order to qualify for the $25,000 special allowance for rental real estate the
taxpayer must:
a. be a natural person (an individual or his estate for the tax years ending
less than two years after the date of his death);
b. have a 10% ownership interest in the rental real estate activity at all
times during the tax year; and
c. actively participate in the rental real estate activity.
11. The $25,000 special allowance is phased out by a reduction equal to 50% of
the taxpayer's modified adjusted gross income in excess of $100,000.
Tax Professional Note: Married taxpayers filing separately must reduce the
allowance from $25,000 to $12,500 and also reduce the modified AGI from
$100,000 to $50,000. Even after these amounts are reduced the taxpayers must
live apart for the entire year in order to be eligible for the special allowance
of $12,500. If they did not live apart for the entire year, then the allowance is
zero.
12. §469(i)(3)(F) defines modified adjusted gross income as AGI computed
without regard to:
a. §86 Taxable social security or railroad retirement benefits income
b. §135 U.S. Bond interest exclusion for qualified education
c. §137 Employer adoption assistance exclusion
d. §164(f) Deduction for one-half of self-employment tax
e. §199 Domestic production activities deduction
f. §219 IRA or SEP contributions
g. §221 Student loan interest deduction
h. §222 Tuition and fees deduction
i. §469 Any passive losses
j. §469 Any overall loss from a publicly traded partnership (PTP)
k. §469 Any real estate losses allowable under the real estate professional
rules
3-2

EXAMPLE #1: Ennis T. Pea has $35,000 in losses from rental property in which
there is active participation in the management of such property. His AGI is
$90,000 before the $35,000 loss on the rental property computed as follows:
• Calculation of Modified A G I:
Gross income $140,000
Less: adjustments ( 50,000)
AGI $ 90,000
Regular AGI before considering passive activities $ 90,000
Plus: §469(i)(3)(F) modifications 50,000
Modified AGI $140,000
• Calculation of allow able and suspended PAL:
Total rental loss $35,000
AGI phase-out ceiling $150,000
Less: modified AGI (140,000)
Excess 10,000
Statutory phase-out percentage x 50%
Allowable rental real estate PAL
in current year ( 5,000)
Suspended PAL carried forward $30,000
EXAMPLE #2: In the current tax year Ennis T. Pea had a salary of $120,000 and
a $31,000 loss from rental real estate activities in which he actively participated.
His current year special real estate allowance and carryforward of PAL is
calculated as follows:
Modified AGI........................................................................................... $120,000
Less: Amount not subject to phase out rules .......................................... (100,000)
Excess subject to phase-out provision ......................................................... 20,000
Statutory phase-out percentage ........................................................................ 50%
Required reduction to special allowance ................................................... $10,000
Maximum special ....................................................................................... $25,000
Less: Required reduction to special allowance ......................................... (10,000)
Adjusted special allowance for current year ............................................ $15,000
Total PAL from rental ................................................................................ $31,000
Less: Adjusted special allowance in current year ..................................... (15,000)
Suspended PAL carried forward ............................................................. $16,000
3-3

B. Active Participation in Rental Real Estate Activities
1. The difference between active participation and material participation is that
active participation can be satisfied without regular, continuous, and
substantial involvement in operations as long as the taxpayer participates in
the making of management decisions in a significant and bona fide sense.
2. In this context, relevant management decisions include such decisions as
approving new tenants, deciding on rental terms, and approving capital or
repair expenditures.
3. The $25,000 special allowance is available after all active participation rental
losses and gains are netted against each other and applied to other passive
income.
4. If a taxpayer has a real estate rental loss in excess of the amount that can be
deducted under the real estate rental exception, then that excess is treated as a
passive loss.
EXAMPLE: Ennis T. Pea has $90,000 of modified AGI before considering
rental activities and has $85,000 of losses from a real estate rental activity in
which he actively participates. He also actively participates in another real
estate rental activity from which he has $25,000 of profits.
He has other passive income of $36,000 from investments in limited
partnerships. The net rental loss of $60,000 is offset by the $36,000 of passive
income, leaving $24,000 that can be deducted against other income as follows:
Rental real estate losses with active participation ....... $(85,000)
Rental real estate profits with active participation ........... 25,000
Net rental real estate active participation ...................... (60,000)
Other passive activity income ......................................... 36,000
Net passive rental losses available .............................. $(24,000)
3-4

C. Real Estate Professionals and the Exception to the Annual $25,000 Special
Allowance Limitation
1. §469(c)(7)(A) provides special rules for taxpayers in a real property business.
This is an exception to the general rule that real estate is a “passive activity.”
2. If the taxpayer qualifies as a “real estate professional” and materially
participates in the specific separate rental real estate activity, then the activity
is not treated as passive.
3. §469(c)(7)(B) defines a "real estate professional" as a taxpayer who meets
both of the following tests:
a. More than one-half of the personal services performed in a trades or
businesses by the taxpayer during the tax year are performed in real
property trades or businesses in which the taxpayer materially
participates, and
b. Such taxpayer performs more than 750 hours of services during the
taxable year in real estate trades or businesses in which the taxpayer
materially participates.
Tax Professional Note: Any services that are performed as an employee in a
real estate trade or business do not count toward the tests unless the taxpayer
is an employee who owns 5% or greater of the business.
4. If the taxpayer files a joint return, then the spouse's personal services are not
included in determining meeting these qualifications.
5. §469(c)(7)(C) defines a real estate trade or business as any real property trade
or business that involves:
a. Development,
b. Redevelopment,
c. Construction,
d. Reconstruction,
e. Acquisition,
f. Conversion,
g. Rental,
h. Operation,
i. Management,
j. Leasing, or
k. Brokerage.
3-5

EXAMPLE #1: Laura owns a real estate sales office in which she materially
participates. She also personally owns 3 rental real estate properties in which
she materially participates. The net rental losses for these properties is $26,000
and her modified AGI is $150,000 before the losses. Because the real estate
sales office qualifies as a real estate trade or business the $26,000 of active
real estate losses are fully deductible in the current year against her other
sources of income.
EXAMPLE #2: Same details as in Example #1 above except one of the
properties that she owns is owned with 2 other investors who are the active
participants. Although Laura is a natural person and owns 10% or more of the
interest in the rental activity at all times during the tax year she cannot deduct
the losses from that specific rental activity since she is not a material
participant.
Tax Professional Note: Review the court cases in sections N and O in this
chapter for tax court cases distinguishing real estate agents who attempt to
qualify as real estate professionals. Section N is the Agarwal case and Section
O is the Bahas case.
D. Self-Rental Rule Issues
1. While the exception to the general rule provides that passive income can offset
a passive activity loss (PAL), there is an exception for the taxpayer who
creates their own passive income generator (PIG).
EXAMPLE: Don has $17,000 of suspended passive activity losses from two
rental properties in which he actively participates. At the same time he owns
a building which he rents to his corporation at a fair market rent and has net
rental income of $20,000. At first blush it would appear that the $17,000 of
passive rental losses would be freed up by the $20,000 of commercial rental
income. However, because of IRS Reg. 1.469-2(f)(6) Don has “self-rental”
income because he owns more than 50% of his corporation. As a result the
$17,000 of suspended PALs from the other two properties remains suspended
and the $20,000 is reported as non-passive rental income on Schedule E in
the current tax year.
3-6

Tax Professional Note: Review the Beecher case presented in Section P of
this chapter.
E. Disposition of a Passive Activity via Sale
1. When a taxpayer disposes of the entire interest in a passive activity, the actual
economic gain or loss on the investment can be determined.
2. Under the passive loss rules, when there is a fully taxable disposition, any
loss from the activity is recognized and allowed against any other source of
income.
3. A fully taxable disposition generally includes a sale of the property to a third
party at arms' length. Gain recognized upon a transfer of an interest in a
passive activity generally is treated as passive and is first offset by the prior
suspended PAL from that activity.
EXAMPLE: Don sold an apartment house with an adjusted basis of $100,000
for $180,000. In addition, Don has a suspended PAL associated with that
specific apartment house of $60,000. The recognized capital gain of $80,000,
allowable suspended PAL of $60,000 and the net recognized gain, $20,000,
are calculated and reported as follows:
Net sales price $180,000
Less: Adjusted basis (100,000)
Recognized capital gain on sale $ 80,000 Schedule D
Less: Allowable suspended PAL (60,000) Schedule E
Net recognized income $ 20,000 Net effect on AGI
Because the suspended PAL retains its character, the $60,000 allowable
suspended PAL is now offset against Don's other ordinary income and
portfolio income.
Tax Professional Reminder: The gain on the sale of the passive activity
could include §1250 unrecaptured depreciation which will be subject to a
maximum long-term capital gain rate of 25% reported on Schedule D page 2,
line 19.
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4. If the current and suspended losses of the disposed passive activity exceed the
gain realized on the sale, then any loss from the activity for the tax year and
any loss realized on the disposition in excess of net income or gain for the tax
year from all passive activities is treated as a loss that is not from a passive
activity.
EXAMPLE: Don sold an apartment house with an adjusted basis of $100,000
for $150,000. In addition, Don has current and suspended losses associated
with that specific apartment house of $60,000 and has no other passive
activities. The recognized capital gain, $50,000, allowable suspended PAL of
$60,000, and the net recognized loss, $10,000, are calculated and reported as
follows:
Sales price $150,000
Less: Adjusted basis (100,000)
Recognized capital gain $ 50,000 Schedule D
Less: Allowable suspended PAL ( 60,000) Schedule E
Net recognized loss on sale $(10,000) Net effect on AGI
Because the suspended PAL retains its character, the $60,000 allowable
suspended PAL is now offset against Don's other ordinary income and
portfolio income.
F. Disposition of a Passive Activity at Death
1. §469(g)(2) provides that a transfer of a taxpayer's interest in a passive
activity by reason of the taxpayer's death results in a suspended PAL being
allowed to the decedent to the extent that the PAL exceeds the amount of the
step-up in basis allowed under §1014.
2. A suspended PAL is lost to the extent of the amount of the §1014 basis
increase. Any excess allowed is reported on the final Form 1040 of the
deceased taxpayer.
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EXAMPLE #1: A taxpayer dies with passive activity property having an
adjusted basis of $40,000, suspended PAL of $10,000, and a fair market value
at the date of the decedent's death of $75,000. The §1014 step-up in basis is
$35,000. The $10,000 suspended PAL is not deductible on the decedent's
Final 1040 because the suspended PAL of $10,000 did not exceed the §1014
step-up in basis $35,000.
Fair market value on date of death ........................................ $75,000
Less: Adjusted basis of passive activity property .................. (40,000)
§1014 Step-up ............................................................................... $35,000
Suspended PAL ...................................................................... $10,000
Less: §1014 Step-up ............................................................. (35,000)
D eductible on final Form 1040 ............................................... $ -0-
EXAMPLE #2: A taxpayer dies with a passive activity property having an
adjusted basis of $40,000, suspended PAL of $10,000, and a fair market value
at the date of the decedent's death of $47,000. Since the basis increase under
§1014 would be only $7,000, the suspended PAL allowed is limited to $3,000.
The $3,000 loss available to the decedent is reported on the decedent's final
income tax return.
Fair market value on date of death .......................................... $47,000
Less: Adjusted basis of passive activity property .................... (40,000)
§1014 Step-u p in basis .................................................................... $ 7,000
Suspended PAL .................................................................... (10,000)
L ess: §1014 Step-up .................................................................... 7,000
D eductible on final Form 1040 ................................................ $ 3,000
3. The §469(g)(2) provision is an activity by activity test and the determination
of how much suspended passive activity loss is allowed as a deduction on the
final Form 1040 of the decedent must be individually measured and not a
cumulative calculation.
3-9

EXAMPLE #3: Based on all the data in Examples #1 and #2 above the
calculation would be as follows:
Fair market value on date of death $75,000 $47,000
Less: Adjusted basis (40,000) (40,000)
§1014 Step-u p $35,000 $ 7,000
Suspended PAL $10,000 $10,000
Less: §1014 Step-up (35,000) ( 7,000)
D eductible on final Form 1040 $ -0- $ 3,000
G. Disposition of a Passive Activity by Gift
1. §469(j)(6) provides that in a disposition of a taxpayer's interest in a passive
activity by a gift, the suspended PAL is added to the basis of the property to
the donee.
EXAMPLE: Don makes a gift of real property with a cost of $60,000 and an
adjusted basis of $40,000. There is a suspended PAL of $10,000. The fair
market value at the date of the gift is $100,000. Don cannot deduct the
suspended PAL in the year of the transfer. Instead, the suspended PAL is
transferred with the property and is added to the adjusted basis of the gifted
property. The donee's adjusted basis for purposes of sale is $50,000
calculated as follows:
Donor’s basis on date of gift ................................................................ $40,000
Add: Transferred suspended PAL ......................................................... 10,000
Donee’s adjusted basis for sale ............................................................ $50,000
Tax Professional Note: This increase to basis is only for the purpose of
determining the donee's gain or loss on the sale of the passive activity. The
basis for depreciation is a carryover from the donor. Therefore, the donee's
basis for purposes of depreciation remains at $60,000. Also, since this is a gift,
the donee retains the donor's holding period, accumulated depreciation and
method of depreciation.
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H. Transfer of a Passive Activity Due To Divorce
1. §1041(a) provides that no gain or loss shall be recognized on a transfer of
property from an individual to (or in trust for the benefit of) a:
a. spouse, or
b. former spouse, but only if the transfer is incident to a divorce.
2. §1041(b) provides that the property acquired by the transferee spouse is
deemed to be acquired by gift; therefore the receiving spouse has a carryover
basis in the property received.
3. Because of the carryover rule of §1041 and the §469(j)(6) provision of a
disposition of a passive activity by gift the recipient spouse receives a
carryover basis in a suspended passive loss.
EXAMPLE: John and Mary jointly own a rental property that has an
accumulated suspended PAL of $20,000 on the date of their divorce. Mary
transfers her ownership interest to John. The original cost of the property was
$150,000 and the accumulated depreciation is $50,000. The FMV on the date
of the divorce is $200,000. When Mary transfers the property she does not
recognize any gain or loss. When John receives Mary's 1/2 ownership interest
he has a carryover of her basis and her method of depreciation. He also
receives her 1/2 interest in the PAL which is added to his adjusted basis only
for purposes of gain or loss on the disposition of the property.
• It is important to note that his basis does not increase for purposes of
calculating depreciation.
3-11

Mary John Total
Cost $75,000 $75,000 $150,000
Less: Depreciation (25,000) (25,000) ( 50,000)
Adjusted basis $50,000 $50,000 $100,000
Suspended PAL ($10,000) ($ 10,000) ($ 20,000)
Original ½ Cost – John ................................................................. $ 75,000
Original ½ Cost – Mary .................................................................... 75,000
Basis for depreciation ................................................................... $150,000
Less: Depreciation ½ John ............................................................ (25,000)
Depreciation ½ Mary ........................................................... (25,000)
Adjusted basis to John before Mary’s PAL ................................. $100,000
Add: ½ Mary’s suspended PAL ..................................................... 10,000
Adjusted basis for disposition by John ......................................... $110,000
John’s suspended PAL (retains character) ..................................... ($10,000)
I. Disposition of a Passive Activity via Installment Sale
1. §469(g)(3) provides that an installment sale of a taxpayer's entire interest in
a passive activity triggers the recognition of the suspended losses.
2. The losses are allowed in each year of the installment obligation in the ratio
that the gain recognized in each year bears to the total gain on the sale.
EXAMPLE: Don sold his entire interest in a passive activity for $100,000.
His adjusted basis in the property was $60,000.
Sale price $100,000
Less: Adjusted basis ( 60,000)
Gross profit $ 40,000
If Don uses the installment method, then his gross profit ratio is 40%
($40,000/$100,000).
Gross profit $ 40,000 = 40%
Selling price $100,000
3-12

If Don received a $20,000 down payment, then he would recognize a gain of
$8,000 (40% of $20,000). If the activity had a suspended loss of $25,000, then
Don would deduct $5,000 [($8,000 ÷ $40,000) x $25,000] of the suspended
loss in the first year.
PAL $25,000 x Current year gain $ 8,000 = $5,000
Total gain $40,000
TAX PROFESSIONAL ALERT: If the property had been depreciable real
estate and §1250 unrecaptured depreciation must be recognized as part of the sale,
then the regulations require that §1250 gain is recognized before the §1231 gain.
Therefore, if in the above example there was $20,000 of §1250 unrecaptured
depreciation, then all of the $8,000 recognized gain would be taxed as §1250 gain
which has a maximum capital gain rate of 25% instead of 15% or 20%. Therefore
as the installment note proceeds are received the next $12,000 of gain recognized
would also be §1250 unrecaptured depreciation. The §1231 gain at 15% or 20%
is not recognized until all §1250 gain is included in gross income by the taxpayer.
J. Sale of a Passive Activity to a Related Party
1. While the law provides a general rule that the disposition of a passive activity
in a fully taxable event will allow the use of the PAL, there is also an exception
to the release of the PAL if the property is sold to a related party.
2. In this event the seller keeps the suspended PAL suspended until the activity
is either:
a. Disposed of in a taxable event by the related party to a nonrelated party,
or
b. The taxpayer has other sources of passive income.
3. For purposes of this test a related party is defined under the provisions of
§267(b) which includes ancestors, descendants, brothers, sisters and spouse.
It also includes an entity in which the taxpayer has a greater than 50%
ownership interest.
3-13

EXAMPLE: Don sells a rental property in which he has a suspended PAL of
$40,000 to his daughter. Don recognizes a $50,000 long-term capital gain on
the property of which $37,000 is §1250 unrecaptured depreciation. Because
his daughter is a related party, Don must recognize his gains without the
allowance of the $40,000 PAL in the year of sale. If the daughter does not sell
the property until after Don’s death, then the PAL is lost at the time of death.
As a result Don can only use his losses if he has other passive income from
other activities during his lifetime.
K. Passive Activity Changes to Active Participation
1. §469(f) provides that if a former passive activity changes to active, then the
suspended PAL is allowed to the extent of income from the now active
investment.
2. If any of the suspended PAL remains, then it continues to be treated as a loss
from a passive activity.
3. The excess suspended PAL can be deducted from passive income or carried
over to the next tax year and deducted to the extent of income from the now
active business in the succeeding year(s). The activity must continue to be
the same activity.
EXAMPLE: Don owns 3 separate rental real estate activities. He actively
participates in 2 of the activities but not the 3rd activity. The 3rd activity has
a suspended passive loss of $15,000 at the end of 2014. On January 1, 2015
he changes from not active to an active participant and incurs another $4,000
PAL in 2015 for a total loss of $19,000. He is eligible to deduct up to $25,000
of PAL under the general rule. However, for the current year his PAL
deduction will be limited to $4,000. His suspended PAL of $15,000 remains
suspended until he has passive income from any passive activity in a future
period.
3-14

L. § 1031 Deferred Like-Kind Exchange Transactions and the Treatment of a
Suspended PAL
1. In a deferred like-kind exchange transaction, the taxpayer keeps the suspended
losses, which generally become deductible when the acquired property is sold.
2. Since the activities of the old and new properties are both like-kind properties
the suspended losses cannot be used and therefore stay suspended at the time
of the exchange.
EXAMPLE: In a §1031 exchange, a taxpayer exchanges a duplex (rental
activity) for an apartment house. The suspended PAL from the duplex is
deductible against future taxable income from the apartment house. The same
rental activity exists for the apartment house because the apartment house is
used in a rental activity.
M. Utilizing Passive Losses
1. A taxpayer who has a suspended passive activity loss (PAL) should adopt a
strategy of generating passive activity income that can be sheltered by the
existing passive loss. One planning approach is to acquire an interest in any
passive activity that is generating income. This is referred to as a "passive
income generator" (PIG).
2. As a result, the PAL can offset income from the PIG. From a tax perspective,
it would be unwise to buy a loss-generating passive activity (PAL) unless one
has other passive income (PIG) to shelter, or the activity is rental real estate
that can qualify for the $25,000 exception.
3. A taxpayer with an existing suspended PAL might consider buying a rental
property. If a large down payment is made or there is no debt at all, then a
passive net income could be realized to offset the PAL.
4. Future gain realized upon the sale of the rental property could be sheltered by
existing suspended passive losses.
3-15

5. Taxpayers with passive losses should consider all other trades or businesses
in which they have an interest. If they show that they do not materially
participate in the activity, then the activity becomes a passive activity.
Tax Professional Note: Any income generated could be sheltered by existing
passive losses and suspended losses. Family partnerships in which certain
members do not materially participate would qualify. The silent partner in any
general partnership engaged in a trade or business would also qualify.
Tax Professional Research Recommendation: For more information refer to
IRS Publication 925 Passive Activity and Risk Rules and IRS Form 8582.
N. Tax Court Rules Real Estate Agent Equals Real Estate Professional (Shri
and Sudha Agarwal vs Commissioner T.C. Summary Opinion 2009- 29)
Docket No. 12670-072. Filed March 2, 2009
This case was heard pursuant to the provisions of §7463 in effect when the petition
was filed. Pursuant to §7463(b), the decision to be entered is not reviewable by
any other court, and this opinion shall not be treated as precedent for any other
case.
Facts
1. The IRS determined deficiencies of $15,066 and $6,649 in taxpayers’ 2001
and 2002 Federal income taxes, respectively. The IRS also determined
accuracy-related penalties under §6662(a) of $3,013.20 and $1,329.80 for
2001 and 2002, respectively.
2. The issue for decision was whether the taxpayers were entitled to deduct
losses of $40,104 and $19,656 for 2001 and 2002, respectively, as qualifying
taxpayers in real property trades or businesses on Schedule E.
Background of the Case
1. During 2001 and 2002 Shri Agarwal (Mr. Agarwal) worked full time as an
engineer. During 2001 and 2002 Sudha Agarwal (Mrs. Agarwal) worked full
time as a real estate agent at “Century 21 Albert Foulad Realty” (brokerage
firm). The brokerage firm is a licensed broker under California law. The
brokerage firm is franchised by a broker, Albert Foulad.
3-16

2. During 2001 and 2002 Mrs. Agarwal was licensed as a real estate agent under
California law; she was not licensed as a broker. She worked for a brokerage
firm pursuant to an “Independent Contractor Agreement (Between Broker and
Associate Licensee)”.
3. The contract provided that she was an independent contractor, not an
employee of the brokerage firm. Consistent with Mrs. Agarwal’s independent
contractor status, the brokerage firm issued a Form 1099 to her for each year,
and it did not pay her a salary; rather, she received commissions. The contract
also required Mrs. Agarwal to sell, exchange, lease, or rent properties and
solicit additional listings, clients, and customers diligently and with her best
efforts.
4. During 2001 and 2002 the taxpayers owned two rental properties. Together
they spent approximately 170 hours managing the “Wanda Property” and
approximately 170 hours managing the “Mohave Property” during 2001 and
2002. They were the only persons who managed their rental properties. Mrs.
Agarwal spent a total of 1,400 and 1,600 hours managing the rental properties
and selling real estate in 2001 and 2002, respectively.
5. For 2001 Mrs. Agarwal reported commissions of $13,912 as gross receipts on
her Schedule C. She also reported total expense of $14,084 for a $172 loss
with respect to her Schedule C real estate business.
6. For 2002 she reported commissions of $14,119 as gross receipts on Schedule
C and total expenses of $13,401 for a profit of $718.
7. For 2001 taxpayers reported total rents of $36,367 on Schedule E. They also
reported total expenses of $76,472 for a loss of $40,105. For 2002 they
reported total rents of $45,521 on Schedule E and total expenses of $65,177
for a $19,656 loss.
3-17

8. In the notice of deficiency issued the IRS disallowed the Schedule E losses
for each year because:
a. Passive losses are allowed only to the extent that they qualify for the
special allowance for rental real estate; and
b. Taxpayer’s losses were in excess of their passive income, the special
allowance and the phase-in rule.
Taxpayers’ Losses and Application of §469
1. §469(a) generally disallows any passive activity loss. §469(d)(1) provides that
a passive activity loss is defined as the excess of the aggregate losses over the
aggregate income from all passive activities.
2. §469(c)(1)(6) provides that a passive activity is any trade or business or an
activity engaged in for the production of income in which the taxpayer does
not materially participate.
3. §469(b) provides that material participation means that the taxpayer is
involved in the activity’s operations on a regular, continuous and substantial
basis. (See also §1.469-5T(a), (Feb. 25, 1988) an individual is treated as
materially participating if the individual satisfies any one of the seven
enumerated tests).
4. §469(c)(2) provides a general rule that a rental activity is treated as a passive
activity regardless of whether the taxpayer materially participates. But under
§469(c)(7), rental activities of a qualifying taxpayer in a real property trade or
business are not passive activities under §469(c)(2). Kosonen v.
Commissioner, T.C. Memo. 2000-107. Rather, the qualifying taxpayer’s
rental activities are treated as a trade or business subject to the material
participation requirements of §469(c)(1) Fowler v. Commissioner, T.C.
Memo. 2002-223; §1.469-9(e)(1).
5. §469(h)(5) provides that in determining whether a taxpayer materially
participates, the participation of the taxpayer’s spouse is taken into account.
3-18

6. §469(c)(7)(B)(i) and (ii) provide that a taxpayer may qualify for the real
property trade or business exception if:
a. More than one-half of the personal services performed in trades or
businesses by the taxpayer during the taxable year are performed in real
property trades or businesses in which the taxpayer materially participates;
and
b. The taxpayer performs more than 750 hours of services during the taxable
year in real property trades or businesses in which the taxpayer materially
participates. §469(c)(7)(B) provides that in the case of a joint return, either
spouse must satisfy both requirements.
7. §469(c)(7)(C) defines the term “real property trade or business” as “any real
property development, redevelopment, construction, reconstruction, acquisition,
conversion, rental, operation, management, leasing, or brokerage trade or
business.”
The Parties’ Arguments
1. Taxpayers argued that real estate agents should be considered real estate
professionals because real estate agents are engaged in a real property
brokerage business in that real estate agents “bring together buyers and
sellers.”
2. In reply, the IRS argued that Mrs. Agarwal was a licensed real estate agent,
not a licensed real estate broker. Therefore, under California law, according
to the IRS, Mrs. Agarwal could not be engaged in a brokerage trade or
business, and therefore, she was not engaged in a real property trade or
business as defined by §469(c)(7)(C).
Brokerage Defined
1. The term “brokerage” is not defined in §469, within the legislative history of
§469, or by any court decision. Therefore, the Court turned to principles of
statutory construction to determine its meaning. See Baker v.Wash. Group
Intl., Inc., No. 1:06-CV-1878 (M.D. Pa. Mar. 14, 2008); Sierra Club v. Leavitt,
355 F. Supp. 2d 544, 555 (D.D.C. 2005); Weber v. Heitkamp (In re Hopson),
324 Banker. 284, 287 (S.D. Tex. 2005).
3-19

a. “Statutory words are uniformly presumed, unless the contrary appears, to
be used in their ordinary and usual sense, and with the meaning commonly
attributed to them.” Caminetti v. United States, 242 U.S. 470, 485-486
(1917).
b. In addition, a statutory term is construed “in its context and in light of the
terms surrounding it.” Leocal v. Ashcraft, 543 U.S. 1, 9 (2004); see also
Jarecki v. G. D. Searle & Co., 367 U.S.303, 307 (1961) (“a word is known
by the company it keeps”).
c. Legislatures are presumed to have intended that a statute’s terms “be given
a reasonable construction.” Hazlett v. Evans, 943 F. Supp. 785, 788 (E.D.
Ky. 1996) (quoting D.L.C. v. Walsh, 908 S.W. 2d 791 (Mo. Ct. App.
1995)); see also Beck v. No. Natural Gas Co., 170 F.3d 1018, 1024 (10th
Cir. 1999); In re Nofziger, 925 F.2d 428, 435 (D.C. Cir. 1991).
d. A term’s common or approved usage may be established by a dictionary.
Rousey v. Jacoway, 544 U.S. 320 (2005); Smith v. United States, 508 U.S.
223, 228-229 (19943). Webster’s Third New International Dictionary 282
(2002) defines the term “brokerage” as “the business of a broker” or “the
fee or commission for transacting business as a broker.” [Emphasis
added.]
2. The Court concluded that Congress is presumed to have defined the term
“brokerage” in its common or ordinary meaning. The Court further concluded
that for purpose of §469, the “business” of a real estate broker includes, but
is not limited to:
a. Selling, exchanging, purchasing, renting, or leasing real property;
b. Offering to do those activities;
c. Negotiating the terms of a real estate contract;
d. Listing real property for sale, lease, or exchange; or
e. Procuring prospective sellers, purchasers, lessors, or lessees.
3-20

See Hooper v. California, 155 U.S. 648, 657 (1895); Lawrence Gas Co. v.
Hawkeye Oil Co., 165 N.W. 445, 447 (Iowa 1917); Schmidt v. Maples, 289 N.W.
140, 143 (Mich. 1939); Commonwealth v. Jones & Robins, Inc., 41 S.E. 2d 720,
727 (Va. 1947); In re Pipes, 748 A. 2d 188, 121 (N.J. Super. Ct. App. Div. 2000);
Commonwealth v. Fahnestock, 15 Pa. C. 598 (Pa. Quar. Sess. 1895); see also Ky.
Rev. Stat. Ann. sec. 324.010(1) (LexisNexis 2007) (defining “Real estate
brokerage”); Md. Code Ann. Bus. Occ. & Prof. sec 17-101(1) (LexisNexis 2004
& Supp. 2008) (defining “Provide real estate brokerage services”); Wis. Stat. Ann.
sec. 452.01(3e) (West 2006) (defining “Brokerage service”).
Application of the Definition to Mrs. Agarwal’s Activities
1. The Courts stated that as is relevant here, California law defines the term “real
estate broker” as a person who does, or negotiates to do, any one of the
enumerated activities for compensation. Cal. Bus. & Prof. §10131 (West
2008).
2. Similarly, California law also defines the term “real estate salesman” as a
person who is employed by a broker and who does any one of the enumerated
activities. Cal. Bus. & Prof. §10131 (West 2008).
3. But whether Mrs. Agarwal is characterized a broker or a salesperson for State
law purposes is irrelevant for Federal income tax purposes because the test is
whether she was engaged in “brokerage” within the meaning of §469.
Consistent with her real estate salesman’s license and pursuant to her contract
with the brokerage firm, Mrs. Agarwal was engaged in “brokerage”; i.e., she
sold, exchanged, leased, or rented real property and solicited listings.
Therefore, Mrs. Agarwal was engaged in a “brokerage” trade or business
within the meaning of §469(c)(7)(C).
4. Because Mrs. Agarwal owned an interest in a rental property, performed more
than one-half of her personal services in real property trades or businesses in
which she materially participated, and performed more than 750 hours of
services in real property trades or businesses in which she materially
participated, she is a qualifying taxpayer. §469(c)(7) and §1.469-9(b)(6),
(c)(1).
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5. Because Mrs. Agarwal is a qualifying taxpayer and she materially participated
with respect to each property, the taxpayers are entitled to deduct their 2001
and 2002 Schedule E losses. (§469(c)(7) and §1.469-9(e)(1), (3), (4)
Example (I), §1.469-5T(a), supra (defining material participation); see
also Fowler v. Commissioner, T .C . Memo. 2002- 223; Shaw v.
Commissioner, T.C. Memo. 2002-35.
Accuracy Related Penalty
1. §6664(c)(1) provides an exception to the §6662(a) penalty: no penalty is
imposed with respect to any portion of an underpayment if it is shown that
there was reasonable cause and the taxpayer acted in good faith.
2. §1.6664-4(b)(1) incorporates a facts and circumstances test to determine
whether the taxpayer acted with reasonable cause and in good faith.
3. The most important factor is the extent of the taxpayer’s effort to assess the
proper tax liability. “Circumstances that may indicate reasonable cause and
good faith include an honest misunderstanding of fact or law that is reasonable
in light of the experience, knowledge, and education of the taxpayer.”
O. Tax Court Rules Real Estate Agent Not a Real Estate Professional (Gregory
John Bahas and Linda A. Bahas v. Commissioner, U.S. Tax Court, T.C.
Summary Opinion 2010-115) Docket No. 29381-092. Filed August 16, 2010
Tax Court Summary Opinion Passive Activities: Real Estate Agent
A licensed real estate agent did not qualify for the exception to the passive activity
loss rules for taxpayers in a real property business as provided in §469(c)(7).
Therefore, she and her husband were not entitled to passive activity deductions
during the years at issue for three rental properties they jointly owned and
managed. She did not establish that she worked for more than 750 hours each year
with respect to the properties. The hours she worked at a real estate corporation
did not qualify as hours worked in a real property trade or business. In addition,
she did not meet the 5-percent ownership requirement of §469(c)(7)(D)(ii).
3-22

Pursuant to §7643(b), This Opinion May Not Be Treated As Precedent for
Any Other Case.
This case was heard pursuant to the provisions of §7463. Pursuant to §7463(b),
the decision to be entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case.
The IRS determined:
• A deficiency in petitioners’ Federal income tax of $9,560 and §6662(a)
penalty of $1,912 for 2006.
• A deficiency of $2,408 for 2007.
• The sole issue for decision was whether taxpayers were entitled to claimed
losses of $36,617 for 2006 and $10,874 for 2007 from rental real estate
property. Resolution of this issue depends upon whether §469(c)(7) applies to
the rental real estate activities of Mrs. Bahas.
Background of Case
1. During 2006 and 2007 Mrs. Bahas was a licensed real estate agent, and Mr.
Bahas designed computer networks as a technical applications manager. Mrs.
Bahas worked full-time for Snyder & Snyder Real Estate, Inc. which for tax
purposes elected to be treated as an S Corporation. Barbara Snyder owned all
the stock of Snyder & Snyder.
2. On December 22, 2004, Mrs. Bahas and Ms. Snyder entered into an
employment agreement. At the time Mrs. Bahas did not have a real estate
license. Pursuant to that agreement, Mrs. Bahas was hired to be the office
manager and Ms. Snyder’s assistant. She received an hourly wage ($7.50 per
hour) for her duties as the office manager. As the assistant to Ms. Snyder, Mrs.
Bahas received the same $7.50 hourly wage “during normal business hours”
but no hourly wage “outside of normal business hours.” However, she was
entitled to receive “10% of the gross sales of Barbara Snyder on a bi-weekly
basis.”
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3. Starting January 1, 2006, by which date it was assumed Mrs. Bahas would be
a licensed real estate agent, Mrs. Bahas would receive (as a licensed real estate
agent assistant to Ms. Snyder) “6 percent of the net profits of Snyder & Snyder
to be paid once a year upon completion of the company’s tax return.”
According to pay stubs she received from Snyder & Snyder, Mrs. Bahas
worked there during 2006 for 1,759.5 hours and during 2007 for 1,869.5
hours.
4. During 2006 and 2007 Mr. & Mrs. Bahas jointly owned and managed three
rental properties in Akron, Ohio. Their ownership of these properties was not
related to Mrs. Bahas’s employment at Snyder & Snyder. Taxpayers spent less
than 750 hours managing these properties during each of 2006 and 2007.
5. Taxpayers filed tax returns for 2006 and 2007 and reported a loss of $39,154
for 2006 and a loss of $12,195 for 2007 in connection with their rental
properties.
6. IRS determined that:
a. the losses claimed from their rental properties were passive activity
losses;
b. had no passive activity income against which these rental losses could be
offset;
c. did not meet the requirements of §469(c)(7); and
d. $2,537 of the rental loss claimed for 2006 (and none for 2007) was
allowable.
Burden Of Proof
1. In general, the Commissioner’s determinations set forth in a notice of
deficiency are presumed correct, and the taxpayer bears the burden of
proving that the determinations are incorrect.
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2. §7491(a) provides that under certain circumstances, the burden of proof with
respect to factual matters shifts to the Commissioner. Taxpayers neither
alleged nor proved that this section is herein applicable. Therefore, the
taxpayers bear the burden of proof.
Rental Losses
1. §469(a) provides a general rule that the deduction of passive activity losses is
suspended.
2. §469(c)(1) defines a passive activity as any activity:
a. which involves the conduct of any trade or business, and
b. in which the taxpayer does not materially participate.
3. §469(d)(1) provides that a passive activity loss is defined as the amount by
which:
a. the aggregate losses from all passive activities for the taxable year exceed
b. the aggregate income from all passive activities for such year.
4. §469(c)(2)-(4) provides that a rental real estate activity is generally treated as
a passive activity without regard to whether the taxpayer materially
participates in the activity.
5. §469(i) provides an exception to the general rule where the taxpayer is an
individual and actively participates in rental real estate activities. The
individual may deduct up to $25,000 of losses subject to a phase out if the
individual’s adjusted gross income exceeds $100,000.
6. §469(c)(7)(B) provides another exception where the taxpayer is a real estate
professional who materially participates in a real property trade or business.
A taxpayer qualifies if:
a. more than one-half of the personal services performed in trades or
businesses by the taxpayer during such taxable year are performed in real
property trades or businesses in which the taxpayer materially participates,
and
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. such taxpayer performs more than 750 hours of services during the taxable
year in real property trades or businesses in which the taxpayer materially
participates.
7. In the case of a joint return, the exception applies if either spouse separately
satisfies both requirements.
8. §469(h)(1) provides that a taxpayer is treated as materially participating in a
real property activity only if the taxpayer is involved in the operations of the
activity on a basis which is regular, continuous and substantial.
9. Mrs. Bahas maintains that she was engaged in a real property business in 2006
and 2007 because she worked more than 750 hours per year as a licensed real
estate agent assistant for Ms. Snyder. She asserts that she actively showed and
sold houses to home buyers as an agent for Snyder & Snyder and therefore
should be able to use the hours from Snyder and Snyder to make the 750 hours.
10. The hours Mrs. Bahas worked at Snyder & Snyder do not qualify as hours
worked in a real property trade or business for purposes of §469(c)(7)(B)(ii).
§469(c)(7)(B)(ii) provides that for purposes of subparagraph (B), personal
services performed as an employee shall not be treated as performed in real
property trades or businesses unless the employee owns more than 5% of the
value of the company.
11. Relying on IRS Publication 925, Mrs. Bahas argued that because she was
entitled to receive 6 percent of Snyder & Snyder’s net profits as compensation
for her efforts as a licensed real estate assistant, she owned more than a 5-
percent profits interest in Snyder & Snyder. Mrs. Bahas claims her position is
supported by a passage on page 5 of IRS Publication 925 which stated:
Do not count personal services you performed as an employee in real
property trades or businesses unless you were a 5% owner of your
employer. You were a 5% owner if you owned (or are considered to have
owned) more than 5% of your employer’s outstanding stock, outstanding
voting stock or capital or profits interest.
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12. Mrs. Bahas’s position is flawed. Snyder & Snyder is an Ohio corporation,
owned entirely by Ms. Snyder. A 5-percent owner for purposes of
§469(c)(7)(D)(ii) is defined in §416(i)(1)(B)(i), which provides:
a. if the employer is a corporation, then any person who owns (or is
considered as owning within the meaning of §318) more than 5 percent of
the outstanding stock of the corporation or stock possessing more than 5
percent of the total combined voting power of all stock of the corporation,
or
b. if the employer is not a corporation, then any person who owns more than
5 percent of the capital or profits interest in the employer.
13. Mrs. Bahas’s employment agreement does not provide for the transfer of any
stock to her. Her right to 6 percent of the net profits of Snyder & Snyder would
terminate should her employment with Snyder & Snyder cease. Therefore,
Mrs. Bahas’s employment agreement with Snyder & Snyder only defined how
Mrs. Bahas would be compensated for services rendered; i.e., her
compensation would be based, in part, on the profits of the company.
Therefore, the court concluded that Mrs. Bahas did not meet the 5-percent
ownership requirement of §469(c)(7)(D)(ii).
P. 9th Circuit upholds §469 Self-Rental Regulations (Beecher, CA9, 3/23/2007,
99 AFTR 2d 2007-712)
Affirming the tax court, the Ninth Circuit Court of Appeals has upheld the validity
of §469 regulations recharacterizing self-rental income as nonpassive for purposes
of the passive activity loss (PAL) rules. As a result, the taxpayers could not use
losses from their rental properties to offset rental income earned from their
wholly-owned businesses.
Tax Professional Reminder: The Ninth Circuit joins the Seventh (Krukowski,
(CA7, 89 AFTR 2d 2002-827), First (Sidell, CA1, 86 AFTR 2d 2000-6229, and
Fifth Circuits (Fransen, CA5, 84 AFTR 2d 99-6360) in upholding the validity of
the self-rental recharacterization rule.
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Background:
1. Under §469, losses from a passive activity can be used only to offset passive
activity income, not income from other sources such as salary and dividends.
§469(l) gives IRS authority to prescribe “such regulations as may be
necessary or appropriate to carry out provisions of this section.
2. The recharacterization or self-rental rule of Reg. §1.469-2(f)(6), provides that
income from rental realty is not passive income if the property is rented for
use in a trade or business activity in which the taxpayer materially participates
for the tax year.
Tax Professional Education Point: The self-rental rule blocks a taxpayer
with passive activity losses from one activity from artificially creating passive
activity income from another activity in order to absorb the losses.
3. The regulations treat a taxpayer as participating in a C corporation subject to
the PAL rules (i.e., a C corporation that is closely held), so the self-rental
recharacterization rule applies if the taxpayer rents property he owns to a
closely held C corporation in which he materially participates. (Reg. §1.469-
11(c)(1)(ii))
Facts:
1. Gary Beecher wholly-owned and worked full-time for a C corporation in the
business of repairing auto interiors, and his wife, Dolores, wholly-owned and
worked full-time for another C corporation in the business of removing dents
from autos.
2. Both corporations’ offices were located in the Beechers’ home. The
corporations paid the Beechers rent for the use of this office space.
3. In addition to renting this portion of their home, the Beechers also owned five
rental properties. On their 1997, 1998 and 1999 returns, the Beechers reported
net income from leasing office space to their C corporations of $39,307,
$23,387 and $22,160, respectively. During these years, the combined losses
from the five other rental properties exceeded the income derived from their
office leases.
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4. On their 1997 through 1999 returns, the Beechers offset the losses from the
rental properties against the income from the office leases and, as a result, paid
no tax on the rental income paid to them by their corporations.
5. IRS said the offset was not allowed under the recharacterization rule in Reg.
§1.469-11(c)(l)(ii), and the Tax Court agreed. The Beechers appealed to the
Ninth Circuit but lost again.
Ninth Circuit upholds Self-Rental Rule. Affirming the tax court, the Ninth
Circuit held that IRS’s interpretation of §469 in Reg. §1.469-11(c)(I)(ii) was valid
and was supported by the legislative history of §469. The Ninth Circuit rejected
the Beechers’ claim that Congress’ delegation of authority to issue the self-rental
rule was unconstitutional. It also rejected the Beechers’ claim that §469(1) was
enacted to combat abusive transactions and therefore should not apply to their
situation.
Chapter III - Review Questions
1. Which of the following statements is correct with regards to the exception
to the annual $25,000 special allowance limitation for passive activity
losses?
a. Any employee of a real estate firm may deduct unlimited passive losses,
as long as this employee works at least 750 hours selling real estate
during the year.
b. If the taxpayer does not meet the 750 hour requirement, the spouse’s
hours worked can be used to meet the requirement to deduct unlimited
losses.
c. A real estate professional who materially participates and performs
more than 750 hours in real estate trades may deduct unlimited passive
losses from rental activities.
d. All of the above.
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Answer:
a. is incorrect: Any services that are performed as an employee in a real
estate trade or business do not count toward the tests unless the taxpayer is
an employee who owns 5% or greater of the business.
b. is incorrect: If the taxpayer files a joint return then the spouse's personal
services are not included in determining meeting these qualifications.
c. is correct: §469(c)(7)(B) defines a "real estate professional" as one who
meets both of the following tests:
• more than 50% of the personal services performed in trades or business
by the taxpayer during the tax year are performed in real property trades
or businesses in which the taxpayer materially participates,
and
• such taxpayer performs more than 750 hours of services during the tax
year in real estate trades or businesses in which the taxpayer materially
participates.
2. A taxpayer with sells rental property for $150,000. The property has an
adjusted basis of $120,000. The property also has a suspended Passive
Activity Loss of $50,000. What is the net effect on AGI on Form 1040?
a. $30,000 increase
b. $30,000 decrease
c. $20,000 increase
d. $20,000 decrease
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Answer:
d. is the correct answer:
Sales price $150,000
Less: Adjusted Basis (120,000)
Recognized capital gain $ 30,000 Schedule D
Less: Allowable suspended PAL ( 50,000) Schedule E
Net recognized effect on sale $(20,000) Net Effect on AGI
Because the suspended PAL retains its character, the $50,000 allowable
suspended PAL is now offset against other ordinary income and portfolio
income.
3. A taxpayer sold rental property with an adjusted basis of $100,000 for
$180,000. The taxpayer’s return from the prior year showed $60,000 of
suspended passive activity losses carrying over to the current tax year.
What is the net taxable effect on the current year’s tax return?
a. $20,000 increase
b. $60,00 decrease
c. $80,000 increase
d. None of the above
Answer:
Choice “a” is correct:
Net sales price $180,000
Less: Adjusted basis (100,000)
Recognized capital gain on sale $ 80,000 Schedule D
Less: Allowable suspended PAL (60,000) Schedule E
Net recognized effect $ 20,000 Net Effect on AGI
b. is incorrect. The $60,000 PAL is allowed to offset ordinary income and
reported on Schedule E.
c. is incorrect. $80,000 is the realized gain from the sale, but is offset by
the $60,000 PAL.
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IV. Taking a Closer Look
at the Federal Income
Tax Issues of the
Affordable Care Act
(ACA): It’s Not Going
Away!

IV. Taking A Closer Look At The Federal Income Tax Issues Of The Affordable
Care Act (ACA): It’s Not Going Away!
A. Introduction to the Legislation
1. On March 23, 2010, President Obama signed into law H.R. 3590, The
Patient Protection and Affordable Care Act. H.R. 3590 is generally referred
to as the “2010 Health Care Act.”
2. On March 30, 2010, the President signed an amended bill H.R. 4872, The
Health Care and Education Reconciliation Act of 2010. H.R. 4872 is
generally referred to as the “2010 Reconciliation Act.”
• These two pieces of legislation have come to be known and referred to as
the “Affordable Care Act” (ACA).
B. Tax Changes and The Universal Health Care Coverage Requirements
1. The legislation imposes provisions which address the following issues:
a. §5000A Shared Responsibility Payment (PENALTY) for individuals
remaining uninsured (aka: the individual mandate);
b. §36B Premium Assistance Credit for low income taxpayers for
participating in health exchanges (MARKETPLACE);
c. §4980H Employer responsibilities for worker health coverage;
d. §4980D Dependent coverage in employer health plans.
2. The legislation also imposes health related revenue raisers and reporting
responsibilities as follows:
a. §4980I Cadillac Plans Excise tax on high-cost employer sponsored
health coverage (effective date January 1, 2018);
b. §6051(a)(14) Reporting of employer sponsored health coverage on Form
W-2 (Code DD);
c. §3101(b)(2) Additional “Hospital Insurance Tax” (HI) for high wage
earners and §1401 (b)(2) self-employed individuals; (Form 8959)
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d. §1411 Surtax on unearned income; (Net investment Income Tax on Form
8960)
e. §220(f)(4) Increased tax on nonqualifying HSA or Archer MSA
distributions (Form 5329)
f. §213(a) Modified threshold for claiming medical expense deductions on
Schedule A of Form 1040; (Including transition rules for taxpayers age
65 and older in years 2013-2016)
g. Industry-specific revenue raisers assessed against insurance companies,
imaging companies, medical equipment devices, drug companies, etc.
C. Health Coverage Exemptions
1. For purposes of the penalties for individuals remaining uninsured the law
provides that all “applicable individuals” will have to ensure that they are
covered under a health insurance policy that provides “minimum essential
coverage” beginning January 1, 2014. The taxpayer is now required to file
Form 8965 Health Coverage Exemptions which will require the type of
“coverage exemption” indicated by a “Code” to be reported in Part III,
column C. The “Code for Exemption” ranges from A – H.
Tax Professional Note: Several changes have been made to the types of
coverage exemptions available for 2015. Some coverage exemptions have
been added, clarified or are no longer available. See the TYPES of Coverage
Exemptions chart on Page 3 of From 8965 Instructions.
2. This rule for “minimal essential coverage” applies to all “applicable
individuals” other than an individual who:
a. qualifies for a §5000A(d)(2)(A) religious conscience exemption (for more
information to qualify see Form 8965 Instructions);
b. is a member of a health care sharing ministry under §5000A(d)(2)(B)(ii)
(Code “D”);
c. for the month in question is not a U.S. Citizen or U.S. National or an alien
lawfully present in the U.S. (Code “C”); or
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d. is incarcerated, other than incarceration pending the disposition of charges
(Code “F”).
3. For purposes of the requirement that after 2013 “applicable individuals” will
have to maintain a minimum level of health insurance coverage (“minimum
essential coverage”) the term “minimum essential coverage” will mean any
of the following under §5000(A)(f)(1):
a. Coverage under any of these government-sponsored programs:
i. The Medicare program under part A of title XVIII of the Social
Security Act;
ii.
iii.
iv.
The Medicaid program under title XIX of the Social Security Act;
The CHIP (Children’s Health Insurance Program) program under
Title XXI of the Social Security Act;
The TRICARE Program: TRICARE is the health care program
serving active duty service members, National Guard and Reserve
members, retirees, their families, survivors and certain former
spouses; TRICARE for Life is TRICARE’s Medicare-wrap-around
coverage available to all Medicare-eligible TRICARE beneficiaries;
(Chapter 55 of Title 10, U.S.C.)
v. A health care program under Chapter 17 or 18 of title 38, United
States Code, as determined by the Secretary of Veterans Affairs, in
coordination with the Secretary of Health and Human Services and
IRS; or
vi.
A health plan under §2504(e) of Title 22 of the United States Code
relating to Peace Corps volunteers.
b. Coverage under an eligible employer-sponsored plan under the
provisions of §4980H
c. Coverage under a health plan offered in the individual market within a
state;
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d. Coverage under a grandfathered health plan. The term “grandfathered
health plan” is any group health plan or health insurance coverage to
which §1251 of the Patient Protection and Affordable Care Act (relating
to the preservation of an individual’s right to maintain existing coverage)
applies; and
e. Any other health benefits coverage, such as a state health benefits risk
pool, which the Secretary of Health and Human Services, in coordination
with IRS, recognizes for purposes of the definition of “minimum essential
coverage.”
4. For the Tax Year 2015 the IRS will require the following to be reported:
a. Form 1095-A, “Health Insurance Marketplace Statement,” is required to
be issued to individuals on or before January 31, 2016, for coverage in
calendar year 2015.
b. Insurance Companies and self-insured health plans will provide
taxpayers with Form 1095-B. “Health Coverage,” to each enrollee and
member and will also file a copy along with a transmittal Form 1094-B.
“Transmittal of Health Coverage Information Returns,” to the IRS.
c. Taxpayers will begin receiving Form 1095-B by January 31, 2016 for
the 2015 tax year.
d. Large employers must file Form 1095-C. “Employer-provided Health
Insurance Offer and Coverage,” to each employee and transmit them
together with transmittal Form 1095-B to the IRS.
*Note that Form 1095-B and Form 1095-C were not mandatory for tax
year 2014 but are mandatory beginning 2015 with an issue date of
January 31, 2016.
See Chart on pages of Form 8965
4-4

5. There are exemptions from the requirement for individuals to maintain
health insurance coverage. §5000A(e) provides exemptions from the
requirement that “applicable individuals” will have to maintain a minimum
level of health insurance coverage (“minimum essential coverage”) after
2013 and will be provided for:
a. Individuals who cannot afford coverage (Code “A”);
b. Taxpayers with income below the income tax return filing threshold;
c. Members of Indian tribes (Code “E”);
d. Months during short coverage gaps (Code “B”); and
e. Hardships.
Tax Professional Educational Fact: Individuals receiving an exemption
from the individual mandate are required to file Form 8965, “Health
Coverage Exemptions”. Also see the chart on page 5 of the instructions for
Form 8965 for the exemptions and codes.
D. §36B Premium Assistance Credit
1. For tax years beginning after December 31, 2013, §36B(a) provides a
general rule that in the case of an “applicable taxpayer,” there shall be
allowed a credit against the tax imposed by “this subtitle,” for any taxable
year, an amount equal to the premium assistance credit (PAC) amount of the
taxpayer for the taxable year.
Tax Professional Note: For information purposes “this subtitle” means that
it is the income tax and employment tax of a self-employed person which
means that the credit will be a refundable credit.
Tax Professional Education Fact: The §36B credit has become known as
the “Premium Tax Credit” (PTC), which is also the title of Form 8962.
4-5

2. §36B(b)(1) provides a general rule that the term “premium assistance credit”
amount will be provided for all “coverage months” of the taxpayer during
the taxable year. §36B(b)(2) provides that the premium assistance credit
amount will be equal to the lesser of :
a. The monthly premiums for such month for 1 or more qualified health plans
offered in the individual market within a state which covers the taxpayer,
the taxpayer’s spouse, or any dependent (as defined in §152) of the
taxpayer and which were enrolled in through an Exchange established by
the state under Section 1311 of the Patient Protection and Affordable Care
Act (ACA); (Supreme Court ruling allows taxpayers the credit provided
by the federal marketplace) or
b. The excess (if any) of:
i. the “adjusted monthly premium” for such month for the applicable
second lowest cost silver plan (SLCSP) with respect to the taxpayer,
over
ii.
an amount equal to 1/12 of the product of the “applicable
percentage” and the taxpayer’s household income for the taxable
year. (Reported on Form 8962, Part I)
Tax Professional Research Reference: “Applicable Percentage” is defined
in §36B(b)(3)(A). Applicable Second Lowest Cost Silver Plan is defined in
§36B(b)(3)(B) and Adjusted Monthly Premium is defined in §36B(b)(3)(C).
§36B(b)(3)(A) provides a general rule that “applicable percentage” for any
taxable year shall be the percentage such that the applicable percentage for
any taxpayer whose household income is within a specified income tier.
3. §36B(b)(3)(A)(ii) provides a general rule that in the case of taxable years
beginning in any calendar year after 2014, the initial and final percentages
shall be adjusted to reflect the excess of:
a. The rate of premium growth for the preceding calendar year, over
b. The rate of income growth for the preceding calendar year.
4-6

Tax Professional Note: The IRS provided guidance on these items on July
24, 2014 in IRS Rev. Proc. 2014-37
4. Rev. Prov. 2014-37 reports the income tiers for 2015. These tiers are
specified in the following table and shall increase, on a percentage specified
in such table for such income tier:
In the case of household income
(expressed as a percent of
poverty
line) within the following
income tier:
Initial
premium
percentage
Final premium
percentage
Up to 133% 2.01% 2.01%
133% up to 150% 3.02% 4.02%
150% up to 200% 4.02% 6.34%
200% up to 250% 6.34% 8.10%
250% up to 300% 8.10% 9.56%
300% up to 400% 9.56% 9.56%
5. §36B(b)(3)(B) provides that the “Applicable Second Lowest Cost Silver
Plan” (SLCSP) with respect to any applicable taxpayer is the second lowest
cost Silver Plan of the individual market in the rating area in which the
taxpayer resides (geographic location).
a. Enrollment premiums: The enrollment premiums are the total amount of
the premiums for the month for one or more qualified health plans in
which any individual in the tax family is enrolled. Form 1095-A, Part III,
Column A, reports the enrollment premiums. The taxpayer is not allowed
a monthly credit for the month if the portion of the enrollment premium
for which the taxpayer is responsible for that month has not been paid by
the due date of the tax return (not including extensions). Premiums that
another person pays on behalf of the taxpayer are treated as paid by the
taxpayer.
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. Premium for the applicable SLCSP: The premium for the applicable
SLCSP is the second lowest cost silver plan premium (based on age)
offered through the Marketplace where the taxpayer resides that applies to
the taxpayer’s coverage family (described below). The premium for the
applicable SLCSP is not the same as the enrollment premium, unless the
taxpayer enrolls in the applicable SLCSP. Form 1095-A, Part III, Column
B, reports the premium for the applicable SLCSP.
c. Monthly contribution amount: The taxpayer’s monthly contribution
amount is the amount the taxpayer would be required to pay as the share
of premiums each month if enrolled in the applicable SLCSP in the
Marketplace. The monthly contribution amount is not related to the
amount of premiums paid out of pocket. The monthly contribution amount
is computed on Form 8962, Part 1 on line 8b.
d. Coverage family: A coverage family includes all individuals in the tax
family who are enrolled in a qualified health plan and are not eligible for
minimum essential coverage (other than coverage in the individual
market). The individuals included in the coverage family may change from
month to month. If individuals in the tax family are not enrolled in a
qualified health plan, or are enrolled in a qualified health plan but are
eligible for minimum essential coverage (other than coverage in the
individual market), then generally they are not part of the coverage family.
The applicable SLCSP is the SLCSP that applies to the coverage family.
The PTC is only available to help pay for the coverage of the individuals
included in the coverage family.
4-8

6. §36B(b)(3)(C) provides that the “adjusted monthly premium” for an
applicable second lowest cost Silver Plan is the monthly premium which
would have been charged (for the rating area with respect to which the
premiums under paragraph (2)(A) were determined) for the plan if each
individual covered under a qualified health plan taken into account under
paragraph (2)(A) were covered by such Silver Plan and the premium was
adjusted only for the age of each such individual in the manner allowed under
Section 2791 of the Public Health Service Act. In the case of a state
participating in the wellness discount demonstration project under Section
2705(d) of the Public Health Service Act, the adjusted monthly premium shall
be determined without regard to any premium discount or rebate under such
project.
7. The 2010 Health Care Act provides the refundable credit to qualifying
taxpayers who purchase insurance coverage by enrolling in a “qualified
health plan” (QHP). For purposes of the Premium Tax Credit, a “qualified
health plan” is a health plan or policy purchased through a Marketplace at
the Bronze, Silver, Gold or Platinum level.
Tax Professional Note: Plans sold as “catastrophic” coverage and plans
sold through the Small Business Health Option Program (SHOP) do not
qualify a taxpayer to take the Premium Tax Credit.
8. For some taxpayers the §36B credit will be available and payable in
advance, directly to the insurer and will therefore subsidize the purchase of
certain health insurance plans through an “Exchange.”
9. The 2010 Health Care Act requires that each state was to establish an
“American Health Benefit Exchange” (“Exchange”) by January 1, 2014.
Tax Professional Note: Many states did not establish the mandated Exchange
and as a result there has been an Exchange established by the federal
government for those seeking insurance and living in one of those states. The
Supreme Court ruled that the Federal Exchange’s granting of the premium
assistance credits was within the intention of the statute.
4-9

10. The Act requires insurers to provide Qualified Health Plans (QHPs) to be sold
on the “Exchanges.” The law states that the “Exchanges” are not the insurers
but are to provide access to insurers’ QHPs.
Tax Professional Note: According to the legislation, individuals will be able
to obtain affordable, quality health insurance by enrolling in a QHP through
an Exchange.
11. The §36B credit only applies to QHPs purchased on the Exchange. The
purpose is to allow the qualifying individual to use the credit to reduce the
health insurance premium cost if they acquire the coverage through
enrollment in a QHP.
Tax Professional Note: The §36B credit is being referred to in some written
materials as an “exchange subsidy.”
12. §36B(f) provides for a reconciliation of the credit allowable and any advance
credit received. This reconciliation is calculated on Form 8962, Premium Tax
Credit (PTC) in Part III. §36B(f)(3) provides that the Exchange will be
required to issue an information return (Form 1095-A) to the Secretary and
the taxpayer providing:
a. The level of coverage that was in effect;
b. Total premium for the coverage;
c. Aggregate amount of any advance payment;
d. Name, address and TIN of the primary insured and the name and TIN of
each individual obtaining coverage under the policy;
e. Any information provided by the Exchange, including any change of
circumstances necessary to determine the eligibility for, and the amount
of such credit; and
f. Information necessary to determine whether a taxpayer received excess
advanced payments.
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13. Individual taxpayers will also be permitted to pay the entire premium during
the year directly and claim the credit on their Form 1040 on the line 69 labeled
“Net premium tax credit”. The net credit is required to be calculated on
Form 8962 Premium Tax Credit (PTC). Any “excess advance premium tax
credit” will be reported on line 46 of Form 1040 which is labeled “Excess
advance premium tax credit repayment”.
TAX PROFESSIONAL ALERT:
The Health Care Law and You: Nine Facts about Letters Sent by the IRS:
The IRS sent letters to taxpayers this summer who were issued a Form 1095-
A, Health Insurance Marketplace Statement, showing that advance payments
of the premium tax credit were paid on the taxpayer’s behalf in 2014. At the
time, the IRS had no record that the taxpayer filed a 2014 tax return.
Here are nine facts about these letters and the actions you should take:
• IRS letters 5591, 5591A, or 5596 remind you of the importance of filing
your 2014 federal tax return along with Form 8962, Premium Tax Credit.
• You must file a tax return to reconcile any advance credit payments you
received in 2014 and to maintain your eligibility for future premium
assistance.
• If you do not file, you will not be eligible for advance payments of the
premium tax credit in 2016.
• Even if you don’t usually file or if you requested an extension to October.
15, you should file your 2014 tax return as soon as possible.
• Until you file a 2014 tax return to resolve the issue with your Marketplace,
you will not be eligible to get advance payments of the premium tax credit
to help pay your health coverage premiums in 2016 from the Marketplace.
• You should have received Form 1095-A, Health Insurance Marketplace
Statement, earlier this year if you or a family member purchased health
insurance coverage through the Marketplace in 2014. This form provides
the information you need to complete Form 8962. You must attach Form
8962 to the income tax return you file.
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• Contact your Marketplace if you have questions about your Form 1095-
A.
• If you have recently filed your 2014 tax return with Form 8962, you do
not need to file another tax return or call the IRS about these letters. In
general, if you filed your tax return electronically, it takes three weeks
before it is processed and your information is avaible. If you mailed your
tax return, it takes about six weeks. However, processing times can vary
based on other circumstances.
• You should follow the instruction on any additional IRS correspondence
that you receive to help the IRS verify information to process you tax
return.
In addition to these letters from the IRS your health insurance company may
contact you to remind you to file your 2014 federal tax return along with Form
8962. In some cases, they may contact you even if you did not receive advance
credit payments in 2014. If you are not otherwise required to file a tax return,
you do not have to file a return if you or anyone on your return did not receive
advance credit payments in 2014.
For more information, see the Affordable Care Act Tax Provisions for
individuals and Families Page on IRS.Gov/aca.
E. §36B Details
1. The §36B credit is titled “Refundable Credit for Coverage under a Qualified
Health Plan.”
2. §36B(a) provides a general rule that there is a credit allowed.
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3. §36B(b)(1) provides that the term “premium assistance amount” means with
respect to any taxable year, the sum of the premium assistance amounts for
“all coverage months” for the taxpayer, taxpayer’s spouse or any dependents
who are enrolled through an Exchange offered in the individual market within
a state which covers the taxpayers. (Since many states did not create an
Exchange the Federal Market Place qualifies).
4. There are rules pertaining to self-only coverage and family coverage under
§36B(b)(3)(B).
5. §36B(b)(3)(E) provides special rules for pediatric dental coverage. For
purposes of determining the amount of any monthly premium, if an individual
enrolls in both a qualified health plan and a plan described in section
1311(d)(2)(B)(ii)(I) of the Patient Protection and Affordable Care Act for any
plan year, then the portion of the premium for the plan described in such
section that (under regulations prescribed by the Secretary) is properly
allocable to pediatric dental benefits which are included in the essential health
benefits required to be provided by a qualified health plan shall be treated as
a premium payable for a qualified health plan.
6. §36B(c) provides specific definitions as follows:
a. §36B(c)(1) “Applicable Taxpayer”: 36B(c)(1)(A) provides a general rule
that the term “applicable taxpayer” means, with respect to any taxable
year, a taxpayer whose household income for the taxable year equals or
exceeds 100 percent but does not exceed 400 percent of an amount equal
to the Federal Poverty Level (FPL) for a family of the size involved. The
FPL is reported on Form 8962, Part I, Line 4. The FPL is indexed to
inflation
b. §36B(c)(1)(B) Special rule for certain individuals lawfully present in the
United States: If
i. §36B(c)(1)(B)(i) a taxpayer has a household income which is not
greater than 100 percent of an amount equal to the poverty line for
a family of the size involved; and
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ii.
§36B(c)(1)(B)(ii) the taxpayer is an alien lawfully present in the
United States, but is not eligible for the Medicaid program under title
XIX of the Social Security Act by reason of such alien status;
then the taxpayer shall, for purpose of the credit under this section,
be treated as an “applicable taxpayer” with a household income
which is equal to 100 percent of the poverty line for a family of the
size involved. (Therefore they will be eligible to receive the PTC).
c. §36B(c)(1)(C) provides a general rule that married couples must file a
joint return. The law specifies that if the taxpayer is married (within the
meaning of §7703) at the close of the taxable year, then the taxpayer shall
be treated as an “applicable taxpayer” only if the taxpayer and the
taxpayer’s spouse file a joint return for the taxable year.
TAX PROFESSIONAL ALERT: Reg. §1.36B-2T allows an exception
for the filing of a joint return and specifically states an exception for
victims of domestic abuse and abandonment, and states that except as
provided in paragraph (b)(2)(v) of this section, a married taxpayer satisfies
the joint filing requirement of paragraph (b)(2)(i) of this section if the
taxpayer files a tax return using a filing status of married filing separately
and the taxpayer:
• is living apart from the taxpayer’s spouse at the time the taxpayer files
the tax return;
• is unable to file a joint return because the taxpayer is a victim of
domestic abuse or spousal abandonment; and
• Certifies on the return, in accordance with the relevant instructions,
that the taxpayer meets the criteria of being a victim of domestic abuse
or abandonment. The instructions on IRS Form 8962 Premium Tax
Credit (PTC) state that the taxpayer will be required to check the box
in the top right-hand corner of Form 8962.
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• Note: In 2014 the Form 8962 used a box labeled “Relief.” In 2015 the
line indicates that if the taxpayer is eligible for the exception then they
must check the box in order to claim the PTC. The instructions state
that the documentation does not have to be attached to the return and
that the taxpayer should keep the documentation with their tax records.
IRS Publication 974 “Premium Tax Credit” (PTC) provides examples
of what documentation to keep.
d. Reg.§1.36B-2T(iii) defines domestic abuse to include physical,
psychological, sexual, or emotional abuse, including efforts to control,
isolate, humiliate, and intimidate, or to undermine the victim’s ability to
reason independently. All the facts and circumstances are considered in
determining whether an individual is abused, including the effects of
alcohol or drug abuse by the victim’s spouse. Depending on the facts and
circumstances, abuse of the victim’s child or another family member
living in the household may constitute abuse of the victim.
e. Reg. §1.36B-2T(iv) defines abandonment to be included as an exception.
A taxpayer is a victim of spousal abandonment for a taxable year if, taking
into account all facts and circumstances, the taxpayer is unable to locate
his or her spouse after reasonable diligence.
f. Reg. §1.36B-2T(v) states a three-year rule. The exception for victims of
domestic abuse and abandonment does not apply if the taxpayer met the
requirements of paragraph (b)(2)(ii) of this section for each of the three
preceding taxable years.
Tax Professional Note: Individuals cannot qualify for relief from the
joint filing requirement for more than three consecutive years, during
which time they must presumably obtain a divorce.
TAX PROFESSIONAL ALERT: Taxpayers who do not qualify for
relief from filing a joint return cannot take the PTC on a married filing
separate return and must complete lines 1-5 on Form 8962 in order to
calculate their separate household income as a percentage of the Federal
poverty line.
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g. §36B(c)(1)(D) Denial of credit to dependents: No credit shall be allowed
to any individual with respect to whom a deduction under §151 is
allowable to another taxpayer for a taxable year beginning in the calendar
year in which such individual’s taxable year begins.
h. §36B(c)(2) Coverage month: For purposes of this subsection–
i. §36B(c)(2)(A) provides a general rule that the term “coverage
month” means, with respect to an “applicable taxpayer”, any month
if:
a) §36B(c)(2)(A)(i) as of the first day of such month the taxpayer,
the taxpayer’s spouse, or any dependent of the taxpayer is
covered by a qualified health plan described in subsection
(b)(2)(A) that was enrolled through an Exchange established by
the State under section 1311 of the Patient Protection and
Affordable Care Act; (includes Federal Marketplace) and
b) §36B(c)(2)(A)(ii) the premium for coverage under such plan for
such month is paid by the taxpayer (or through advance payment
of the credit under subsection (a) under section 1412 of the
Patient Protection and Affordable Care Act).
ii.
§36B(c)(2)(B) Exception for minimum essential coverage:
a) §36B(c)(2)(B)(i) provides that in general the term “coverage
month” shall not include any month with respect to an individual
if for such month the individual is eligible for minimum essential
coverage other than eligibility for coverage described in
§5000A(f)(1)(C) (relating to coverage in the individual market).
b) §36B(c)(2)(B)(ii) provides that the term “minimum essential
coverage” has the meaning given such term by §5000A(f).
iii.
For tax years beginning after 2014 §36B(c)(2)(C) provides a special
rule for employer-sponsored minimum essential coverage: For
purpose of “minimum essential coverage”
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a) §36B(c)(2)(C)(i) Provides that the coverage must be affordable:
Except as provided in clause (iii) below, an employee shall not
be treated as eligible for minimum essential coverage if such
coverage–
1) consists of an eligible employer-sponsored plan (as defined
in §5000A(f)(2); and
2) the employee’s required contribution within the meaning of
§5000A(e)(1)(B) with respect to the plan exceeds 9.5 percent
of the applicable taxpayer’s household income.
This clause shall also apply to an individual who is eligible to
enroll in the plan by reason of a relationship the individual bears
to the employee.
b) §36B(c)(2)(C)(ii) provides that the coverage must have
minimum value: Except as provided in clause (iii) below, an
employee shall not be treated as eligible for minimum essential
coverage if such coverage consists of an eligible employersponsored
plan (as defined in §5000A(f)(2)) and the plan’s share
of the total allowed cost of benefits provided under the plan is
less than 60 percent of such costs.
c) §36B(c)(2)(C)(iii) provides that the employee or family must not
be covered under an employer plan. Clauses (i) and (ii) above
shall not apply if the employee (or any individual described in
the last sentence or clause (i)) is covered under the eligible
employer-sponsored plan or the grandfathered health plan.
d) §36B(c)(2)(C)(iv) provides for indexing of the applicable
taxpayer’s household income: In the case of plan years
beginning in any calendar year after 2014, the Secretary shall
adjust the 9.5 percent under clause (i)(II) in the same manner as
the percentages adjusted under subsection (b)(3)(A)(ii). For tax
year 2015 this amount is 9.56% and for tax year 2016 it is
9.66%.
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Tax Professional Note: The employer will provide the Form 1095-C to
employee to determine the level of coverage.
i. §36B(c)(3)(A) provides that the term “qualified health plan” has the
meaning given such term by section 1301(a) of the Patient Protection and
Affordable Care Act, except that such term shall not include a qualified
health plan which is a catastrophic plan described in section 1302(e) of
such Act.
j. §36B(c)(3)(B) provides that the term “grandfathered health plan” has the
meaning given such term by section 1251 of the Patient Protection and
Affordable Care Act.
7. §36(B)(d) provides more definitions relating to the following items:
a. §36B(d)(1) Family size: The family size involved with respect to any
taxpayer shall be equal to the number of individuals for whom the taxpayer
is allowed a deduction under §151 (relating to allowance of deduction for
personal exemptions) for the taxable year. This is reported on Form 8962,
Part I, Line 1.
b. §36B(d)(2)(A) Household income: The term “household income” means,
with respect to any taxpayer, an amount equal to the sum of:
i. §36B(d)(2)(A)(i) the “modified adjusted gross income” of the
taxpayer, plus
ii.
§36B(d)(2)(A)(ii) the aggregate “modified adjusted gross income”
of all other individuals who–
a) §36B(d)(2)(A)(ii)(I) were taken into account in determining the
taxpayer’s family size under paragraph (1); and
b) §36B(d)(2)(A)(ii)(II) were required to file a tax return for the
applicable tax year. The modified adjusted gross income
amounts are reported on Form 8962, Part I on line 2a and 2b
and the Household Income is reported on line 3.
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Tax Professional Note: If a taxpayer has a dependent child who has
income, and the child is required to file a federal income tax return then
the child’s modified AGI is reported on Line 2b of Form 8962.
c. §36B(d)(2)(B) provides that the term “modified adjusted gross income”
means adjusted gross income increased by:
i. §36B(d)(2)(B)(i) any amount excluded from gross income under
§911 (Foreign Earned Income Exclusion reported on IRS Form
2555);
ii.
iii.
§36B(d)(2)(B)(ii) any amount of interest received or accrued by the
taxpayer during the taxable year which is exempt from tax; and
§36B(d)(2)(B)(iii) an amount equal to the portion of the taxpayer’s
social security benefits (as defined in §86(d)) which is excluded
from gross income under §86(d) for the taxable year.
d. §36B(d)(3)(A) provides a general rule that the term “poverty line” has the
meaning given that term in section 2110 (c)(5) of the Social Security Act
(45 U.S.C. 1397j(c)(5)). §36B(d)(3)(B) Poverty line used: In the case of
any qualified health plan offered through an Exchange for coverage during
a taxable year beginning in a calendar year, the poverty line used shall be
the most recently published poverty line as of the 1st day of the regular
enrollment period for coverage during such calendar year.
Tax Professional Note: Form 8962, Part I, line 4 uses the term Federal
Poverty Level (FPL).
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8. §36(B)(e) provides rules for individuals not lawfully present and Secretarial
Authority to prescribe rules to ensure that the least burden is placed on
individuals enrolling in qualified health plans through an Exchange.
a. §36B(e)(1) provides a general rule that if one or more individuals for
whom a taxpayer is allowed a deduction under §151 (relating to allowance
of deduction for personal exemptions) for the taxable year (including the
taxpayer or his spouse) are individuals who are not lawfully present, then
§36B(e)(1)(A) provides that the aggregate amount of premiums otherwise
taken into account under clauses (i) and (ii) of subsection (b)(2)(A) shall
be reduced by the portion (if any) of such premiums which is attributable
to such individuals, and
b. §36B(e)(1)(B) provides that for purposes of applying this section, the
determination as to what percentage a taxpayer’s household income bears
to the poverty level for a family of the size involved shall be made under
one of the following methods:
i. §36B(e)(1)(B)(i) A method under which:
a) §36B(e)(1)(B)(i)(I) the taxpayer’s family size is determined by
not taking such individuals into account; and
b) §36B(e)(1)(B)(i)(II) the taxpayer’s household income is equal to
the product of the taxpayer’s household income (determined
without regard to this subsection) and a fraction–
1) §36B(e)(1)(B)(i)(11)(aa) the numerator of which is the
poverty line for the taxpayer’s family size determined after
application of subclauses (I), and
2) §36B(e)(1)(B)(i)(II)(bb) the denominator of which is the
poverty line for the taxpayer’s family size determined
without regard to subclause (I).
ii.
§36B(e)(1)(B)(ii) A comparable method reaching the same result as
the method under clause (i).
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9. §36(B)(3)(2) defines the term “lawfully present” and for purposes of this
section, an individual shall be treated as “lawfully present” only if the
individual is, and is reasonably expected to be for the entire period of
enrollment for which the credit under this section is being claimed, a citizen
of the United States or an alien lawfully present in the United States.
10. §36B(e)(3) Secretarial authority: The Secretary of Health and Human
Services, in consultation with the Secretary, shall prescribe rules setting
forth the methods by which calculations of family size and household
income are made for purposes of this subsection. Such rules shall be
designed to ensure that the least burden is placed on individuals enrolling in
qualified health plans through an Exchange and taxpayers eligible for the
credit allowable under this section.
11. §36(B)(f) provides for the reconciliation of the allowed credit and the
advanced credit and the need to impose a tax on the excess advance credit.
On Form 8962 the reconciliation is calculated in Part III and is titled
“Repayment of Excess Advance Payment of the Premium Tax Credit.”
a. §36B(f)(1) provides a general rule that the amount of the credit allowed
for any taxable year shall be reduced (but not below zero) by the amount
of any “advance payment” of such credit.
b. §36B(f)(2)(A) provides a general rule that if the advance payments to a
taxpayer for a taxable year exceed the credit allowed by this section
(determined without regard to paragraph (1)), then the tax for the taxable
year shall be increased by the amount of such excess.
c. §36B(f)(2)(B) Limitation on increase: §36B(f)(2)(B)(i) provides a general
rule that if a taxpayer has household income that is less than 400 percent
of the poverty line for the size of the family involved for the taxable year,
then the amount of the increase under subparagraph (A) shall in no event
exceed the “applicable dollar amount” determined in accordance with the
following table (one-half of such amount in the case of a taxpayer whose
tax is determined under section 1(c) for the taxable year):
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If the household income
(expressed as a percent of
poverty line) is:
Then the applicable
dollar amount is:
Joint Single
Less than 200% $ 600 $ 300
At least 200% but less than
300% $1,500 $ 750
At least 300% but less than
400% $2,550* $1,250
*Indexed to inflation from $2,500 in 2014
Tax Professional Note: If the taxpayer’s Household Income exceeds
400% of the FPL then the full amount of the advanced premium for
credit must be repaid.
d. §36B(f)(2)(B)(ii) Indexing of amount: In the case of any calendar
year beginning after 2014, each of the dollar amounts in the table
above shall be increased by an amount equal to–
i. §36B(f)(2)(B)(ii)(I) such dollar amount, multiplied by
ii.
§36B(f)(2)(B)(ii)(II) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year, determined by substituting
“calendar year 2013” for “calendar year 1992” in subparagraph (B)
thereof.
If the amount of any increase under clause (i) is not a multiple of $50,
then such increase shall be rounded to the next lowest multiple of $50.
12. §36B(f)(3) Information requirement: Each Exchange (or any person
carrying out 1 or more responsibilities of an Exchange) shall provide the
following information to the Secretary and to the taxpayer with respect to
any health plan provided through the Exchange;
a. §36B(f)(3)(A): The level of coverage described in section 1302(d) of the
Patient Protection and Affordable Care Act and the period such coverage
was in effect.
b. §36B(f)(3)(B): The total premium for the coverage without regard to the
credit under this section or cost-sharing reductions.
4-22

c. §36B(f)(3)(C): The aggregate amount of any advance payment of such
credit or reductions.
d. §36B(f)(3)(D): The name, address, and TIN of the primary insured and
the name and TIN of each other individual obtaining coverage under the
policy.
e. §36B(f)(3)(E): Any other information provided to the Exchange,
including any change of circumstances, necessary to determine eligibility
for, and the amount of, such credit.
f. §36B(f)(3)(F): Information necessary to determine whether a taxpayer
has received excess advance payments.
Tax Professional Educational Fact: The reporting of the Information
Requirements by the Exchange will be reported on Form 1095-A, “Health
Insurance Marketplace Statement” which is required to be issued by
January 31, 2016 for 2015 reporting purposes. The information reported on
Form 1095-A provides the data needed to complete the individual
taxpayer’s Form 8962, Premium Tax Credit (PTC). The result calculated
on Form 8962 will carry to Form 1040, page 2, line 69, labeled as “Net
premium tax credit, attach Form 8962”.
13. §36B(g) provides that the Secretary of the Treasury shall prescribe such
regulations as may be necessary to carry out the provisions of the law
including regulations which provide for:
a. The coordination of the credit allowed under the advance payment credit;
and
b. The application of the reconciliation where filing status for a taxable year
is different from such status for determining the advance payment of the
credit.
4-23

F. 2015 Congressional Research Service Report To Congress
1. On March 18, 2015 the Congressional Research Service (CRS) updated and
issued a report to Congress on the individual mandate under the Affordable
Care Act (ACA) and provided information and examples of the types of
challenges and issues that we as tax professionals will be addressing.
a. Illustrative individual mandate penalties
i. The following examples illustrate the penalty issues for a taxpayer
who is a single individual and for a taxpayer with a family of four.
The penalty amounts are shown below for 2014, 2015 and 2016. For
those individuals whose household income is above the threshold
amount for filing a federal income tax return, the penalty is the
greater of a flat dollar amount or a percentage of applicable income
(which is the income above the filing threshold). Individuals below
the filing threshold for federal income tax will not pay a penalty.
ii.
In the 2014 examples, the 2014 filing threshold is used, which is
$10,150 for a single individual under age 65 with no dependents with
a single filing status and $20,300 for a married couple filing jointly.
The filing threshold for 2015 is $10,300 and $20,600. For 2016 the
amount has not yet been determined, but because it is linked to an
inflation adjustment based on the CPI-U, they will likely be higher
when implemented in 2016. The examples below use estimated
filing thresholds for 2016. As a result, the numbers for 2016 are
meant for illustrative purposes only. These examples are best used
to show the relative scope of the penalties and the relationship
between the various components of the formulas for calculating the
penalty.
4-24

Example #1 illustrates the individual mandate penalties for a single
individual with no dependents:
a) In 2014, those with income above the filing threshold of $10,150
but at or below $19,650 will pay the $95 flat amount. Those with
income above $19,650 and below the cap at the national average
premium of $2,448 for bronze-level coverage will pay 1% of
applicable income.
b) In 2015, those with income above the filing threshold of $10,300
but at or below $26,550 will pay the $325 flat amount, and those
with income above $26,550 and below the cap at the national
average premium of $2,484 bronze-level coverage will pay 2% of
applicable income.
Tax Professional Educational Fact: Health and Human Services
(HHS) has determined and the IRS has set the amount of the
average cost of a bronze level plan for an applicable family size
for 2015 at a maximum of $2,484 (12 months times $207 per
month) per individual annually, up to a maximum $12,420 for
families of five or more. For a family of four the maximum would
be $9,936 (4 x $2,484). For more details see Rev. Proc. 2015-15.
c) In 2016, those with income above the filing threshold (estimated
to be $10,450 in 2016) but at or below an estimated $38,250 will
pay the $695 flat amount, and those with income above an
estimated $38,250 and below the cap at the national average
premium for bronze-level coverage will pay 2.5% of applicable
income. The amount of the national average premium cost of a
bronze plan for 2016 will be determined by Health and Human
Services during 2015.
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iii.
In calculating the penalty for a family, each of the components of the
formula increases for a family, including the filing threshold, flat
dollar amount, and the cost of a bronze-level plan. However, the flat
dollar amount for a family cannot be greater than three times the
amount for an individual. For example, in 2015 the flat dollar
amount is limited to three times $325 or $975. The flat dollar
amount is ½ for children under age 18 so that a married couple with
2 children under 18, a single parent with 4 children under 18 as well
as larger families are all subject to the same maximum flat dollar
amount.
Example #2 illustrates the individual mandate penalties for a family
of four (married couple with two children under age 18):
a) In 2014, those with income above the filing threshold ($20,300 in
2014) but at or below $48,800 pay the $285 flat dollar amount,
those with income above $48,800 and below the cap at the national
average premium for bronze-level family coverage will pay 1% of
applicable income.
b) In 2015, those with income above the filing threshold of $20,600
but at or below an estimated $69,350 will pay the $975 flat dollar
amount, those with income above $69,350 and below the cap at the
national average premium for bronze-level family coverage will
pay 2% of applicable income.
c) In 2016 those with income above the filing threshold (estimated to
be $20,900 in 2016) but at or below an estimated $104,300 will
pay the $2,085 flat dollar amount, those with income above an
estimated $104,300 and below the cap at the national average
premium for bronze-level family coverage will pay 2.5% of
applicable income.
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Example #3 Single Taxpayer: The following illustrates the maximum
penalty calculations for 2015 based on different levels of income
imposing the greater of the flat dollar and applicable percentage
penalty amounts:
Income Level $14,800 $26,550 $30,300 $264,650
Filing Threshold (10,300) (10,300) (10,300) (10,300)
Excess $ 4,500 $16,250 $20,000 $254,350
Applicable
x 2% x 2% x 2% x 2%
Percentage
Penalty Amount $ 90 $ 325 $ 400 $ 5,087
Flat Dollar Amount $ 325 $ 325 $ 325 $ 325
Maximum Penalty $ 325 $ 325 $ 400 $ 2,484*
*Maximum for average cost of Bronze Plan in 2015
Example #4 Family of Four: The following illustrates the maximum
penalty calculations for 2015 based on different levels of income
imposing the greater of the flat dollar and applicable percentage
penalty amounts.
Income Level $29,600 $69,350 $79,350 $1,000,000
Filing Threshold (20,600) (20,600) (20,600) (20,600)
Excess $ 9,000 $48,750 $68,750 $ 979,400
Applicable Percentage x 2% x 2% x 2% x 2%
Penalty Amount $ 180 $ 975 $ 1,375 $ 19,588
Flat Dollar Amount $ 975 $ 975 $ 975 $ 975
Maximum Penalty $ 975 $ 975 $ 1,375 $ 9,936*
*Maximum for average cost of Bronze Plan in 2015
Tax Professional Note: The penalty is assessed on a monthly basis.
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G. Claiming An Exemption From The Mandate
1. Individuals can be exempt from the mandate and the penalty based on an
individual’s characteristics, financial status, or affiliations (e.g. religious
affiliations). Some individuals who are exempt will not be expected to take
any actions to claim the exemption; others will have to either obtain a
certification of exemption from a health insurance exchange or claim the
exemption through the tax filing process.
2. Individuals who live abroad for more than 330 days in a 12-month period and
those who are bona fide residents of a U.S. possession do not have to take any
action to claim the exemption.
3. Those claiming the short coverage gap, unlawfully present, filing threshold,
or affordability exemptions may only do so on their federal income tax return.
4. In order to claim a religious exemption an individual must obtain an
exemption certificate issued by the exchange serving the area in which the
individual resides.
5. Hardship exemptions must be obtained through the Marketplace.
H. Household Income: 100%-400% of “Federal Poverty Level” (FPL)
1. In order to be eligible for premium credits, individuals must have “household
income” within statutorily defined guidelines based on the federal poverty
level (FPL). For purposes of premium credit eligibility, household income is
measured according to the definition for “modified adjusted gross income”
(MAGI). An individual with a MAGI at or above 100% FPL up to and
including 400% FPL may be eligible to receive premium credits.
Table 1 displays the income levels at 400% FPL, the amount beyond which
individuals and families would not be eligible for premium credits in 2015
(using 2014 HHS poverty guidelines).
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Table 1. Income Levels at 400% FPL Applicable to 2015 Premium Credit
Eligibility Based on 2014 HHS Poverty Guidelines
Number of Persons
in Family
48 Contiguous
States and DC Alaska Hawaii
1 $ 46,680 $ 58,320 $ 53,680
2 $ 62,920 $ 78,640 $ 72,360
3 $ 79,160 $ 98,960 $ 91,040
4 $ 95,400 $119,280 $109,720
5 $111,640 $139,600 $128,400
6 $127,880 $159,920 $147,080
7 $144,120 $180,240 $165,760
8 $160,360 $200,560 $184,440
Source: CRS computations based on “Annual Update of the HHS Poverty Guidelines,”
79 Federal Register 3593, January 22, 2014, http://www.gpo.gov/fdsys/pkg/FR-2014-
01-22/pdf/2014-01303.pdf.
Notes: For 2015, the income levels used to calculate premium credit eligibility and
amounts are based on 2014 HHS poverty guidelines. The poverty guidelines are updated
annually for inflation. “DC” is the District of Columbia.
I. Premium Credits In 2015
1. Premium tax credits to be used toward paying for health insurance in the
exchanges became available in 2015. Table 2 displays selected annual income
levels used in the calculation of premium credit amounts and required
premium contributions, as discussed above.
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Table 2. Selected Annual Income Levels Applicable to 2015
Premium Credits Based on 2014 HHS Poverty Guidelines for the
48 contiguous states and the District of Columbia
Percent of Federal
Poverty Line (FPL)
Family Size
1 Person 2 Persons 3 Persons 4 Persons
100% $11,670 $15,730 $19,790 $23,850
133% $15,521 $20,921 $26,321 $31,721
150% $17,505 $23,595 $29,685 $35,775
200% $23,340 $31,460 $39,580 $47,700
250% $29,175 $39,325 $49,475 $59,625
300% $35,010 $47,190 $59,370 $71,550
350% $40,845 $55,055 $69,265 $83,475
400% $46,680 $62,920 $79,160 $95,400
Source: CRS computations based on “Annual Update of the HHS Poverty Guidelines,”
79 Federal Register 3593, January 22, 2014, http://www.gpo.gov/fdsys/pkg/FR-2014-
01-22/pdf/2014-01303.pdf.
Notes: For 2015, the income levels used to calculate premium credit eligibility and
amounts are based on 2014 HHS poverty guidelines. Different income levels, as
measure against the FPL, apply separately to Alaska and Hawaii (see Table 1).
Table 3 displays the maximum monthly premium contributions for individuals
and families who receive premium tax credits provided that they enroll in the
applicable reference plan.
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Table 3. Maximum Monthly Premium Contributions for Tax Credit
Recipients Enrolled in the Second-Lowest Cost Silver Plan, 2015 Based on
2014 HHS Poverty Guidelines for the 48 contiguous states and the District of
Columbia
Federal
Poverty
(FPL)
Maximum
Premium
Contribution
Based on %
of Income
Maximum Monthly Premium Contributions
for Tax Credit Recipients, by Family Size
(“Applicable
Percentages”) 1 person 2 persons 3 persons 4 persons
100% 2.01% $ 20 $ 26 $ 33 $ 40
132.99% 2.01% $ 26 $ 35 $ 44 $ 53
133% 3.02% $ 39 $ 53 $ 66 $ 80
150% 4.02% $ 59 $ 79 $ 99 $120
200% 6.34% $123 $166 $209 $252
250% 8.10% $197 $265 $334 $402
300% 9.56% $279 $376 $473 $570
350% 9.56% $325 $439 $552 $665
400% 9.56% $372 $501 $631 $760
Source: CRS computations based on “Annual Update of the HHS Poverty
Guidelines,” 79 Federal Register 3593, January 22, 2014,
http://www.gpo.gov/fdsys/pkg/FR-2014-01-22/pdf/2014-01303.pdf.
Notes: For 2015, the income levels used to calculate premium credit eligibility
and amounts are based on 2014 HHS poverty guidelines. If individuals enroll in
more expensive plans than the second-lowest cost Silver Plan in their respective
areas, then they would be responsible for the additional premium amounts. If the
required premium contribution exceeds the actual premium amount, then
individuals would pay the entire premium for exchange coverage. The premium
amounts have been rounded up to the nearest dollar amount.
Table 3 illustrates the cliff effect that occurs at 133% FPL. For individuals with
income below 133% FPL, the credits ensure that such individuals pay no more
than 2.01% of their income for the second-lowest cost Silver Plan. For incomes
at or above 133% FPL, individuals and families may pay up to 3.02% of their
income toward premiums for their reference plan.
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For example, an individual with income at 132.99% FPL (annual income of
$15,520) may be required to pay $26 in monthly premiums for the second-lowest
cost plan in 2015 (see Table 3). Within one additional dollar of income (annual
income of $15,521, equivalent to 133% FL), this person may be required to pay
$39 in monthly premiums. Therefore, the additional $1 in annual income may
lead to an additional $156 in premium contributions for this hypothetical person
in 2015. Nevertheless, some might observe that prior to implementation of the
ACA premium credits in 2015, there were no federal subsidies for health coverage
for individuals with income at this level and above, except for some narrowly
defined groups. Therefore, more individuals overall may be eligible for subsidized
private coverage under the ACA, than before enactment of the law.
J. Premium Credit Examples: Self-Only And Family Coverage
1. The hypothetical examples use actual exchange information about premiums,
enrollee contributions, and premium credit amounts. The information was
compiled using the Plan Finder tool at healthcare.gov.
2. In order to facilitate comparisons across hypothetical individuals and families,
the premium and tax credit amounts apply to the same zip code 60647 (the
first state and first county in the drop down menus in the Plan Finder tool).
3. The examples in Table 4 assume that the hypothetical individual (or family)
is enrolled in the reference plan (second-lowest cost silver plan).
As the 2015 premium data indicate, individuals at the same income level will
pay different (pre-credit) premiums based on age. This reflects the limited age
rating allowed for health insurance policies, including those offered in the
individual exchanges. The practical effect of ACA’s age rating requirements
means that, for any given metal-tier plan in a specific geographic area,
premiums vary for adults between 21 and 64+ years of age by a 3:1 ratio. (For
examples that illustrate the 3:1 ratio for adults, see hypothetical persons A, B,
C, and D in Table 4, and the following analysis included under “Discussion
of Self-Only Coverage Examples.”) Moreover, the premium credit amounts
are greater for those with lower incomes, compared with higher-income
individuals of the same age, reflecting their income-based structure of the
premium credits.
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Table 4. Premium Contributions and Credit Amounts for the
Second-Lowest Cost Silver Plans in 2015, by Selected Coverage Tiers Applicable
to Zip Code 60647
Coverage
Tier
Hypothetical
Person or
Family-Letter
Designation
Annual
Income
Federal
Poverty
Level
(FPL)
Maximum
Premium
Contribution
as a % of
Income
Age of
Adult(s) a
Monthly
(Pre-
Credit)
Premium
for the
Second-
Lowest
Cost
Silver
Plan b
Monthly
Premium
Contribution
from
Enrollee(s)
Monthly
Credit
Amount
A $17,505 150% 4.02% 21 $ 168 $ 59 $ 109
Self-Only
B $17,505 150% 4.02% 64 $ 506 $ 59 $ 447
C $40,845 350% 9.56% 21 $ 168 $168 $ 0
D $40,845 350% 9.56% 64 $ 506 $325 c $ 181
E $29,685 150% 4.02% 40 $ 538 $ 99 $ 439
F $29,685 150% 4.02% 60 $1,022 $ 99 $923
Family of
Three d G $69,265 350% 9.56% 40 $ 538 $538 e $ 0
H $69,265 350% 9.56% 60 $1,022 $552 $ 470
a. Premiums for exchange plans are age-adjusted to allow for a maximum
3:1 variation for adults between 21 and 64+ years of age. For additional
information about this and other rating restrictions, see CRS Report
R42069, Private Health Insurance Market Reforms in the Affordable Care
Act (AGA).
b. The premiums for the plans that are currently being offered through
exchanges vary according to metal tier, geographic location, family size,
age and other factors.
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c. The maximum premium contribution for an individual whose income is
$40,845 in 2015 is $325 per month. However, the monthly premium is
$201 in this example, which is a lower amount than the maximum
premium contributions. Given this, hypothetical person C pays the entire
premium for coverage in the second-lowest cost silver plan and the credit
amount is zero.
d. Premiums for exchange plans are allowed to vary based on family size. In
this table, hypothetical families E through H are each composed of two
adults of the same age and one child who is age 19. Insurance rates for
children are calculated by considering individuals under age 21 as one
group. For example, if one child who is age 5 and another child who is age
19 enrolled in the same metal-tier plan, their premiums would be the same
amount.
e. The maximum premium contribution for a family of three whose income
is $69,265 in 2015 is approximately $552 per month. However, the
monthly premium in this example is $538, which is lower amount than the
maximum premium contribution for the second-lowest-cost silver plan.
Given this, hypothetical family G pays the entire premium for coverage in
this plan and the credit amount is zero.
Source: Income levels and poverty levels from “Annual Update of the HHS
Poverty Guidelines,” 79 Federal Register 3593, January 22, 2014,
http:www.gpo.gov/fdsys/pkg/FR-2014-01-22/pdf/2014-01303.pdf. Health plan
premiums and credit amounts were compiled using the health plan finder tool at
https:www.healthcare.gov/fin-premium-estimates/.
Notes: For 2015, the income levels used to calculate premium credit eligibility
and amounts in this table are based on 2014 HHS poverty guidelines for the 48
contiguous states and the District of Columbia.
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K. Discussion Of “Self-Only Coverage” Examples
1. As indicated in Table 4, the monthly (pre-credit) premiums for self-only
coverage in the second lowest cost Silver Plan in Zip Code 60647 are $168
for a 21-year-old individual and $506 for a 64-year-old individual. Given
the 3:1 age-rating among adults between 21 and 64+ years of age, it follows
that the premium for the same plan in the same county is three times higher
for the older adults (hypothetical persons B and D), than it is for the younger
adults (hypothetical person A and C). However, for premium credit
recipients, age does not determine the amount that a given person contributes
toward her premium.
2. The formula for calculating individual premium contributions from enrollees
is based on income, not age (see Table 3), and such contributions are
calculated prior to determining the credit amount. Therefore, the actual
amount that tax credit recipients will pay toward exchange premiums may be
the same for individuals with the same income level regardless of age;
therefore, their monthly contributions toward premiums are the same amount
($58). Person C is an example of the exception to this general rule. Persons C
and D have the same income level, so you would expect their premium
contributions to be the same amount ($325, see Table 3). However, person
C’s premium ($168) is lower than the maximum premium contribution
allowed for an enrollee at that income level. Therefore, person C pays the
entire premium amount for the second-lowest cost Silver Plan available in that
zip code and as a result does not receive a premium assistance credit.
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L. Discussion Of “Family Coverage” Examples
1. The rules applicable to self-only coverage regarding age-rating for adults and
calculation of enrollee premium contributions based on income likewise apply
to family coverage. Table 4 includes examples for hypothetical families
comprised of two adults of the same age and one child who is age 19. Similar
to the self-only coverage example, the families with the older adults (families
F and H) face a larger (pre-credit) premium than the families with the younger
adults (families E and G). However, the families with the same income pay
the same amount toward premiums. That is, families E and F pay $99 toward
the monthly premium, while families G and H pay $538 and $552 for the
same exchange plan.
M. Reconciliation Of Advanced Premium Credits on IRS Form 8962 Premium
Tax Credit
1. Under ACA, the amount received in premium credits is based on the prior
year’s income tax return. These amounts are reconciled when individuals file
tax returns for the actual year in which they received premium credits. If a tax
filing unit’s income decreases during the tax year, and the filer should have
received a larger tax credit, then this additional credit amount will be included
in the tax refund for the year. On the other hand, any excess amount that was
overpaid in premium credits will have to be repaid to the federal government
as a tax payment. However, ACA imposes limits on the excess amounts to be
repaid under certain conditions. For households with incomes below 400%
FPL, the law includes specific limits that apply to single and joint filers
separately, these limits will be indexed by inflation in future years.
2. Since the enactment of ACA, these limits have been amended twice: first
under the Medicare and Medicaid Extenders Act of 2010 (P.L. 111-309), and
then under the Comprehensive 1099 Taxpayer Protection and Repayment of
Exchange Subsidy Overpayment Act of 2011 (P.L. 112-9). The current
repayment limits are indexed to inflation and vary by income (see Table 5).
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3. For example, assume a family received overpayments for the tax credits they
should have received in a given tax year. They will have to repay the excess
when they file their federal income tax return for that year. However, if such
a family has income below 200% of the FPL, then the IRS may only require
them to repay up to $600 (for excess tax credits received during that tax year).
In other words, while such a family may technically owe a larger amount,
repayment is limited to a maximum of $600 for a family with income below
200% FPL.
Table 5 - Limits on Repayment of Excess Premium Credits Earned by the
Comprehensive 1099 Taxpayer Protection and Repayment of Exchange
Subsidy Overpayment Act of 2011 (P.L. 112-9)
IF Household Income (Expressed as a percentage
of the Federal Poverty Level) is:
The Applicable Dollar Limit for
Joint Filers vs Single
Less than 200% $ 600 $ 300
At least 200% but less than 300% $1,500 $ 750
At least 300% but less than 400% $2,550* $1,250
*Indexed to inflation from $2,500 in 2014
NOTE: THE APPLICABLE DOLLAR LIMIT FOR SINGLE FILERS IS 50%
OF THE JOINT FILER LIMIT.
TAX PROFESSIONAL ALERT: Limited Tax Relief for Certain Premium
Credit Recipients
On January 26, 2015, the IRS announced that premium credit recipients who owe
a payment on their 2014 tax return, as a result of the tax credit reconciliation
process, may receive limited tax relief (see IRS Notice 2015-9). For the 2014 tax
year only, taxpayers who meet specified eligibility criteria will be given relief
from penalties related to the following scenarios: (1) late payment of taxes owed
(§6651(a)(2)) and (2) underpayment of taxes owed (§6654(a)). In other words,
their relief for 2014 only applies to penalties related to late payment or
underpayment of taxes; the relief does not negate the taxpayer’s obligation to pay
back excess premium credit amounts calculated under the reconciliation process.
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Moreover, this limited relief does not provide taxpayers with an extension to file
their return, nor does it provide relief from any underpayment related to the
penalty for not complying with the ACA’s individual mandate (for more
information on the individual mandate see CRS Report R41331 Individual
Mandate under ACA).
In order to qualify for penalty relief under the first scenario, taxpayers must
otherwise be: (1) in compliance with other tax filing and payment requirements;
(2) owe a tax payment as a result of premium credit overpayment that were
advanced during the 2014 tax year; and (3) report the excess amount of advanced
credit payment on their timely filed 2014 tax return.
In order to qualify for penalty relief under the second scenario, taxpayers must
otherwise be: (1) in compliance with other tax filing and (2) payment
requirements and report the excess amount of advanced credit payments on their
timely filed 2014 tax return.
N. Exchange Plan Selection And Premium Credits
1. On March 10, 2015, HHS announced that nearly 11.7 million persons selected
a metal plan through the individual exchanges, with 86% determined to be
eligible for premium credits. This reflects exchange plan selections through
the standard open enrollment period as well as the special enrollment period
(SEP) that ended on February 22, 2015.
2. For 2015 exchange enrollment, HHS is providing another special enrollment
period. This SEP is for individuals residing in states in which the federal
government administers the exchanges and who were uninsured in 2014 and
are subject to the penalty for noncompliance with the individual mandate.
Individuals who met requirements specified in the SEP announcement were
allowed to enroll in exchange plan during the SEP (March 15, 2015 through
April 30, 2015).
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In its past and current estimates of the ACA’s health coverage provisions,
the Congressional Budget Office (CBO) projects exchange enrollment to be
modest in the first few years, then increase significantly afterwards.
Likewise, the estimates of federal outlays for premium credits are relatively
moderate initially, but increase rapidly after the first few years. According to
its latest estimates, CBO projects exchange enrollment in 2015 to total 12
million persons: 11 million and 1 million persons enrolled in the individual
and SHOP exchanges, respectively
By 2025, CBO estimates that 25 million individuals will be enrolled in
exchange coverage. Of those exchange enrollees who are enrolled in the
individual exchanges (22 million), 16 million are projected to receive
premium credits. CBO estimates that federal outlays for premium credits will
total $599 billion for FY2016 through FY2025.
Notes: The estimate for individuals receiving premium credits includes
individuals who were determined to be eligible for such credits because their
employer plan was either unaffordable or did not provide minimum value
(“inadequate”), per ACA statue. The latest CBO projections for the ACA’s
insurance coverage provisions estimated that individuals with unaffordable or
inadequate employer coverage was less than 1 million total: therefore, counts
for those individuals were not published separately from other individuals
who received premium credits through the standard eligibility process.
O. §4980H Shared Responsibility for Employers Regarding Health Coverage
1. §4980H(a)(1) and (2) provide that if:
a. any applicable large employer (defined as 50 or more full-time
equivalent employees) fails to offer to its full-time employees (and their
dependents) the opportunity to enroll in minimum essential coverage
under an eligible employer-sponsored plan (as defined in §5000A(f)(2))
for any month, and
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. at least one full-time employee of the applicable large employer has
been certified to the employer under section 1411 of the Patient
Protection and Affordable Care Act as having enrolled for such month in
a qualified health plan with respect to which an applicable premium tax
credit or cost-sharing reduction is allowed or paid with respect to the
employee,
then there is hereby imposed on the employer an “assessable payment”
equal to the product of the “applicable payment” amount which is 1/12 of
$2,000 for any month (i.e. $166.77 per month) and the number of
individuals employed by the employer as full-time employees during such
month.
2. §4980H(b)(1)(A) and (B) provide a general rule that if:
a. an applicable large employer offers to its full-time employees (and their
dependents) the opportunity to enroll in minimum essential coverage
under an eligible employer-sponsored plan (as defined in section
5000A(f)(2)) for any month, and
b. 1 or more full-time employees of the applicable large employer has been
certified to the employer under section 1411 of the Patient Protection and
Affordable Care Act as having enrolled for such month in a qualified
health plan with respect to which an applicable premium tax credit or costsharing
reduction is allowed or paid with respect to the employee,
then there is hereby imposed on the employer an “assessable payment”
equal to the product of the number of full-time employees of the applicable
large employer receiving a premium tax credit or a cost sharing subsidy
for the purchase of health insurance through an exchange for the month.
The amount for such month is equal to 1/12 of $3,000 (i.e. $250 per
month).
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3. §4980H(b)(2) Provides an overall limitation: The aggregate amount of tax
determined under paragraph (1) with respect to all employees of an applicable
large employer for any month shall not exceed the product of the applicable
payment amount and the number of individuals employed by the employer as
full-time employees during such month.
4. §4980H(c) Provides definitions and special rules: For purposes of this section
§4980H(c)(1) “applicable payment amount”. The term “applicable payment
amount” means, with respect to any month, 1/12 of $2,000 (i.e. $167.67 per
month).
5. §4980(c)(2)(a) Provides that in general term “applicable large employer”
means, with respect to a calendar year, an employer who employed an average
of at least 50 full-time employees on business days during the preceding
calendar year.
6. §4980H(c)(2)(B) provides for exemptions for certain employers and
§4980H(c)(2)(B)(i) provides a general rule that an employer shall not be
considered to employ more than 50 full-time employees if:
a. the employer’s workforce exceeds 50 full-time employees for 120 days or
fewer during the calendar year, and
b. the employees in excess of 50 employed during such 120-day period were
seasonal workers.
7. §4980H(c)(2)(B)(ii) provides a definition of seasonal workers: the term
“seasonal worker” means a worker who performs labor or services on a
seasonal basis as defined by the Secretary of Labor, including workers
covered by section 500.20(s)(1) of title 29, code of Federal Regulations and
retail workers employed exclusively during holiday seasons.
8. §4980H(c)(2)(C) defines rules for determining employer size:
§4980H(c)(2)(C)(i) provides application of aggregation rule for employers.
All persons treated as a single employer under subsection (b), (c), (m) or (o)
of §414 of the Internal Revenue Code of 1986 shall be treated as 1 employer.
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9. §4980H(c)(2)(C)(ii) discusses issues for employers not in existence in
preceding year: In the case of an employer who was not in existence
throughout the preceding calendar year, the determination of whether such
employer is an applicable large employer shall be based on the average
number of employees that is reasonably expected such employer will employ
on business days in the current calendar year.
Tax Professional Note: §4980H(c)(2)(C)(iii) Predecessors: Any reference
in this subsection to an employer shall include a reference to any predecessor
of such employer.
10. §4980H(c)(2)(D) Application of employer size to assessable penalties.
§4980H(c)(2)(D)(i) Provides in general that the number of individuals
employed by an applicable large employer as full-time employees during any
month shall be reduced by 30 solely for purposes of calculating:
a. §4980H(c)(2)(D)(i)(I) the assessable payment under subsection (a), or
b. §4980H(c)(2)(D)(i)(II) the overall limitation under subsection (b)(2).
11. §4980H(c)(2)(D)(ii) addresses aggregation: In the case of persons treated as
one employer under subparagraph (C)(i), only one reduction under subclause
(I) or (II) shall be allowed with respect to such persons and such reduction
shall be allocated among such persons ratably on the basis of the number of
full-time employees employed by each such person.
12. §4980H(c)(2)(E) discusses the issues of full-time equivalents treated as fulltime
employees: Solely for purposes of determining whether an employer is
an applicable large employer under this paragraph, an employer shall, in
addition to the number of full-time employees for any month otherwise
determined, include for such month a number of full-time employees
determined by dividing the aggregate number of hours of service of employees
who are not full-time employees for the month by 120.
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13. §4980H(c)(3) addresses the issues of the applicable premium tax credit and
cost-sharing reduction: The term “applicable premium tax credit and costsharing
reduction” means –
a. §4980H(c)(3)(A) any premium tax credit allowed under §36B
b. §4980H(c)(3)(B) any cost-sharing reduction under section 1402 of the
Patient Protection and Affordable Care Act, and
c. §4980H(c)(3)(C) any advance payment of such credit or reduction under
section 1412 of such Act.
14. §4980H(c)(4) addresses the issue of a full-time employee: §4980H(c)(4)(B)
Provides in general that the term “full-time employee” means, with respect to
any month, an employee who is employed on average at least 30 hours of
service per week.
Tax Professional Note: §4980H(c)(4)(B) Hours of service: The Secretary, in
consultation with the Secretary of Labor, shall prescribe such regulations,
rules, and guidance as may be necessary to determine the hours of service of
an employee, including rules for the application of this paragraph to
employees who are not compensated on an hourly basis.
15. §4980H(c)(5) addresses the issue of indexing and the annual inflation
adjustment: §4980H(c)(5)(A) Provides in general that in the case of any
calendar year after 2014, each of the dollar amounts in subsection (b) and
paragraph (1) shall be increased by an amount equal to the product of –
a. such dollar amount, and
b. the premium adjustment percentage (as defined in section 1302(c)(4) of
the Patient Protection and Affordable Care Act) for the calendar year.
Tax Professional Note: §4980H(c)(5)(B) Rounding: If the amount of any
increase under subparagraph (A) is not a multiple of $10, then such increase
shall be rounded to the next lowest multiple of $10.
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TAX PROFESSIONAL ALERT: The §4980H provisions were supposed to
be effective beginning January 1, 2014 but were delayed until January 1,
2015. §4890H(c) provides that the employer shared responsibility payments
under §4980H(a) of $2,000 annually and §4980H(b) of $3,000 annually are
indexed to inflation. These were the amounts to be assessed for 2014. The IRS
conducts a monthly Payroll Industry conference call and on September 9,
2015 the IRS projected the annual per–employee §4980H(a) penalty to be
increased from $2,000 to $2,080 for 2015 and $2,160 for 2016. It also projects
that the §4980H(b) penalty to be increased from the 2014 amount of $3,000
to $3,120 for 2015 and $3,240 for 2016.
16. §4980H(c)(6) Other definitions: The tax code provides that any term used in
this section which is also used in the Patient Protection and Affordable Care
Act shall have the same meaning as when used in such Act.
17. §4980H(c)(7) Tax nondeductible: For denial of deduction for the tax imposed
by this section, see section 275(a)(6) which provides that specified taxes are
not deductible.
18. §4980H(d) Administration and procedure. §4980H(d)(1) provides a general
rule that any assessable payment provided by this section shall be paid upon
notice and demand by the Secretary, and shall be assessed and collected in the
same manner as an assessable penalty under subchapter B of chapter 68.
19. §4980H(d)(2) provides for time for payment: The Secretary may provide for
the payment of any assessable payment provided by this section on an annual,
monthly, or other periodic basis as the Secretary may prescribe.
20. §4980H(d)(3) Coordination with credits, etc: The Secretary shall prescribe
rules, regulations, or guidance for the repayment of any assessable payment
(including interest) if such payment is based on the allowance or payment of
an applicable premium tax credit under §36B or cost-sharing reduction with
respect to an employee, such allowance or payment is subsequently
disallowed, and the assessable payment would not have been required to be
made but for such allowance or payment.
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Example #1 Employer Not An Applicable Large Employer (ALE)
Company X has 40 full-time employees for each calendar month. Company
X also has 15 part-time employees for each calendar month during the year
who have 60 hours of service per month. The total number of hours of the
part-time employees for a month is 900 (15x60). The 900 hours is divided by
the 120 hours requirement (900/120) which equals 7.5 full-time. Equivalent
employees for each month since 7.5 is not a whole number it is rounded down
to 7. Therefore in the current year since each month is only 47 employees
Company X is not an ALE in the next calendar year.
Example #2 Employer is an ALE
Same as Example #1 above except now Company X has 20 part-time
employees for each calendar month in the current year whom each work 60
hours per month. The total numbers of hours is now 1,200 (20x60). Dividing
the 1,200 hours by 120 hours per month is now the equivalent of 10 full-time
equivalent employees as a newer there are 50 employees for each month and
Company X is an Applicable Large Employer for the next calendar year.
For purpose of codes reported by employers for types of coverage reported on
Form 1095-C. The instructions provide the Codes 1A through 1I.
Preface to Example #3: Employer Aggregation Rules:
Companies with a common owner or companies that are otherwise related
under certain rules of §414 are generally combined and treated as a single
employer for purposes of determining ALE status. If the combined number of
FTE and full-time equivalent employees for the group is large enough to meet
the definition of an ALE then each employer in the group (called an ALE
member) is part of an ALE and is subject to the employer shared
responsibility provisions even if separately the employer would not be an
ALE.
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Example #3: Employers Aggregated to Determined ALE Status:
1. Corporation X owns 100% of all classes of stock of Corp. Y and Corp. Z.
2. Corporation X has no employees at any time in 2015. For every calendar
month in 2015, Corp. Y has 40 FTE and Corp. Z has 60 FTE. Neither Y
nor Z has any full time equivalent employees.
3. Corps X, Y and Z are considered a controlled group of corporations.
4. Since Corps X, Y and Z have a combined total of 100 FTE for each month
during 2015, they are together an ALE for 2016.
5. Corps. Y and Z are each an ALE member for 2016.
6. Corp X is not an ALE member for 2016 because it does not have any
employees during 2015.
Background and Transition Issues of an ALE
1. Under the Affordable Care Act, applicable large employers (ALE),
defined as those with 50 or more full-time employees, including full-time
equivalent employees are required to take some new actions. In order to
prepare for 2016, if an organization is an ALE, then the taxpayer needs to
track information each month in 2015, including:
a. Whether it offered full-time employees and their dependents minimum
essential coverage that meets the minimum value requirements and is
affordable, and
b. Whether the employees are enrolled in the minimum essential
coverage offered by the taxpayer.
2. Employers need to track this information because they could be subject to
an employer shared responsibility payment if the organization falls into
either of the following circumstances:
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a. the employer offered coverage to fewer than 70% of the full-time
employees and their dependents in 2015 and at least one full-time
employee enrolled in coverage through the Health Insurance
Marketplace and receives a premium tax credit. (The 70% threshold
is for 2015 and after 2015 it increases to 95%).
b. the employer offered coverage to at least 70% of the full-time
employees and their dependents in 2015, but at least one full-time
employee receives a premium tax credit because the coverage offered:
(1) was not affordable,
(2) did not provide minimum value or
(3) the full-time employee was not offered coverage. (The 70%
threshold is for 2015 and after 2015 it increases to 95%).
Minimum Value and Affordability Issues of the Employer Shared
Responsibility Payment
1. Basic Information Issues: In general, under the employer shared
responsibility provisions, an applicable large employers (ALE) member
may either:
a. offer affordable minimum essential coverage that provides minimum
value to its full-time employees (and their dependents) or
b. potentially owe an employer shared responsibility payment to the IRS.
2. There are two potential employer shared responsibility payments.
Whether the minimum essential coverage offered by an employer to its
full-time employees is affordable and provides minimum value is relevant
for the second type of employer shared responsibility payment.
3. The shared responsibility payment applies if an ALE member offers
minimum essential coverage to its full-time employees and their
dependents but, despite that, at least one full-time employee receives the
premium tax credit for purchasing coverage through the Health Insurance
Marketplace.
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4. A full-time employee could receive the premium tax credit if the employee
was offered minimum essential coverage that either:
a. was not affordable for that employee or
b. did not provide minimum value.
5. Minimum Value Issues: An employer-sponsored plan provides
minimum value if it covers at least 60% of the total allowed cost of
benefits that are expected to be incurred under the plan (See Notice 2014-
69 for additional guidance regarding whether an employer-sponsored plan
provides minimum value coverage if the plan fails to substantially cover
in-patient hospitalization services or physician services).
6. Under regulations, employers generally must use a minimum value
calculator developed by HHS to determine if a plan with standard features
provides minimum value. Plans with nonstandard features are required to
obtain an actuarial certification for the nonstandard features. The
regulations also describe certain safe harbor plan designs that will satisfy
minimum value.
7. Affordability Issues: Because employers are not likely to know the
household income of their employees, there are three safe harbor rules that
an employer may use to determine affordability for purposes of the
employer shared responsibility provisions. (These safe harbor rules do not
affect whether an employee’s coverage is affordable for purposes of
determining the employee’s coverage is affordable for purposes of
determining the employee’s eligibility for the premium tax credit.) Instead
of using household income in making the affordability determination.
employers are allowed to use:
a. Form W-2 wages,
b. an employee’s rate of pay, or
c. the federal poverty line,
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More Information Available from the IRS: More information about the
employer shared responsibility provisions is available in the IRS
Questions and Answers section of their website. The Department of the
Treasury and the IRS have also issued the following legal guidance related
to the employer shared responsibility provisions:
• Regulations on the employers shared responsibility provisions
• Notice 2013-45, announcing transition relief for 2014
• Notice 2014-49, regarding a proposed approach to the application of
the look-back measurement method in situations in which the
measurement period applicable to an employee changes.
Summary Analysis of the Penalty for Employers Not Offering Coverage
1. An applicable large employer who fails to offer its full-time employees
and their dependents the opportunity to enroll in minimum essential
coverage under an employer-sponsored plan for any month is subject to a
penalty if at least one of its full-time employees is certified to the
employer as having enrolled in health insurance coverage purchased
through the exchange with respect to which a premium tax credit or costsharing
reduction is allowed or paid to such employee or employees.
2. The §4980H(a) penalty for any month is an excise tax equal to the number
of full-time employees over a 30-employee threshold during the
applicable month (regardless of how many employees are receiving a
premium tax credit or cost-sharing reduction) multiplied by one twelfth of
$2,000. (Indexed to inflation and projected to be 1/12 of $2,080, in 2015
and 1/12 of $2,160 in 2016).
Tax Professional Note: In the case of persons treated as a single employer
under the provision, the 30-employee reduction in full-time employees is
made from the total number of full-time employees employed by such
persons (i.e., only one 30-person reduction is permitted per controlled
group of employers) and is allocated among such persons in relation to the
number of full-time employees employed by each such person.
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Example: In 2015, Employer A fails to offer minimum essential coverage
and has 100 full-time employees, ten of whom receive a tax credit for the
year for enrolling in an exchange-offered plan. For each employee over
the 30-employee threshold, the employer owes $2,080, for a total penalty
of $145,600 ($2,080 multiplied by 70 ((100-30)). This penalty is assessed
on a monthly basis.
Penalty for Employees Receiving Premium Credits
1. An applicable large employer who offers, for any month, its full-time
employees and their dependents the opportunity to enroll in minimum
essential coverage under an employer-sponsored plan is subject to a
penalty if any full-time employee is certified to the employer as having
enrolled in health insurance coverage purchased through a State exchange
with respect to which a premium tax credit or cost-sharing reduction is
allowed or paid to such employee or employees.
2. The penalty is an excise tax that is imposed for each full-time employee
who receives a premium tax credit or cost-sharing reduction for health
insurance purchased through an exchange. For each full-time employee
receiving a premium tax credit or cost-sharing subsidy through a State
exchange for any month, the employer would be required to pay an amount
equal to one-twelfth of $3,000 for 2014; indexed to inflation for 2015 to
$3,120 and to $3,240 for 2016. The penalty for each employee in any
month is capped at an amount equal to the number of full-time employees
during the month (regardless of how many employees are receiving a
premium tax credit or cost-sharing reduction) in excess of 30, multiplied
by one twelfth of $2,000 for 2014; indexed to inflation to $2,080 for
2015 and $2,160 for 2016.
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Tax Professional Note: In the case of persons treated as a single employer
under the provision, the 30-employee reduction in full-time employees for
purposes of calculating the maximum penalty is made from the total
number of full-time employees employed by such persons (i.e., only one
30-person reduction is permitted per controlled group of employers) and
is allocated among such persons in relation to the number of full-time
employees employed by each such person.
Example: In 2015, Employer A offers health coverage and has 100 fulltime
employees, 20 of whom receive a tax credit for the year for enrolling
in a State exchange offered plan. For each employee receiving a tax credit,
the employer owes $3,120, for a total penalty of $62,400.
The maximum penalty in 2015 for this employer is capped at the amount
of the penalty that it would have been assessed for a failure to provide
coverage, or $145,600 ($2,080 multiplied by 70 ((100-30)). Since the
calculated penalty of $62,400 is less than the maximum amount,
Employer A pays the $62,400 calculated penalty. This penalty is assessed
on a monthly basis.
Time for Payment, Deductibility of Excise Taxes, Restrictions on
Assessment
1. The excise taxes imposed under this provision are payable on an annual,
monthly or other periodic basis as the Secretary of Treasury may
prescribe. The excise taxes imposed under this provision for employees
receiving premium tax credits are not deductible under §162 as an ordinary
and necessary business expense. The restrictions on assessment under
§6213 are not applicable to the excise taxes imposed under the provision.
Definition of Coverage
1. As a general matter, if an employee is offered affordable minimum
essential coverage under an employer-sponsored plan, then the individual
is ineligible for a premium tax credit and cost sharing reductions for health
insurance purchased through a State exchange.
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Unaffordable Coverage Defined
1. An unaffordable plan exists if an employee is offered minimum essential
coverage by their employer that is either unaffordable or that consists of
a plan under which the plan’s share of the total allowed cost of benefits is
less than 60 percent, but the employee is eligible for a premium tax credit
and cost sharing reductions, and only if the employee declines to enroll in
the coverage and actually purchases coverage through the exchange
instead.
2. Unaffordable is defined as coverage with a premium required to be paid
by the employee that is more than 9.5 percent of the employee’s household
income. This percentage of the employee’s income is indexed to the per
capita growth in premiums for the insured market as determined by the
Secretary of HHS. It is increased to 9.6 percent for 2015.
3. The employee must seek an affordability waiver from the Sate exchange
and provide information as to family income and the lowest cost employer
option offered to them. The State exchange then provides the waiver to the
employee. The employer penalty applies for any employee(s) receiving
an affordability waiver.
4. For purposes of determining if coverage is unaffordable, required salary
reduction contributions are treated as payments required to be made by the
employee. However, if an employee is reimbursed by the employer for
any portion of the premium for health insurance coverage purchased
through the exchange, including any reimbursement through salary
reduction contributions under a cafeteria plan, then the coverage is
employer-provided and the employee is not eligible for premium tax
credits or cost-sharing reductions. Therefore, an individual is not
permitted to purchase coverage through the exchange, apply for the
premium tax credit, and pay for the individual’s portion of the premium
using salary reduction contributions under the cafeteria plan of the
individual’s employer.
4-52

5. An employer must be notified if one of its employees is determined to be
eligible for a premium assistance credit or a cost-sharing reduction
because the employer:
a. does not provide minimal essential coverage through an employersponsored
plan, or
b. does offer such coverage but it is not affordable, or
c. the plan’s share of the total allowed cost of benefits is less than 60
percent.
6. The notice must include information about the employer’s potential
liability for payments under §4980H. The employer must also receive
notification of the appeals process established for employers notified of
potential liability for payments under §4980H. An employer is generally
not entitled to information about its employees who quality for the
premium assistance credit or cost-sharing reductions. However, the
appeals process must provide an employer the opportunity to access the
data used to make the determination of an employee’s eligibility for a
premium assistance credit or cost-sharing reduction, to the extent
allowable by law.
7. The Secretary is required to prescribe rules, regulations or guidance for
the repayment of any assessable payment (including interest) if the
payment is based on the allowance or payment of a premium tax credit or
cost-sharing reduction with respect to an employee that is subsequently
disallowed and with respect to which the assessable payment would not
have been required to have been made in the absence of the allowance or
payment.
Effect of Medicaid Enrollment
A Medicaid-eligible individual can always choose to leave the employer’s
coverage and enroll in Medicaid, and an employer is not required to pay a
penalty for any employees enrolled in Medicaid.
4-53

Example of Letters Sent To Employees When Employees Obtain Coverage Through The
Marketplace Exchange and Receives a §36B Premium Assistance Credit
s} wasl1111gton
r' healthplanfinder
.. • - :,, I J
Washiniiton Health Benefit Exchange
PO Box 657
Olympia WI\ 98507
t:;..!
04/06/2015
Application ID: XXXXXX
Subject - Affordable Health Coverage for Employees
Dear Employer:
This letter is to inform you that one of your employees. [name of employee], applied for health insurance
coverage through Washington Healthplanfinder and was determined eligible for a health insurance premium
tax credit.
This determination includes an assessment that your organization may not have offered minimum essential
coverage to the employee or the coverage offered may not be affordable.
Starting in 2015, employers with 50 or more full-time employees may owe an additional tax if they don't offer
affordable group health coverage ancl one of their employees is determined eligible for a health insurance
premium tax credit.
For more information, please visit http://www.irs.gov/Q11b/irs-droQ/n-13-45.PDF
How to Contact Washington Healthplanfinder
Contact us if you have any questions. Let us know if you want a free interpreter or free translations of this
letter or other documents we send you. Please contact us if you need help to apply for or access your health
care coverage due to a disability. You can contact us in any of the following ways:
• Online at http://www.wahealthplanfinder.org
• By email at CustomerSupport@wahbexchange.org
• By calling 1-855-WAFINDER (855-923-4633) and 855-627-9604;
• By Fax 360-841-7620;
• By mail at:
PO Box 946
Olympia WA 98507
Correspondence ID: EEOOG-20339971
Page 1 of;
4-54

Example of Washington State’s Health Benefit Exchange Administrative
Hearing Rights and Deadlines
You have the right to appeal a Washington Healthplanfinder eligibility decision. An
appeal is an administrative hearing before a Presiding Officer, which can be a useful
tool to resolve problems after all other attempts have failed. If you have question
about the appeals process please call 1-855-859-2512.
Eligibility decisions are things like:
• The amount of your Health Insurance Premium Tax Credit;
• The amount of your Cost Sharing Reduction: and
• As an employer, whether the insurance you provide your employees meets the
coverage requirements and whether that insurance coverage is affordable for your
employees.
• Our failure to provide timely notice of an eligibility decision also gives you the
right to appeal.
Requests for an appeal must be received within 90 calendar days of the date of the
decision being appealed.
• The quickest way to ask for a hearing is to ask us to send you a Hearing Request
form. You may contact us by email at appeals@wahbexchange.org, by mail (POB
1757, Olympia, WA 98507), over the phone (1-855-859-2912), or in person. Be
sure to give us:
• Your full name and birthdate:
• Your Healthplanfinder application identification number: and
• A daytime phone number.
For your convenience, the pre-hearing conference and hearing associated with
your appeal will be held over the phone. If you prefer, you may ask the Presiding
Officer for an in-person hearing.
• It's not required, but you have the right to have an attorney or personal
representative at the hearing.
• If you need a language interpreter, we will hire an interpreter at no cost to you.
4-55

• If you have a medical condition that requires an emergency or expedited hearing,
please call 1-855-859-2512 immediately. Be sure you have documentation that
shows why the regular appeals process could jeopardize your life or health; or
your ability to attain, maintain, or regain maximum function. You'll be asked to
provide that to us when you ask for a hearing.
• The eligibility determination you received through Healthplanfinder will not
change while you are awaiting the outcome of your appeal. However, if your
appeal changes your original eligibility determination. Your new eligibility will
be applied retroactively. Please note that any change in your eligibility may
require the Healthplanfinder to re-determine the eligibility status of other
members of your household.
• Appeals regarding Washington Apple Health (Medicaid) will be heard by the
Health Care Authority. Please contact the Health Care Authority at 1-855-623-
9357 or email at askmagi@hca.wa.gov.
For more information about appeals, go to www.wahbexchange.org/appeals.
4-56

P. Partial Chart Of Tax Provisions By Code Section
Code Section Description Effective Date
§36B Premium assistance credit 1/1/2014
§45R
Small business tax credit for employee health
insurance
1/1/2010
§105(b)
Employer-provided health coverage exclusion for
children under 27 years old
3/30/2010
§125 $2,500 cap on FSA contributions 1/1/2013
§125(f)(5) Small employer SIMPLE cafeteria plans 1/1/2011
§137 Employer provided adoption exclusion expanded 1/1/2010
§162(l)(1) Deductible health premiums for children under 27
years old for self-employed
3/30/2010
§213(a) 10% floor on Schedule A medical deduction 1/1/2013
§220(f)(4)
20% Penalty on nonqualified distributions Archer
MSA
1/1/2011
§223(d)(2) Qualified medical expenses paid from HSA 1/1/2011
§223(f)(4) 20% penalty on nonqualified HSA distributions 1/1/2011
§1401(b)(2) Additional HI on self-employment income 1/1/2013
§1411(a)(1) Imposition of HI on investment income 1/1/2013
§1411(a)(2) Imposition of HI on estates and trusts 1/1/2013
§3101(b)(2) Additional HI on wages 1/1/2013
§4980D
Failure to meet certain group health plan
requirements
9/23/2010
§4980H
Shared Responsibility for Employers Regarding
Health Coverage
1/1/2015
§5000A Penalty for individuals remaining uninsured 1/1/2014
§6013 Information disclosure by IRS 3/23/2010
Inclusion of employer sponsored health coverage 1/1/2011
§6651(a)(14)
reported on W-2
4-57

Q. Partial Chart Of Tax Provisions By Effective Date
Effective Date Description Code Section
1/1/2010 Employer provided adoption exclusion expanded §137
1/1/2010 Small business tax credit for employee health
insurance
3/30/2010 Employer-provided health coverage exclusion for
children under 27 years old
3/30/2010 Deductible health premiums for children under 27
years old for self-employed
9/23/2010 Failure to meet certain group health plan
requirements
§45R
§105(b)
§162(l)(1)
§4980D
1/1/2011 Small employer SIMPLE cafeteria plans §125(f)(5)
1/1/2011 20% penalty on nonqualified distributions Archer
MSA
§220(f)(4)
1/1/2011 Qualified medical expenses paid from HSA §223(d)(2)
1/1/2011 20% penalty on nonqualified HSA distributions §223(f)(4)
1/1/2011 Inclusion of employer sponsored health coverage
reported on W-2
§6651(a)(14)
1/1/2013 $2,500 cap on FSA contributions §125
1/1/2013 10% floor on Schedule A medical deduction §213(a)
1/1/2013 Additional HI on self-employment income §1401(b)(2)
1/1/2013 Imposition of HI on investment income §1411(a)(1)
1/1/2013 Imposition of HI on estates and trusts §1411(a)(2)
1/1/2013 Additional HI on wages §3101(b)(2)
1/1/2014 Premium assistance credit §36B
1/1/2014 Penalty for individuals remaining uninsured §5000A
1/1/2015 Shared Responsibility for Employers Regarding
Health Coverage
§4980H
4-58

Chapter IV - Review Questions
1. What is the maximum amount a single filer with income between 200% and
300% of the FPL would have to repay if he received excess premium tax credits?
a. $ 300
b. $ 600
c. $ 750
d. $1,250
Answer:
c. is correct. Under ACA, the amount received in premium credits is generally
based on the prior year’s income tax return. These amounts are reconciled when
individuals file tax returns for the actual year in which they received premium
credits. If a tax filing unit’s income decreases during the tax year, and the filer
should have received a larger tax credit, then this additional credit amount will
reduce the net tax liability for the year.
On the other hand, any excess amount that was overpaid in premium credits will
have to be repaid. However, ACA imposes limits on the excess amounts to be
repaid. For households with incomes below 400% FPL, the law includes specific
limits that apply to single and joint filers separately; these limits will be indexed
by inflation in future years.
If household income (Percentage of the Federal Poverty Level) is:
Joint Filers vs Single
Less than 200% $ 600 $ 300
At least 200% but less than 300% $ 1,500 $ 750
At least 300% but less than 400% $2,550* $1,250
Note: The applicable dollar limit for single filers is 50% of the joint filer limit.
• Indexed to inflation
4-59

2. A single taxpayer is not eligible for coverage under his employer plan. Instead he
purchased health insurance from a private company. The taxpayer’s income is
within the range to qualify for a Premium Tax Credit, he cannot be claimed as a
dependent by another person. Is he eligible for a Premium Tax Credit (PTC)?
Why? The taxpayer is
a. eligible for a PTC because he meets all the criteria for qualification.
b. not eligible for a PTC because the credit is available only for employees covered
under an employer sponsored health plan.
c. not eligible for a PTC because he purchased health insurance from a private
company.
d. not eligible for a PTC because the credit is available only to families using the
Married Filing Jointly filing status.
Answer:
a. is incorrect. The taxpayer meets all the criteria except he purchased his
insurance through a private company. To be eligible for the credit, the insurance
must be purchased through the government’s Health Care Marketplace.
b. is incorrect. To be eligible for the PTC an individual may not be eligible for
coverage under an employer plan.
c. is correct. Only insurance purchased from the government’s Health Care
Marketplace qualifies for the PTC.
d. is incorrect. Any filing status may be eligible for a PTC except Married Filing
Separately unless there is spousal abuse or abandonment involved.
3. An individual is considered to have minimum essential health coverage for a month
if they are covered for at least
a. one day.
b. three days.
c. five days.
d. the entire month.
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Answer:
a. is correct. An individual is considered to have minimum essential coverage for
the month as long as the individual is covered for at least one day during that
month.
b. is incorrect. Only one day of coverage is required. Not to be confused with the
exemption for short coverage gap provision under §5000A(e).
c. is incorrect. See answer a. above.
d. is incorrect. See answer a. above.
4-61

V. Review of Selected Provisions
from Tax Legislation of the
21 st Century Needed to
Prepare 2015 Tax Returns
and Beyond

V. Review of Selected Provisions From Tax Legislation of the 21 st Century Needed
to Prepare 2015 Tax Returns And Beyond
A. Congress Enacts Tax Provisions in a Non Tax Legislative Bill
1. On July 31, 2015, President Obama signed into law P.L. 114-41, the “Surface
Transportation and Veterans Health Care Choice Improvement Act of 2015”
(the ACT). Although primarily designed as a 3-month stopgap extension on
the Highway Trust Fund and related measure, the Act includes a number of
important tax provisions, such as revised due dates for Form 1065
Partnership and Form 1120 C Corporation returns. Also included are revised
extended due dates for many returns, and basis conformity rules for transfer
tax and income tax purposes.
2. The following includes background and revised due dates for partnership and
corporation returns:
a. Domestic corporations (including Subchapter S Corporations) with a
fiscal year must file their returns by the 15 th day of the 3 rd month after the
end of the tax year. As a result, corporations with a calendar year must file
their returns by March. 15 of the following year. The partnership return
has been due on the 15 th day of the 4 th month after the end of the
partnership’s tax year; therefore a partnership with a calendar year must
file returns by April 15 of the following year.
b. Since the partnership return date is the same as for individuals, those
taxpayers holding partnership interests often must file for an extension to
file their returns because their Schedule K-1’s don’t arrive until the last
minute.
5-1

3. There is now new law: In a major restructuring of entity return due dates,
effective generally for returns for tax years beginning after December 31,
2015; both partnerships and Subchapter S corporations will have to file their
returns by the 15 th day of the 3 rd month after the end of the tax year as
amended by Act Sec.2006 (a). As a result, those with a calendar year will have
to file by March 15 of the following year. §6072(b), now provides that as a
result, the filing deadline for partnership returns will be accelerated by one
month. The filing deadline for Subchapter S corporations stays at March 15
of the following year.
4. C corporations will have a new filing date which will be by the 15 th day of the
4 th month after the end of the tax year. As a result, those with a calendar year
will now have to file by April 15 of the following year and the filing deadline
for C corporations will be deferred for one month.
5. The new deadlines generally go into effect for returns for taxable years that
begin after December 31, 2015. Under a special rule, for C corporations with
fiscal years ending on June 30, the change won’t apply until tax years
beginning after December 31, 2025. (ACT Sec. 2006 (a)(3))
6. There are also revised statutory automatic extension rules for corporations
Under the prior law, §6081(b) provides for a 3-month automatic extension to
file corporate returns, but Reg §1.6081-3(a) states for a 6-month automatic
extension of time to file corporate returns.
7. New law, effective generally for returns for tax years beginning after
December 31, 2015, the 3-month automatic extension of time in §6081(b) is
changed to an automatic 6-month extension. For any return for a tax year of
a C corporation which ends on December 31 and begins before January 1,
2026, the automatic extension period is 5 months and not 6 months as it is
currently. For any return for a tax year of a C corporation which ends on June
30 and begins before January 1, 2026, the automatic extension period is 7
months and not 6 months as it is currently. §6081(b) as amended by Act
Section 2006(c)(1).
5-2

8. There are also revised extended due dates for many other returns and the
IRS regulations prescribe various extended due dates for taxpayers that file
for an extension.
Under the new law, effective for returns for tax years beginning after
December 31, 2015, Act Sec. 2006(b) directs IRS to modify its regulations to
provide that the maximum extension for:
a. The returns of partnerships filing Form 1065 will be a 6-month period
ending on September 15 for calendar year taxpayers (currently a 5-month
period).
b. The return of trusts filing Form 1041 will be a 5 ½-month period ending
on September 30 for calendar year taxpayers (currently a 5-month
period).
c. The returns of employee benefit plans filing Form 5500 will be an
automatic 3 ½-month period ending on November 15 for calendar year
plans (currently a 2 ½ month period).
d. The returns of organizations exempt from income tax filing Form 990
(series) will be an automatic 6-month period ending on November 15 for
calendar year filers (currently a 3-month period).
e. The return of organizations exempt from income tax that are required to
file Form 4720 returns of excise taxes will be an automatic 6-month
period beginning on the due date for filing the return, without regard to
any extensions (currently a 3-month period).
f. The return of trusts required to file Form 5227 (Split-Interest Trust
Information Return) will be an automatic 6-month period beginning on
the due date for filing the return without regard to any extensions
(currently a 3-month period).
g. The filing of Form 6069, Return of Excise Tax on Excess Contributions
to Black Lung Benefit Trust Under §4953 and Computation on §192
Deduction, will be an automatic 6-month period beginning on the due date
for filing the return, without regard to any extensions (currently a 3-month
period).
5-3

h. A taxpayer required to file Form 8870 (Information Return for Transfers
Associated With Certain Personal Benefit Contracts) will be an automatic
6-month period beginning on the due date for filing the return, without
regard to any extensions (currently a 3-month period).
9. The FinCEN report due date has also been revised. FinCEN Form 114 Report
of Foreign Bank and Financial Accounts, is used to report a financial interest
in or signature authority over a foreign financial account. The FBAR must be
received by the Department of the Treasury on or before June 30 th on the
year immediately following the calendar year being reported. The June 30
filing date may not be extended.
10. Under new law Act. Sec. 2006(b)(11), for returns for tax years beginning after
December 31, 2015, Treasury is directed to modify appropriate regulations to
provide that the due date of FinCEN Report 114 will be April 15 with a
maximum extension for a 6-month period ending on October 15 and with
provision for an extension under rules similar to the rules in Reg. §1.6081-5.
For any taxpayer required to file Form 114 for the first time, any penalty for
failure to timely request for, or file, an extension, may be waived by the
Treasury Secretary.
11. The new law also requires consistent basis reporting for transfer tax and
income tax purposes. The basis of property acquired form a decedent
generally is the fair market value (FMV) of the property on the decedent’s
date of death. Similarly, property included in the decedent’s gross estate for
estate tax purposes generally must be valued at its FMV on the date of death.
Although the same valuation standard applies to both provisions, pre-Act
law does not explicitly require that the recipient’s basis in that property be
the same as the value reported for estate tax purposes.
5-4

12. Required Basis Information for Inherited Assets: Executors of taxable
estates (i.e., those exceeding the exclusion amount) must notify the IRS and
the heirs as to the property’s value reported on Form 706 for inherited assets,
effective for Form 706 filed after 7/31/2015. However, this rule only applies
if the property increased the estate’s tax liability (reduced by allowable
credits) on its Form 706.
13. The beneficiaries must use the value reported on Form 706 as their income
tax basis. Generally this is the FMV on the date of the decedent’s death. An
exception applies for property considered Income in Respect of a Decedent
(IRD). It’s unclear whether executors must provide basis information for IRD
assets since they retain their cost basis for income tax purposes, rather than
being adjusted to FMV upon the decedent’s death. This new disclosure rule
provides for a 20% penalty for the underpayment due to inconsistent
reporting. IRC §6035(a) and §1014(f).
Tax Professional Note: After the legislation was passed the IRS issued
Notice 2015-37 which is enclosed for your reference.
Part III – Administrative, Procedural, and Miscellaneous
Due Dates for Compliance with §2004 of H.R. 3236, Consistent Basis Reporting
Between Estate and Person Acquiring Property from Decedent
Notice 2015-57
SECTION 1: PURPOSE
On July 31, 2015, the President of the United States signed H.R. 3236, Surface
Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L.
114-41), into law. Section 2004 of H.R. 3236 enacted §1014(f) and §6035. For
each statement required by §6035 to be filed with the Internal Revenue Service
(IRS) or furnished to a beneficiary before February 29, 2016, this notice delays
until February 29, 2016, the due date for filing or furnishing that statement. This
notice applies to executors of estates of decedents and to other persons who are
required under §6018(a) or (b) to file a return if that return is filed after July 31,
2015.
5-5

SECTION 2: BACKGROUND
§1014(f) provides rules requiring that the basis of certain property acquired from
a decedent, as determined under §1014, may not exceed the value of that property
as finally determined for federal estate tax purposes, or if not finally determined,
the value of that property as reported on a statement made under §6035. §6035
imposes new reporting requirements with regard to the value of property included
in a decedent's gross estate for federal estate tax purposes.
§6035(a)(1) provides that the executor of any estate required to file a return under
§6018(a) must furnish, both to the Secretary and the person acquiring any interest
in property included in the decedent's gross estate for federal estate tax purposes,
a statement identifying the value of each interest in such property as reported on
such return and such other information with respect to such interest as the
Secretary may prescribe.
§6035(a)(2) provides that each person required to file a return under §6018(b)
must furnish , both to the Secretary and each other person who holds a legal or
beneficial interest in the property to which such return relates, a statement
identifying the information described in §6035(a)(1).
§6035(a)(3)(A) provides that each statement required to be furnished under
§6035(a)(1) or (a)(2) shall be furnished at such time as the Secretary may
prescribe, but in no case at a time later than the earlier of:
(i) the date which is 30 days after the date on which the return under §6018
was required to be filed (including extensions, if any) or
(ii) the date which is 30 days after the date such return is filed.
§6035(b) authorizes the Secretary to prescribe such regulations as necessary to
carry out §6035. §7805(a) provides generally that the Secretary shall prescribe all
needful rules and regulations for the enforcement of this title, including all rules
and regulations as may be necessary by reason of any alteration of law in relation
to internal revenue. §7805(b)(2) provides that regulations may apply
retroactively, if they are issued within 18 months of the date of the enactment of
the statutory provision to which they relate.
5-6

§6081(a) provides that the Secretary may grant a reasonable extension of time for
filing any return, declaration , statement, or other document required by this title
or by regulations. Except in the case of taxpayers who are abroad, no such
extension shall be for more than 6 months.
SECTION 3: GUIDANCE
For statements required under §6035(a)(1) and (a)(2) to be filed with the IRS or
furnished to a beneficiary before February 29, 2016, the due date under
§6035(a)(3) is delayed to February 29, 2016. This delay is to allow the Treasury
Department and IRS to issue guidance implementing the reporting requirements
of §6035. Executors and other persons required to file or furnish a statement under
§6035(a)(1) or (a)(2) should not do so until the issuance of forms or further
guidance by the Treasury Department and the IRS addressing the requirements of
§6035.
The Treasury Department and the IRS expect to issue additional guidance to assist
taxpayers with complying with §1014(f) and §6035. The Treasury, Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington,
DC 20044, or sent electronically, via the following_ e-mail address:
Notice.comments@irscounsel.treas .gov.
SECTION 4: EFFECTIVE DATE
This notice is effective on August 21, 2015. This notice applies to executors of
the estates of decedents and to other persons who are required under. §6018(a) or
(b) to file a return if that return is filed after July 31, 2015.
DRAFTING INFORMATION
The principal author of this notice is Theresa Melchiorre of the Office of the
Associate Chief Counsel (Passthroughs & Special Industries). For further
information regarding this notice contact Theresa Melchiorre at (202) 317-6859
(not a toll-free call).
5-7

B. §25A Hope Scholarship Credit Gets Some Temporary Modifications
1. The Hope Scholarship Credit was created with the 1997 Tax Reform Act and
allowed taxpayers to take a maximum credit of $1,500 for the first two years
of each student’s post-secondary education tuition and fees.
2. The 2001 Tax Act provided some indexing provisions which began in 2006
and brought the maximum credit up to $1,800 and indexed the AGI phase-out
limitations.
3. The 2009 Recovery Act made some temporary changes for 2009 and 2010
including:
a. Name change,
b. Increased AGI phase-out amounts,
c. Increased credit amount,
d. Length of credit use,
e. Refundability, and
f. Course materials.
4. §25A(i) provided that the Hope Scholarship Credit shall be re-named the
“American Opportunity Tax Credit” for tax years 2009 and 2010. As a result
of the American Taxpayer Relief Act of 2012 these provisions have been
extended through December 31, 2017.
5. §25A(a)(1) increases the amount of the credit to be an amount equal to the
sum of:
a. 100% of qualified tuition and related expenses paid by the taxpayer up to
the first $2,000 plus,
b. 25% of such expenses paid up to the next $2,000.
As a result this means that the maximum credit is $2,500.
5-8

6. The qualified tuition and related expenses are for education furnished to an
eligible student during any academic period beginning in such taxable year.
The credit is allowed for expenses paid in 2015 for an academic period
beginning in 2015 or in the first three months of 2016.
7. §25A(i)(2) provides that the credit is allowed for the first 4 years of postsecondary
education.
8. §25A(i)(3) provides that qualified tuition and related expenses now includes
required course materials as well as tuition and fees.
9. §25A(i)(4) provides an increase in the AGI phase-out threshold limitation.
The credit is reduced by the amount which bears a ratio to such credit as the
excess of:
a. The taxpayer’s modified AGI, over
b. $80,000 ($160,000 married joint), bears to $10,000 ($20,000 married
joint).
Filing Status
Phase-Out
Begins
Phase-Out
Ends
Range
Single, Head of Household $ 80,000 $ 90,000 $ 10,000
Married Joint $160,000 $180,000 $ 20,000
Tax Professional Note: These amounts are not indexed to inflation.
10. §25A(i)(5) provides that the credit is allowed against the AMT.
11. §25A(i)(6) provides that 40% of the credit may be refundable.
EXAMPLE #1: A married couple is eligible for a maximum §25A
American Opportunity Tax Credit of $2,500 and their modified AGI is
$160,000 or below. The taxpayers have other personal credits that are
allowed to be used before the education credit and their net tax liability is
now zero. Under the §25A(i)(6) provision they are permitted to have a
refundable credit of 40% of the $2,500 maximum credit and as a result can
claim a $1,000 refundable credit which is calculated as follows:
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§25A Maximum American Opportunity Tax Credit .............................................................. $2,500
§25A(i)(6) Refundable portion .................................................................................................. 40%
Maximum refundable credit ................................................................................................... $1,000
EXAMPLE #2: Same as above except now the modified AGI is $165,000.
The first issue is calculating the phase-out of the maximum $2,500 credit
which is calculated as follows:
Modified AGI $165,000
Less: Phase-out threshold (160,000)
Excess AGI $ 5,000
Excess AGI x Maximum = Amount of credit
Phase-out range §25A credit not allowed
$5,000 x $2,500 = $625
$20,000
§25A Maximum Credit $ 2,500
Credit not allowed (625)
Credit available $ 1,875
§25A(i)(6) provision 40%
Refundable credit Form 1040, page 2, line 66 $ 750
Tax Professional Reminder: Once the taxpayer’s modified AGI is greater
than $90,000 ($180,000 married joint) the refundable portion is completely
phased-out.
C. §24(D)(4) Refundable Portion of Child Tax Credit
1. The §24 Child Tax Credit (CTC) was created as part of the 1997 Tax Reform
Act which allowed a maximum credit of $500 for a qualifying dependent child
under age 17.
2. The 2001 Tax Act increased the credit to $1,000. This provision has been
made permanent by the American Taxpayer Relief Act of 2012.
3. §24(b)(2) provides that the credit is subject to phase-out provisions based on
filing status.
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4. §24(d) provides that a portion of the CTC is refundable (Form 8812) for
certain taxpayers through December 31, 2017 to the extent of:
a. 15% of the taxpayer’s earned income in excess of $3,000, or
b. the taxpayer has 3 or more qualifying children.
Tax Professional Education Point: The refundable CTC was created in
order to provide that those working taxpayers who did not receive all of their
payroll tax money back through the EIC have the opportunity to receive it
through the CTC. IRS Form 8812 is used to calculate the refundable CTC.
The credit is reported on Form 1040, page 2, line 67 as a refundable credit.
EXAMPLE #1: A married couple filing a joint return have earned income of
$12,550 and two qualifying children resulting in a zero tax liability and no
offsetting use of the $2,000 of CTC. The law provides the opportunity for
them to have a refundable CTC as follows:
Form 8812:
Earned income $12,550
Threshold amount (3,000)
Excess available for refundable CTC $ 9,550
Credit percentage x 15%
Maximum refundable CTC $ 1,433
Maximum CTC available (2 x $1,000) ( 2,000)
Amount of CTC lost ($ 567)
As illustrated in the examples above the maximum additional refundable
CTC that any taxpayer can claim in 2015 is $1,433.
EXAMPLE #2: Same as above except now the taxpayers have earned income
of $18,550.
Form 8812:
Earned income $18,550
Threshold amount (3,000)
Excess available for refundable CTC $15,550
Credit percentage x 15%
Maximum refundable CTC $ 2,333
Maximum CTC available (2 x $1,000) (2,000)
Amount of CTC lost $ N/A
5-11

EXAMPLE #3: Same as above except now the taxpayers have only one
qualifying child. The taxpayers can have as little as $9,667 of earned income
with no income tax liability and claim the full $1,000 refundable CTC as
follows:
Form 8812:
Earned income $9,667
Threshold amount (3,000)
Excess available for refundable CTC $6,667
Credit percentage x 15%
Maximum refundable CTC $1,000
Maximum CTC available (2 x $1,000) (1,000)
Amount of CTC lost ($ -0- )
Tax Professional Research Recommendation: For more information refer
to IRS Publication 972: Child Tax Credit
D. §32(B)(3)(A) Earned Income Credit Percentage for Families With Three or
More Qualifying Children
1. §32 provides that specified low-income earners are allowed to claim a
refundable earned income tax credit (EITC) which is calculated by
multiplying a specified credit percentage (based on the number of qualifying
children) times the taxpayer’s earned income. The earned income has a
maximum dollar amount on which the credit is calculated indexed annually to
inflation. The credit is 40% of the earned income.
2. Prior to the 2009 Recovery Act, the maximum number of qualifying children
allowed to qualify for the EITC was limited to two or more.
3. §32(b)(3)(A) continues to provide a special rule for 2013-2017 and states that
there is an increased credit percentage for 3 or more qualifying children and
that in the case where a taxpayer has 3 or more qualifying children the credit
is 45% of the earned income.
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Tax Professional Note: The Act does not provide any increase in the
maximum earned income dollar amount for families with three or more
children meaning that it is the same as for two or more children.
EXAMPLE: A married couple with 2 or more children or 3 or more children
with the maximum earned income calculate their maximum EITC as follows:
2 Qualifying
Children
3 or More
Qualifying
Children
Increase
Earned income $13,650 $13,650 N/A
EITC percentage 40% 45% 5%
Maximum EITC $ 5,460 $ 6,143 $683
E. Alternative Minimum Tax (AMT) Issues
1. For regular income tax purposes the tax brackets, the standard deductions and
personal exemptions are all indexed for inflation. Prior to 2013 the AMT
brackets and the AMT exemptions were not indexed for inflation.
2. Additionally, the continued reductions in the regular income tax rates further
narrow the differences between regular and AMT tax liabilities. The effects
of the AMT are mitigated through an increase in the AMT basic exemption.
3. In addition, in 2015 the AMT imposes a flat rate of 26% on the first $185,400
of AMT taxable income for all taxpayers with the excess amount taxed at a
flat rate of 28%. For taxpayers filing married separately the 26% is imposed
on the first $92,700 with the excess taxed at 28%. In 2016 these amounts are
increased to $186,300 for joint returns and $93,150 for all others.
Tax Professional Note: If the taxpayer is receiving the benefits of the
preferential long-term capital gain rates on long-term capital gain transactions
and qualified dividends, then those amounts are also taxed at the same
preferential rates for AMT purposes.
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AMT Exemption Amounts for 2016 vs 2015
Filing Status 2016 2015 Increase
Kiddie Tax filing status $ 7,400 $ 7,400 $ -0-
Married couples filing a joint return
and qualifying widow(er)s
Single filers and heads of
households
$83,800 $83,400 $400
$53,900 $53,600 $300
Married filing separately $41,900 $41,700 $200
Estates & Trusts $23,900 $23,800 $100
4. The rules concerning nonrefundable personal credits are extended. The
American Taxpayer Relief Act of 2012 has made the §26(a)(2) AMT offset
rule permanent. Therefore, the personal nonrefundable tax credits allowed to
decrease the regular income tax continued to decrease the AMT to the extent
of the tax liability.
§55(d)(3) provides that the phase-out of the AMT exemption amounts are as
follows for 2015 and 2016 based on filing status:
2015 2016
Filing Status Begins Ends Phase-Out
Range
Begins Ends Phase-Out
Range
Married joint $158,900 $333,600 $174,700 $159,700 $335,200 $175,500
Single & head
of household
Married filing
separately
$119,200 $214,400 $ 95,200 $119,700 $215,600 $ 95,900
$ 79,450 $166,800 $ 87,350 $ 79,850 $167,600 $ 87,750
Estates & trusts $ 79,450 $ 95,200 $ 15,750 $ 79,850 $ 95,600 $ 15,750
5-14

F. Pension Plan Issues: Employer Deferral Plans
Pension Plan Issues:
Employer Deferral Plans
Statutory limits for
contributions to §401(k),
§403(b), §457 and SIMPLE plans
§401(k), §403(b)
and §457:
Special age 50+ catch-up
contributions
§401(k), §403(b), and §457:
$17,500 in 2013 $5,500 in 2013
$17,500 in 2014 $5,500 in 2014
$18,000 in 2015 $6,000 in 2015
$ in 2016 $ in 2016
SIMPLE Plans:
SIMPLE Plans:
$12,000 in 2013 $2,500 in 2013
$12,000 in 2014 $2,500 in 2014
$12,500 in 2015 $3,000 in 2015
$ in 2016 $ in 2016
1. The law provides statutory contribution limits for pension plans that have socalled
elective deferrals.
2. These are generally amounts that an individual elects to contribute to a
retirement plan in lieu of receiving current taxable compensation.
3. The most common of these are contributions to:
a. §401(k) plans,
b. §403(b) plans,
c. §408 SIMPLE plans,
d. §408 salary-reduction SEPs, (SARSEP’s can no longer be established as
new plans)
e. §457 plans.
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4. For §401(k), §403(b), §457 and salary-reduction SEP plans:
a. The maximum allowable deferral contribution is $18,000 in 2015 and
$ ____ in 2016;
b. The contribution will be increased due to the inflation adjustments in $500
increments; and
c. For §401(k), §403(b), and §457 plans, the additional allowable
contribution for taxpayers age 50 and older is $6,000 in 2015 and $_____
in 2016.
5. For SIMPLE plan contributions:
a. The maximum deferral amount is $12,500 in 2015 and $____ in 2016;
b. Just like IRA contributions, a special catch-up provision allows
individuals age 50 or older to make additional elective deferrals; and
c. For SIMPLE plan contributions, the catch-up amount is $3,000 in 2015
and $_____ in 2016.
Tax Professional Research Recommendation: Refer to IRS Publications
560 - Retirement Plans for Small Business/SEP, SIMPLE and Qualified Plans,
and Publication 571 - Tax Sheltered Annuity Plans (§403(b) Plans) for
Employees of Public Schools and Certain Tax-Exempt Organizations.
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G. Employer Deferral Plans and §401(K); §403(B) and §457(B) Roth Elections
• Option to treat §401(k), §403(b), §457(b) contributions as
Roth contributions
• Distributions subjected to Required Minimum Distributions
Rules (RMD)
1. In 2015, the contribution limit the elective deferrals to §401(k), §403(b), and
§457(b) plans is $18,000 and $__________? in 2016.
2. The catch-up rule for taxpayers age 50 or older also applies. It is increased to
$6,000 for 2015 and $____________ for 2016.
3. The law provides that participants in certain §401(k), §403(b), and §457(b)
plans can elect to have all or a portion of their deferral amount treated as
Roth contributions. In order to do so, a separate account must be set up by
the plan sponsor.
4. Deferrals treated as Roth contributions will be included in the individual’s
income in the year of deferral. Form W-2 Box 14 indicates an elected Roth
contribution “AA” for §401(k) plan, “BB” for a §403(b), plan and “EE” for
§457(b).
TAX PROFESSIONAL ALERT: Qualifying distributions from the
account will be tax-free, but regulations impose the required minimum
distribution rules (RMD) at age 70½.
5-17

H. Profit Sharing Plans
Profit-Sharing Plans
Maximum deductible contribution percentage: 25%
Compensation limit: $265,000 in 2015 and $ in 2016
Contribution limit: $53,000 in 2015 and $ in 2016
1. The law provides several favorable provisions regarding contributions to
employer profit-sharing plans, SEPs and Keoghs.
2. The maximum allowable contribution percentage is 25% of compensation.
3. A profit-sharing plan can have a 25% contribution rate. Taxpayers can benefit
from a 25% rate without having to use a plan like a money purchase pension
plan that requires mandatory contributions each year.
4. In 2015 the maximum allowable profit-sharing contribution for a participant,
including a self-employed person, is $53,000. In 2016 the amount is $ .
Tax Professional Research Recommendation: Refer to IRS Publication 560
- Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans)
I. §408(d)(8) Individual Retirement Accounts and Qualified Charitable
Distributions
Tax Professional Expiration Notice: This provision expired on 12/31/2014 and
is awaiting legislation.
1. §408(a)(6) provides that the required minimum distribution (RMD) rules
under §401(a)(9) for qualified retirement plans must be applied to traditional
IRAs.
2. §170 provides that an individual taxpayer may be eligible to deduct
contributions made to charitable organizations described under
§170(b)(1)(A).
3. §408(d)(1) provides a general rule for the tax treatment of distributions that
any amount paid or distributed out of an individual retirement plan shall be
included in gross income by the payee or distributee in the manner provided
under the annuity rules of §72.
5-18

Tax Professional Education Point: If a taxpayer made nondeductible
contributions to a traditional IRA, then a portion of each of the distributions
would be nontaxable until all the nondeductible contributions have been
recovered. This amount is calculated by multiplying the ratio of nondeductible
contributions over the account balance by the amount of the total distribution
during the tax year.
Nondeductible Contribution X Distribution
Account Balance
= Exclusion Amount
4. §408(d)(8)(A) provides a special rule for distributions for charitable
purposes. It provides that in general, the aggregate amount of qualified
charitable distributions with respect to a taxpayer made during any taxable
year which does not exceed $100,000 shall not be includible in gross income
of such taxpayer for the tax year.
Tax Professional Note: The $100,000 exclusion amount is for each
individual IRA owner, therefore for the purpose of married taxpayers filing
jointly both taxpayers are permitted to make the distribution from their
individual accounts per IRS Notice 2007-7 Sec. IX, Q&A 34. (2007-5 IRB
395).
5. §408(d)(8)(B) defines a qualified charitable distribution as:
a. Any distribution from an IRA plan which is made directly by the trustee
to a §170(b)(1)(A) charitable organization; and
b. The distribution is made on or after the date the individual for whose
benefit the plan is maintained has attained age 70 ½.
In other words the taxpayer is subject to the required minimum
distribution rules.
NOTE: Distributions to a §509(a)(3) private foundation and a §4966(d)(2)
donor advised fund will not be a qualified charitable distribution.
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TAX PROFESSIONAL ALERT: The rules are specific to direct transfers
by the IRA trustee to the qualifying charitable organization; therefore, a
distribution to the taxpayer who then transfers the IRA to the charity does
not receive an exclusion. While the charitable deduction will be allowable
the inclusion will increase the taxpayer’s adjusted gross income which
triggers issues with other provisions.
Tax Professional Reminder: The exclusion from income does not apply to
distributions made from §408(k) SEPs, or §408 SIMPLEs.
6. §408(d)(8)(D) provides that the annuity rules of §72 will not apply if the
aggregate qualifying distribution is not greater than $100,000 and that the
entire distribution will be deemed to be income first. The committee reports
provide examples.
EXAMPLE: An individual who is over 70½ years old has a traditional IRA
of $100,000. $80,000 is deductible contributions and growth. $20,000 is
nondeductible contributions. The trustee made a direct distribution to a
qualifying charitable organization of $80,000. Under the annuity rules of §72
a portion of the distribution is a nontaxable return of nondeductible
contributions.
Current year distribution $80,000 x Nondeductible contribution $ 20,000
Total value $100,000
= $16,000 return of nondeductible contribution
Total Distribution $80,000
Less: Nondeductible Portion (16,000)
Taxable Portion §72 $64,000
However, under §408(d)(8)(D) the entire distribution is deemed to consist of
income first and therefore, the entire $80,000 is treated as a taxable income
and the entire $80,000 is deemed to be a qualifying charitable deduction.
As a result nothing is includible in income and the charitable contribution is
not deducted. Also, the remaining $20,000 in the IRA is deemed to be Don’s
$20,000 of nondeductible contributions and therefore, will not be taxed
when distributed.
5-20

Tax Professional Note: An owner of an IRA who makes an IRA qualified
charitable distribution in an amount which is at least the amount of the RMD
for that tax year is deemed to have satisfied the RMD required under
§408(a)(6) and will not be required to take another RMD.
7. §408(d)(8)(E) provides that a charitable contribution shall not be taken for
the tax year of the qualifying distribution.
No double dipping allowed!
8. On January 10, 2007 IRS issued Notice 2007-7 (2007-5 IRB) which
provides that if a check from an IRA made payable to an eligible charitable
organization is delivered by the IRA owner to the organization, then the
payment is treated as a direct payment to the charity.
EXAMPLE: Ennis T. Pea’s IRA plan administrator provides a checkbook to
IRA owners. Ennis wrote a check for $5,000 from this IRA and delivered it
directly to his charity. This transaction qualifies for the exclusion.
9. The notice also states that the IRA may distribute a payment to the charity
even if the taxpayer had an outstanding pledge to the charity.
TAX PROFESSIONAL RED ALERT: In order for the transfer to be
excludible the charitable contribution must be entirely deductible which
means that the donor must obtain sufficient substantiation by the filing date
of the return to support the exclusion.
Effective Date: The Tax Increase Prevention Act of 2014 (P.L. 113-295),
signed into law on December 19, 2014, extended this provision only through
December 31, 2014. Therefore this provision has expired as of this writing.
J. §408(A)(e) Allows More Rollovers to Roth IRA Plans
1. Prior to the 2006 Pension Protection Act, a taxpayer could only roll over a
distribution from a traditional IRA or a Roth IRA in order to have a “qualified
rollover contribution” to a Roth IRA.
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2. Under the provisions of the 2006 Pension Protection Act beginning in 2008
§408A(e)(2)(B) allows rollover distributions from:
a. Qualified plans,
b. §403(b) plans, and
c. §457 governmental plans.
3. The income will be includible in gross income, but the §72(t) penalty will not
apply.
4. Under the provisions of the Worker, Retiree and Employer Recovery Act
of 2008, distributions will also be permitted to be eligible for rollovers to Roth
IRAs if the distribution is from a “designated Roth account.”
5. A “designated Roth account” is a separate account under a qualified cash or
deferred arrangement (CODA) in a qualified plan or a §403(b) plan:
a. to which “designated Roth contributions” are permitted to be made in lieu
of elective deferral contributions, and
b. which satisfies the qualified Roth contribution program requirements
which include:
i. establishing a separate designated Roth account for each employee;
and
ii.
rules concerning allocations and forfeitures.
6. A distribution from a designated Roth account to a Roth IRA is a qualified
rollover and a tax-free transaction.
K. §402(l) Limited Exclusion from Government Pension Plans Available for
Retired Public Safety Officers (PSO)
1. The general rule of §72 provides that distributions from a qualified retirement
plan are includible in gross income except for the portion which represents a
return of the recipient’s investment in the plan.
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2. Prior to the 2006 Pension Act, the law did not provide for any exclusion for
amounts distributed from the plan that was used to pay for health and longterm
care insurance of public safety officers.
3. As a result, the 2006 Pension Act §402(l)(1) provides a general rule that in
the case of an employee who is an eligible retired public safety officer who
makes an election with respect to any taxable year, gross income does not
include any distribution from an eligible retirement plan to the extent that the
aggregate amount of the distributions does not exceed the amount paid on
behalf of such employee for qualified health insurance premiums of the
employee, spouse or dependents (as defined under §152) for such taxable year.
4. §402(l)(2) provides that the amount which may be excluded from gross
income for the taxable year shall not exceed $3,000.
5. §402(l)(4)(A) defines an “eligible retirement plan” as a governmental plan
described in:
a. §403(a) qualified annuity plan;
b. §403(b) tax sheltered annuity plans;
c. §414(d) governmental plans; or
d. §457(b) eligible deferred compensation plan.
TAX PROFESSIONAL ALERT: IRS Notice 2007-07 states that the
eligible government plan is not required to offer such election.
6. §402(l)(4)(B) defines the term “eligible retired public safety officer” to mean
an individual who, by reason of disability or has attained normal retirement
age, has separated from service as a public safety officer with the employer
who maintains the eligible retirement plan from which distributions subject to
the rules are made.
TAX PROFESSIONAL ALERT: The exclusion is not available to surviving
spouses or dependents after the public safety officer dies. (IRS Notice 2007-
7).
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7. §402(l)(4)(C) defines a “public safety officer” to have the same meaning given
under §1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of
1968. This would, therefore, include law enforcement officers, firefighters,
rescue squad workers and ambulance crew members. IRS Notice 2007-7 also
includes chaplains.
Tax Professional Note: New law. Effective for distributions made after
December 31, 2015, the category of eligible governmental workers who can
qualify for the §72(t)(10) exception is broadened to include specified federal
law enforcement officers, customs and border protection officers, federal
firefighters, and air traffic controllers who have similarly reached age 50
(§72(t)(10)(B), as amended by Act Sec. 2(a)), and the types of plans from
which distributions eligible for the exception can be made is broadened to
include defined contribution plans and other types of governmental plans.
(§72(t)(10)(A), as amended by TPA Act Sec. 2(b)). Additionally, the fact
that a Federal public safety worker takes such newly permissible
distributions will not constitute a modification of substantially equal periodic
payments under §72(t)(4)(A)(ii). (§72(t)(4)(A)(ii), as amended by TPA Sec.
2(c)).
8. §402(l)(4)(D) defines “qualified health insurance premiums” as premiums for
coverage by an accident or health insurance plan or qualified long-term care
contract for:
a. the eligible retired public safety officer,
b. his/her spouse, and
c. dependents.
Tax Professional Note: The committee report states that the premiums do not
have to be paid to a plan that is sponsored by the employer.
9. §402(l)(5) provides that a direct payment to the insurer is required from the
eligible retirement plan.
10. §402(l)(6)(A) provides that the election is made by an employee after
separation from service.
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Tax Professional Note: There is no time limit after separation of service for
making the election.
11. §402(l)(7) provides that no double dipping will be permitted. Therefore, no
§213 medical deduction will be allowed on Schedule A and no deduction will
be allowed under §162(l) for self-employed medical premiums for
determining AGI.
EXAMPLE: Ennis T. Pea is a retired Public Safety Officer (PSO) who
acquires health insurance coverage for his family and has the premiums
deducted from his government pension. The total premium is $4,500 and his
gross pension in Box 1 of Form 1099-R is $90,000. The total distribution of
$90,000 is required to be reported on line 16a of Form 1040 and next to line
16b (“PSO”) should be entered indicating his status and the net pension
includible in Ennis’s gross income is only $87,000. The excess medical
premium of $1,500 is includible with any additional medical expenses on
Schedule A subject to the 10% AGI threshold if Ennis is not age 65 and 7
1/2% AGI limitation if he is 65 or older in 2013-2016. Note that after Ennis’
death his surviving spouse is not allowed to continue this $3,000 exclusion.
L. §401(a)(36) Distributions During Working Retirement
1. §401(a)(36) provides that a qualified trust may be able to distribute pension
benefits to an employee who:
a. has attained age 62, and
b. who has not separated from employment at the time of such distribution.
EXAMPLE: Ennis T. Pea is age 62 and he would like to take a distribution
from his employer’s pension plan in 2015 in order to buy a boat and pay down
his mortgage before he retires from his job three years from now. This
distribution is includable in his gross income but there is no penalty and he
does not have to take a series of distribution in subsequent years.
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2. For purposes of ERISA rules, this qualified trust is an employee pension
benefit plan fund, or program established or maintained by an employer or an
employee organization or by both that, by its express terms, or surrounding
circumstances:
a. provides retirement income to employees; or
b. results in a deferral of income by employees for periods extending to the
termination of covered employment or beyond, regardless of the method
of calculating contributions made to, or benefits under the plan or the
method of distributing benefits from the plan.
3. These pension plans under ERISA are generally subject to:
a. participation and vesting requirements,
b. funding rules, and
c. ERISA fiduciary responsibility provisions.
M. §414(d) Distributions to Qualified Public Safety Employees
1. §72(t)(10)(A) provides that in the case of a distribution to a qualified public
safety employee from a governmental plan under §414(d) who after attaining
age 50 has separated from service, will not be assessed the 10% early
withdrawal penalty.
2. §72(t)(10)(B) defines a qualified public safety employee as any employee of
a state or political subdivision of a state who provides police protection, firefighting
services, or emergency medical services for any area within the
jurisdiction of such state or political subdivision.
Tax Professional Note: New law. Effective for distribution made after
December 31, 2015, the category of eligible governmental workers who can
qualify for the §72(t)(10) exception is broadened to include: specified
federal law enforcement officer, customs and border protection officers,
federal firefighters, and air traffic controllers who have similarly reached age
50 (§72(t)(10)(B), as amended by Act Sec. 2(a)), and the types of plans from
which distributions eligible for the exception can be made is broadened to
include defined contribution plans and other types of governmental plans.
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(§72(t)(10)(A), as amended by TPA Act Sec. 2(b)). Additionally, the fact
that a Federal public safety worker takes such newly permissible
distributions will not constitute a modification of substantially equal periodic
payments under §72(t)(4)(A)(ii). (§72(t)(4)(A)(ii), as amended by TPA Sec.
2(c)).
EXAMPLE: Ennis T. Pea is age 50 and retires from the police department on
November 1, 2015. He becomes a tax professional and receives a distribution
of $25,000 from his pension to carry him until tax season begins. The $25,000
reported to him in Box 1 of Form 1099-R is includible in his gross income
but not subject to the 10% §72(t) penalty for early withdrawal of his pension
even though he has not reached age 59½ at the time of the distribution.
TAX PROFESSIONAL ALERT: The exception does not apply to amounts
distributed from an IRA or other qualified plan which had been received as a
rollover from a governmental defined benefit plan (IRS Notice 2007-7).
N. §108 Home Mortgage Debt Relief Expired After 12/31/2014
Tax Professional Expiration Notice: As of this writing this provision has
expired.
1. §108(a)(1)(E) provides that principal residence debt discharged on or after
January 1, 2007 and before January 1, 2014, is excluded from gross income.
2. The law provides that gross income does not include any discharge of
qualified principal residence indebtedness. A taxpayer can exclude up to $2
million of mortgage debt forgiveness on their principal residence.
Tax Professional Note: The committee report states that this exclusion
applies whether there is a restructure of debt or the taxpayer loses the
residence in a foreclosure.
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EXAMPLE #1: Before the 2007 Mortgage Relief Act there were no special
rules applicable to discharge of indebtedness of acquisition debt on a
taxpayer’s principal residence. The taxpayer was not in bankruptcy and was
not insolvent and had a property subject to a $200,000 mortgage debt for
which he was personal liability. The creditor foreclosed and the home was
sold for $180,000 in satisfaction of the debt. As a result the taxpayer had
$20,000 of discharge of indebtedness which was included in ordinary income.
The result would have been the same if the creditor had also restructured the
loan and reduced the debt to $180,000.
EXAMPLE #2: As a result of the 2007 Mortgage Relief Act the taxpayer
does not have to include the $20,000 in income because of the exclusion rule.
The result would be the same whether the creditor restructures the loan and
reduces the principal amount to $180,000 or forecloses on the property and
satisfies the $200,000 debt with an $180,000 transaction.
3. §108(h)(4) provides that if any loan is discharged, in whole or in part, and
only part of the loan is qualified principal residence indebtedness, then the
mortgage forgiveness exclusion applies only to the amount discharged that
exceeds the amount of the loan (as determined immediately before the
discharge) which is not qualified principal residence indebtedness.
EXAMPLE: The taxpayer’s principal residence is secured by a debt of
$600,000, of which $400,000 is qualified principal residence indebtedness. If
he residence is sold for $300,000 and $300,000 of debt is discharged, only
$100,000 of the debt discharged may be excluded as follows:
Total debt ..................................................................................................................... $ 600,000
Qualified principal residence debt .................................................................................(400,000)
Nonqualified debt .........................................................................................................$ 200,000
Total debt forgiveness ...................................................................................................(300,000)
Exclusion for home mortgage debt relief .................................................................... $(100,000)
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The remaining $200,000 of nonqualified debt may qualify in whole or in part
for one of the other exclusions (e.g., the insolvency exclusion). The taxpayer
must report the transaction on Form 982 Reduction of Tax Attributes Due to
Discharge of Indebtedness (and Section 1082 Basis Adjustments). The
taxpayer will also be issued Form 1099-C Cancellation of Debt by the
creditor by no later than January 31 following the year of debt forgiveness.
4. §108(h)(2) provides that qualified principal residence indebtedness is
acquisition indebtedness under §163(h)(3)(B) with respect to the taxpayer’s
principal residence, with a $2 million limit ($1 million for married individuals
filing separately).
5. §108(h)(5) provides that “principal residence” has the same meaning as under
the home sale exclusion rules of §121.
Tax Professional Reminder: Acquisition indebtedness of a principal
residence is indebtedness, incurred in the acquisition, construction, or
substantial improvement of an individual’s principal residence that is
secured by the residence. It includes refinancing of debt to the extent the
amount of the refinancing does not exceed the amount of the refinanced
indebtedness. (Joint Committee on Taxation JCX-86-07)
6. §108(h)(1) provides that the basis of the taxpayer’s principal residence is
reduced by the excluded amount, but not below zero.
TAX PROFESSIONAL ALERT: The mortgage forgiveness exclusion
only applies with respect to a taxpayer’s principal residence. Therefore,
while interest for a taxpayer’s second home may be deductible, debt forgiven
with respect to a taxpayer’s second home is not excludible.
7. §108(a)(2) provides that an insolvent taxpayer (other than one in a Title 11
bankruptcy) can elect to have the mortgage forgiveness exclusion not apply
and can instead rely on the §108(a)(1)(B) exclusion for insolvent taxpayers.
8. If there is a gain on the foreclosure of a principal residence, then it may be
partially or completely excluded from gross income under the provisions of
§121.
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9. If the taxpayer did not qualify for the 2-out-of-5 year ownership and use test,
then one could still qualify for the partial exclusion due to a change in
employment, health or “unforeseen circumstances.” Reg.§1.121-3 states that
safe-harbor events such as an involuntary conversion, job loss, and events,
are identified by the IRS as “unforeseen circumstances.”
10. The law requires that IRS Form 982 be attached to the taxpayer’s return if
any debt forgiven is excluded from income.
11. Most taxpayers who are affected by this exclusion rule will be required to
fill out only a few lines on Form 982. In Part I under General Information a
taxpayer will:
a. check box 1(e) which is Discharge of qualified principal residence
indebtedness;
b. enter on line 2 the total amount of discharged indebtedness excluded
from gross income; and
c. enter on line 10b the amount applied to reduce the basis of the principal
residence.
12. The instructions to Form 982 alert taxpayers that debt discharge under Title
11 bankruptcy cannot be treated as a discharge of qualified residence
indebtedness and should follow the instructions for nonbusiness debt and
check box 1a. Also, if the taxpayer is insolvent, then the taxpayer can elect
to follow the insolvency rules and check box 1b and follow the Form 982
instructions for a nonbusiness debt.
13. Lenders are required to issue IRS Form 1099-C by January 31 following
the year of debt forgiveness for taxpayers whose debt was reduced or
eliminated.
14. The Form 1099-C must report the amount of debt forgiven and the fair
market value (FMV) of any property given up through foreclosure. The IRS
states that taxpayers review the form carefully and notify the lender
immediately if any of the information reported is incorrect and cautions that
special attention should be paid to the amount of debt forgiven in Box 2 and
the FMV in Box 7.
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15. The most difficult issue that the taxpayer faces is the FMV at the time the
debt is discharged. Generally FMV is the price at which the property is sold
or if no sale takes place, a willing buyer and willing seller would agree to a
given price where neither is under any pressure to buy or sell and are aware
of all the facts surrounding the condition of the property.
16. In a situation where the taxpayer has to surrender the property to the creditor
in an exchange for a cancellation of debt, the taxpayer may not agree with
the FMV reported on the Form 1099-C. In this circumstance if the taxpayer
could afford a professional appraisal of the property prior to the transfer of
the property, then this may be a better course of action in order to determine
the proper FMV.
Tax Professional Research Recommendation: IRS Publication 4681
Cancelled Debts, Foreclosures Repossessions and Abandonments.
O. §6050W Returns Relating to Payments Made in Settlement of Payment Card
and Third Party Network Reporting: Form 1099-K
1. Proprietors, merchants and other business taxpayers frequently receive
income through their customers’ use of credit or debit cards. The use of such
payment cards creates a paper trail that previously had not been reported to
the IRS.
2. §6050W(a) provides that a payment settlement entity (PSE) shall prepare a
return for each calendar year setting forth:
a. The name, address and TIN of each participating payee to whom one or
more payments in settlement of reportable transactions are made; and
b. The gross amount of the reportable transactions with respect to each such
participating payee.
Tax Professional Education Fact: The law states that such return shall be
made at such time and in such manner as the Secretary may require by
regulations. As a result the IRS has designed Form 1099-K, Merchant Card
and Third Party Payments.
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3. The legislation also amended §3406(b)(3) relating to backup withholding and
requires the reporting party to provide the IRS with the merchant’s TIN. If the
reporting party cannot provide this information then it would be required to
withhold federal income tax at 28% of the merchant’s gross payment amount.
P. §164(b)(5) Election to Claim an Itemized Deduction for State And Local Sales
Taxes
Tax Professional Expiration Notice: This provision expired at the end of 2014
but is being considered for reinstatement retroactive to January 1, 2015.
The 2004 Jobs Act provided taxpayers with an election to take an itemized
deduction for state and local general sales taxes instead of an itemized deduction
for state and local income taxes. This provision continues to expire and be
extended by Congress.
Q. §62(a)(2)(D) Above-The-Line Deduction For Teachers’ Classroom Expenses
Tax Professional Expiration Notice: This provision expired at the end of 2014.
1. The 2002 Job Creation Act provided an “eligible educators” deduction for
kindergarten through 12th grade teachers, instructors, counselors, principals,
or aides in any elementary or secondary school.
2. It is an above-the-line deduction on Form 1040 page 1, line 23, of up to
$250 for out-of-pocket expenses paid in connection with books, supplies
(other than nonathletic supplies and for courses of instruction in health or
physical education), computer equipment (including related software and
services), other equipment, and supplementary materials used in the
classroom. Allowable amounts in excess of $250 are deducted on Schedule
A subject to the 2% limitation on miscellaneous itemized deductions.
Tax Professional Note: This deduction is allowed only if the educational
institution does not reimburse for such expenses. In the case where the
educational institution would provide reimbursement but the teacher does
not seek reimbursement no above the line deduction is allowed.
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R. §6721 Penalties for Failure to File Correct Information Returns
1. §6721(a) imposes a penalty under a general rule in the case of any:
a. Failure to file an information return with the Secretary on or before the
required filing date; and
b. Failure to include all of the information required to be shown on the return
or the inclusion of incorrect information.
2. The penalty increases from $100 per failure to $250 with a maximum penalty
of $3,000,000 for returns required to be filed after December 31, 2015.
3. §6721(b) provides for a reduction of the penalties where the failure is
corrected on or before the day 30 days after the required filing date.
4. §6721(b)(1) provides that if any failure is corrected in the specified period,
then the $250 penalty would be reduced to $50 and the total penalty of
$3,000,000 is reduced to $500,000.
Tax Professional Education Fact: The reduced penalties of $50 and
$500,000 are referred to as “first-tier” penalties.
5. §6721(b)(2) provides for what is referred to as “second-tier” penalties and
provides for reductions in the maximum “third-tier” penalties of $250 and
$3,000,000 under the new law.
6. §6721(b)(2) provides that the penalties will be reduced if the failures are
corrected on or before August 1. It provides that if any failure is corrected
after the 30th day referred to in §6721(b)(1) but before August 1 of the
calendar year in which the required filing date occurs, then the per return
penalty and the maximum penalty will be reduced.
7. If the returns are corrected by the August 1 date, then the $250 penalty is
reduced to $100 and the maximum penalty of $3,000,000 is reduced to
$1,500,000.
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8. The maximum third-tier penalty for small business filers, defined as
businesses with annual gross receipts under $5,000,000 is $1,500,000; the
second-tier penalty is $500,000 and the first-tier penalty is $250,000.
Maximum Penalties for Small Businesses
Pre-Change Post-Change
First-tier $ 75,000 $ 250,000
Second-tier $200,000 $ 500,000
Third-tier $500,000 $1,500,000
9. §6721(e) provides for increased penalties for intentional disregard. If 1 or
more failures are due to intentional disregard of the filing requirement or
correct information reporting requirement, then the reduced penalties imposed
under §6721(b)-(d) will not apply and the minimum penalty shall be increased
to $250.
10. The failure to file penalty will be adjusted to account for inflation every five
years with the first adjustment to take place after 2012, effective to each year
thereafter.
S. §6722 Penalties for Failure to Furnish Correct Payee Statements
1. §6722(a) provides a general rule that in the case of each failure to furnish
correct payee statements by any person with respect to payee statements, a
penalty shall be imposed. The penalty per failure is $250 and a maximum
penalty shall not exceed $3,000,000.
2. §6722(b) imposes the penalties for any:
a. Failure to furnish a payee statement on or before the date prescribed to the
person to whom the statement is required to be furnished, and
b. Failure to include all of the information required to be shown on a payee
statement or the inclusion of incorrect information.
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3. Prior to 2011, §6722 did not have a three-tier system similar to §6721 for the
failure to file correct information returns. However, after the legislative
change, §6722 was amended to provide a tiered system and maximum penalty
amounts similar to §6721. As a result, §6722 imposes penalties as follows:
Penalty-Per-Failure
Maximum Penalty
First-tier $ 50 $ 500,000
Second-tier $100 $ 1,500,000
Third-tier $250 $3,000,000
Tax Professional Note: The §6722 penalty is also amended to provide
limitations on penalties for small businesses and increased penalties for
intentional disregard that mirror the §6721 penalties.
T. Dependent Health Benefits Extended For Adult Children Until Date Of 26th
Birthday
1. In 1996 Congress passed the Health Insurance Portability and Accountability
Act (HIPAA). One of the purposes of the law was to provide protection to
health care plan participants.
2. For purposes of group policies under the HIPAA rules, a “dependent” is any
individual who is, or may become, eligible for coverage under a group health
plan because of a relationship to a plan participant. The terms of the group
health plan determine the individuals who are eligible for coverage as a
dependent of the plan. The terms of the plan could control the age and
conditions under which a child of a participant ceases to be eligible as a
dependent.
3. Prior to the 2010 Health Care Act, group health plans providing dependent
coverage did not have to offer participants the option to cover their young
adult children.
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4. For group health plans, beginning on or after September 23, 2010, any
group plan or health insurance issuer that offers group or individual health
insurance coverage that provides coverage for dependent children must
continue to make dependent coverage available for an adult child until the
child turns 26 years of age.
Tax Professional Education Fact: There is no requirement for a group health
plan or a health insurance issuer to provide health insurance coverage for
anyone, including dependents. However, if coverage is in fact provided for
dependent children, then the coverage must continue until the child turns age
26.
TAX PROFESSIONAL ALERT: This now means that the §4980D excise
tax could become an issue if the group health insurance plan fails to offer
participants the option to cover their adult children up to age 26.
5. Currently, there is no requirement that a health plan or a health insurance
issuer provides available coverage to a “child of a child” receiving dependent
coverage. Therefore, even if a group health plan participant’s adult child under
age 26 is covered under the plan, a child of the adult child would not have to
be covered under the requirements of the plan.
Tax Professional Note: Whether or not and under what conditions a
participant’s grandchild may be covered under the plan would have to be
determined by each individual plan’s terms.
U. Employees Get An Exclusion From Income For Employer-Provided Health
Coverage Extended To Cover Adult Children Under Age 27
1. §105(b) provides that employees may exclude from gross income the value of
employer-provided health coverage under an accident or health insurance
plan. The exclusion applies to expenses for personal injuries or sickness
incurred by:
a. The taxpayer (including retirees),
b. The taxpayer’s spouse, and
c. The taxpayer’s dependents.
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2. §105(b) provides that “dependents” are defined in §152 and include
“qualifying children” as of the close of the calendar year. The “qualifying
children” are those who have not attained age 19 or have not attained age 24
and are full-time students.
3. §152(f) provides that a child is an individual who is a:
a. son, daughter, stepson, or stepdaughter of the taxpayer, or
b. an eligible foster child of the taxpayer.
4. Effective March 30, 2010, the exclusion from gross income for employerprovided
health coverage amends §105(b) to include any child of an employee
who has not attained age 27 as of the end of the taxable year.
5. The §105(b) exclusion from gross income is extended to a participant’s child
who is under age 27 as of the end of the tax year whether or not that particular
child is the participant’s “dependent” for income tax purposes.
Tax Professional Note: This means that for an adult child who has not
attained age 27 and does not meet the dependency tests under §152(c)(1), the
employer-provided benefits, whether premiums or reimbursements, are
eligible for exclusion from gross income of the taxpayer regardless of the
child’s support, place of abode, or filing status.
V. Self-Employed Individuals May Deduct Health Insurance Premiums Paid
For Children Under Age 27
1. Prior to the 2010 Reconciliation Act, §162(l)(1) provided that in the case of
a taxpayer who is an employee within the meaning of §401(c)(1), there shall
be allowed as a deduction an amount equal to the amount paid during the
taxable year for insurance which constitutes medical care for:
a. The taxpayer,
b. The taxpayer’s spouse, and
c. The taxpayer’s dependents.
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2. Effective March 30, 2010, §162(l)(1)(D) adds that any child (as defined under
§152(f)(1)) of the taxpayer who, as of the end of the taxable year has not
attained age 27, the insurance premiums of that child are allowed as a
deduction.
TAX PROFESSIONAL ALERT: §162(l)(5) provides that if a Subchapter S
corporation pays health insurance premiums under a plan “established” by the
Subchapter S corporation on behalf of a more-than 2% shareholder who is an
employee and who must include the value of the premiums in gross income,
then the shareholder is permitted to deduct the cost of the premiums.
Therefore, under §162(l)(1)(D) the deduction for the child is allowed
regardless of the child’s place of abode, filing status or support.
W. 7 ½% Floor On Schedule A Medical Expense Deduction Increased To
10% With Transaction Rules for Seniors
1. §213(a) provides that there shall be allowed as a deduction the expenses paid
during the year for medical care to the extent such expenses exceed 7.5 percent
of AGI.
2. The 2010 Health Care Act increases the 7.5% floor for years beginning after
December 31, 2012 to 10%.
EXAMPLE #1: Ennis T. Pea, age 50, has an AGI of $100,000 in 2012 and
2013 and also has unreimbursed medical expenses in both years of $10,000.
His allowable deduction for each year is calculated as follows:
2012 2013 and
beyond
Change
AGI $100,000 $100,000 $ -0-
Floor 7.5% 10% 2.5%
Absorbed $ 7,500 $ 10,000 $2,500
Less: Unreimbursed (10,000) (10,000) -0-
Allowable deduction ($ 2,500) $ - 0 - ($2,500)
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3. For purposes of the Alternative Minimum Tax (AMT), §56(b)(1)(B) already
provides that the floor is 10%. Therefore, for tax years beginning after
December 31, 2012, the medical deduction for the regular tax and AMT will
be the same as there will no longer be an adjustment for the calculation of the
AMT on Form 6251.
4. For years 2013-2016, there is a special transaction rule for taxpayers or their
spouses who have attained age 65 before the close of the tax year. The 2010
Health Care Act amends §213(f) to provide that the 7.5% floor will continue
for those individuals during this 4 year period. Therefore if either spouse is
age 65 or older during those years the joint return will qualify for the 7.5%
threshold.
Tax Professional Note: For purposes of the medical deduction during these
4 years the taxpayer could move between the 10% floor and 7.5% floor.
Taxpayers who attain age 64 in 2013 would have a floor of 10% in 2013 but
in 2014 would drop back down to a 7.5% floor when they attain age 65.
At the same time however, the taxpayer who has attained age 65 between
2013-2016 would still have a 10% floor for purposes of the AMT.
X. Annual Contribution To Health Flexible Spending Accounts (FSA) Capped
1. Under current law, §125 for cafeteria plans provides a general rule that, except
for highly compensated participants and key employees, no amount shall be
included in gross income of a participant in a cafeteria plan solely because
under the plan the participant may choose among the benefits of the plan.
Tax Professional Education Fact: Under the pre-2010 Health Care Act
provisions, the exclusion amount on health FSA contributions were
determined by the specific terms of each individual cafeteria plan.
Therefore, there was no dollar limit on the amount that an employer may allow
an employee to contribute each plan year to a health flexible spending account
maintained through a cafeteria plan administered by a salary reduction
agreement.
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2. As a result of the 2010 Health Care Act, §125(i)(1) imposes a limitation
effective January 1, 2013 on health flexible spending arrangements and
provides that if a benefit is provided under a cafeteria plan through employer
contributions to a health flexible spending arrangement, then such benefit
shall not be treated as a qualified benefit unless the cafeteria plan provides
that an employee may not elect for any taxable year to have salary reduction
contributions in excess of $2,500 made to such arrangement.
3. The 2010 Reconciliation Act enacted an annual adjustment for inflation on the
$2,500 limitation. §125(i)(2) provides that in the case of any taxable year after
December 31, 2013, the $2,500 amount shall be increased by an amount equal
to:
a. $2,500, multiplied by
b. the cost of living adjustment determined under §1(f)(3) using 2012
c. as a base year.
If any increase in inflation is not a multiple of $50, then such increase shall
be rounded to the next lowest multiple of $50. For 2014 the contribution
amount remains at $2,500 but is increased to $2,550 for 2015.
Y. Reimbursements And Distributions Of Qualified Medical Expenses From
FSA, HSA, HRA and Archer MSA Plans Limited For Purposes Of Over-
The-Counter Medicines And Drugs
1. Prior to the 2010 Health Care Act “qualified medical expenses” for
purposes of any health reimbursement plan included amounts paid on behalf
of the account beneficiary for “medical care” as defined under §213(d).
2. The 2010 Health Care Act restricts “qualified medical expenses” to
prescribed drugs and insulin for purposes of reimbursement and distributions
from FSA, HSA, HRA and Archer MSA plans.
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3. The provision is effective for reimbursements under health FSAs and HRAs
of expenses incurred with respect to years beginning after December 31, 2010
and for distributions from HSAs and Archer MSAs with respect to tax years
after December 31, 2010.
Tax Professional Note: The new rule does not apply to items that are not
medicines and drugs. Therefore, equipment such as crutches, supplies such as
bandages and diagnostic devices such as blood sugar kits still qualify for
reimbursement by a health FSA, etc.
Z. Additional Medicare Tax Imposed On Wages: Hospital Insurance (HI)
1. Under current law, §3101(b)(1) imposes a tax on the earned income of every
individual equal to 1.45%.
2. Beginning after December 31, 2012, §3101(b)(2) provides that in addition to
the 1.45% tax imposed, there is hereby imposed on every taxpayer (other than
a corporation, estate, or trust) a tax equal to 0.9 percent of wages which are
received with respect to employment in excess of:
a. in the case of a joint return: $250,000;
b. in the case of a married taxpayer filing a separate return ½ of the dollar
amount of a married couple filing a joint return: $125,000; and
c. in any other case: $200,000.
EXAMPLE #1: In 2013 and beyond Ennis T. Pea is a single taxpayer who
has W-2 wages of $500,000. His Hospital Insurance (HI) is calculated as
follows:
Descriptions
Amounts
W-2 Wages (Box 5)
§3101(b)(1) Tax rate
$500,000
x 1.45%
§3101(b)(1) Tax
$ 7,250
W-2 Wages (Box 5) $500,000
Less: Threshold amount (200,000)
Excess over threshold
§3101(b)(2) Tax rate
$300,000
x 0.9%
§3101(b)(2) Tax on form 8959
$ 2,700
Add: §3101(b)(1) Tax 7,250
Total HI imposed (Form W-2 Box 6) $ 9,950
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Tax Professional Note: The IRS has not provided separate boxes on Form
W-2 to report the amount of wages subject to the additional Medicare tax or
the Medicare tax itself. Instead, there is a required reconciliation which must
be calculated on Form 8959.
EXAMPLE #2: Ennis is now married and will be filing a joint return with his
spouse:
Total W-2 wages (Box 5)
§3101(b)(1) Tax rate
§3101(b)(1) Tax
$400,000
x 1.45%
$ 5,800
Ennis’ W-2 wages $275,000
Spouse’s W-2 wages 125,000
Total wages $400,000
Less: Threshold amount (250,000)
§3101(b)(2) Base $150,000
§3101(b)(2) Tax rate x 0.9%
Total §3101(b)(2) Tax on Form 8959 $ 1,350
Add: §3101(b)(1) Tax 5,800
Total HI imposed $ 7,150
Tax Professional Note: The provision of §3101(b)(1) is imposed on each
taxpayer’s individual wages and earned income. However, the new provision
on the additional tax imposed under §3101(b)(2) is on the combined wages of
the taxpayer and taxpayer’s spouse. Therefore, if a spouse earns some small
amount of wages and the taxpayer’s wages are already at the $250,000 mark,
then the spouse’s wages are incurring the extra 0.9 percent tax.
TAX PROFESSIONAL ALERT: These amounts are not indexed for
inflation. Therefore, as taxpayers’ incomes rise in the future, additional
taxpayers could be subjected to the additional tax imposed. Also the increase
of the HI is not imposed on employers.
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3. As far as employees are concerned, employers will be required to withhold
the tax and §3102(f)(1) provides a general rule that in the case of any tax
imposed under §3101(b)(2), the withholding of the tax shall only apply to the
extent to which the taxpayer receives wages from the employer in excess of
$200,000, and the employer must disregard the amount of wages received by
the taxpayer’s spouse.
4. §3102(f)(2) addresses the issues of the collection of amounts not withheld and
provides that to the extent that the amount of any tax imposed by §3101(b)(2)
is not collected by the employer, such tax shall be paid by the employee.
Tax Professional Note: This means that there will be an additional tax
included with the taxpayer’s Form 1040 when filed and could require
increased withholding or estimated tax payments.
EXAMPLE: In years 2013 and beyond Ennis has wages of $250,000 and his
spouse has wages of $150,000. His employer will be required to withhold the
additional HI of 0.9% on the amount greater than $200,000 and according to
the law and the Committee Report the employer must ignore the spouse’s
wages for this purpose. Therefore, the calculation of the total HI and the
shortage is as follows:
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Taxpayer’s W-2 wages (Box 5) $250,000
Spouse W-2 wages (Box 5) 150,000
Total wages $400,000
§3101(b)(1) Rate x 1.45%
§3101(b)(1) Tax $ 5,800
Total Wages $400,000
Less: Threshold amount (250,000)
§3101(b)(2) Base $150,000
§3101(b)(2) Rate x 0.9%
§3101(b)(2) Tax (Form 8959) $ 1,350
Add: §3101(b)(1) Tax 5,800
Total HI imposed $ 7,150
Calculation of shortage
Total §3101(b)(1) Base subject to
withholding by Taxpayer’s employer $250,000
§3101(b)(1) Rate x 1.45%
Total §3101(b)(1) Withholding $ 3,625
Add: §3101(b)(2) Base subject
to withholding
$50,000($250,000-$200,000)x .009 450
Taxpayers total HI withholding $ 4,075
Add: Spouse’s §3101(b)(1) base subject
to withholding
$150,000 x 1.45% 2,175
Total withholding $ 6,250
Less: Total HI imposed (7,150)
Shortage reported on Form 1040 $ ( 900)
Proof: Spouse’s wages not
required for §3101(b)(2)
withholding $ 150,000
Less: Taxpayer’s base on
Required under §3102(f)(1) (50,000)
Amount still subject to §3102(b)(2) Tax $ 100,000
without withholding
§3102(b)(2) Rate
§3102(b)(2) Shortage on Form 1040
x 0.9%
$ 900
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5. 3102(f)(3) provides that if an employer fails to deduct and withhold the tax
imposed under §3102(b)(2), then the employer could be liable for any
penalties or additions to the tax otherwise applicable in respect of such failure
to deduct and withhold. Form 941 was updated in 2013 and added line 5d for
the reporting of the wages subject to the Medicare tax and the calculation of
the 0.9% tax.
AA. Additional HI Tax Imposed On Self-Employment Income
1. §1401(b)(1) provides that in addition to the 12.4% tax imposed each year on
the self-employment income of every individual under §1401(a), there shall
be imposed a hospital insurance (HI) tax of 2.9%.
2. §1401(b)(2) provides a general rule that in addition to the 2.9%, there is
hereby imposed on every taxpayer (other than a corporation, estate or trust)
for each taxable year beginning after December 31, 2012, a tax equal to
0.9% of the self-employment for such taxable year in excess of:
a. In the case of a joint return $250,000;
b. In the case of a married taxpayer filing a separate return $125,000; and
c. In any other case $200,000.
EXAMPLE #l: Ennis T. Pea is single and self-employed. He has selfemployment
income of $300,000. His HI tax is calculated as follows:
Total self-employment income – line 4,
Schedule SE*
§1401(b)(1) Rate
§1401(b)(1) Tax (Schedule SE)
$277,050
x 2.9%
$ 8,034
Total Self-Employment income subject to
additional Medicare tax $277,050
Less: Threshold amount (200,000)
Self-employment Subject to §1401(b)(2) 7,050
§1401(b)(2) Tax rate x 0.9%
§1401(b)(2) Tax (Form 8959) $ 693
Add: §1401(b)(1) Tax 8,034
Total HI $ 8,727
*Line 4 Schedule SE 92.35% of $300,000 =
$277,050: 2.9% of $277,050.
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EXAMPLE #2: Ennis T. Pea is married and files a joint return with his
spouse. He has self-employment income of $175,000 and his spouse has selfemployment
income of $125,000. Their total HI is calculated as follows:
Taxpayer’s self-employment income: $175,000
Line 4 of Schedule SE: 92.35% of $175,000 = $161,613
§1401(b)(1) Tax rate x 2.9%
§1401(b)(1) Tax (Schedule SE) $ 8,700
Spouse’s self-employment income $125,000:
Line 4 of Schedule SE: 92.35% of $125,000 = 115,437
Total self-employment income subject to
Medicare $277,050
Total self-employment income $277,050
Less: Threshold amount (250,000)
Excess subject to §1401(b)(2) tax 27,050
§1401(b)(2) Tax rate x 0.9%
§1401(b)(2) Tax (Form 8959) $ 243
§1401(b)(1) Tax 8,034
Total HI $ 8,277
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EXAMPLE #3: Same as above except the taxpayer and his spouse each file a
married separate Form 1040. The HI is then calculated as follows:
Taxpayer’s self-employment income $161,613
§1401(b)(1) Tax rate x 2.9%
§1401(b)(1) Tax (Schedule SE) $ 4,687
Taxpayer’s self-employment income $161,613
Less: Threshold amount MFS (125,000)
Excess subjected to §1401(b)(2) tax 36,613
§1401(b)(2) Tax rate x .009
§1401(b)(2) Tax (Form 8959) $ 330
Less: Threshold amount $ 4,687
Total HI for the taxpayer $ 5,017
Spouse’s self-employment income $115,437
§1401(b)(1) Tax rate (Schedule SE) x 2.9%
§1401(b)(1) Tax $ 3,348
Spouse’s self-employment income $115,437
Less: Threshold amount MFS (125,000)
Amount subject to §1401(b)(2) tax
(Form 8959)
Result:
N/A
Taxpayer’s HI $ 5,017
Spouse’s HI 3,348
Total HI $ 8,365
NOTE: Since the threshold amount for a married couple filing separate is
one-half of married filing joint, the total HI provides the same result at $9,150.
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BB. §164(f) No Income Tax Deduction For The §1401(b)(2) HI Tax
1. Under current law §164(f)(1) provides that there shall be allowed as a
deduction for the taxable year an amount equal to one-half of the taxes
imposed under §1401 for such taxable year. This is the one-half of the selfemployment
tax deducted on page 1 of Form 1040.
2. Beginning for tax years after December 31, 2012, §164(f) is amended and
provides that in general, in the case of an individual there shall be allowed as
a deduction for the taxable year an amount equal to one-half of the taxes
imposed by §1401 other than the taxes imposed by §1401(b)(2) for such
taxable year.
TAX PROFESSIONAL ALERT: This means that the additional 0.9%
§1401(b)(2) tax is not a deduction for income tax purposes and not deducted
for calculating AGI on page 1 of Form 1040. Therefore the §1402(a)(12)
deduction from net earnings from self-employment income will still be
calculated by using one-half of the 12.4% OASDI tax rate and the 2.9% HI
regular rate which is 15.3% of which one-half remains at 7.65%. However
there is no deduction for 0.45% of the excess 0.9% of HI.
CC. Individual Taxpayer’s Net Investment Income Subject To Medicare Tax
1. For tax years beginning after December 31, 2012, the 2010 Reconciliation
Act created §1411 for the imposition of the HI on the net investment income
of individuals, estates and trusts.
2. §1411(a)(1) has a general rule which applies to individual taxpayers which
provides that there is hereby imposed for each taxable year a tax equal to 3.8%
of the lesser of:
a. net investment income for such taxable year; or
b. the excess of (if any):
i. the modified AGI of such taxable year, over
ii. the threshold amount.
Tax Professional Background Fact: The Health Care Act refers to the new
Medicare tax as the Unearned Income Medicare Contribution Tax (UIMLT).
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3. §1411(d) provides that for purposes of this provision the term “modified
adjusted gross income” means adjusted gross income increased by the excess
of:
a. the amount excluded from gross income under §911(a)(1) over
b. the amount of any deductions (taken into account in computing AGI) or
exclusions disallowed under §911(d)(6) with respect to amounts deducted
at deriving the excluded income.
Tax Professional Education Fact: §911 is the foreign earned income
exclusion calculated on Form 2555. As a result most taxpayers will have a
modified AGI which is the same as the AGI calculated on page 1 of Form
1040.
4. §1411(b) provides that the term “threshold amount” means:
a. In the case of a taxpayer filing a joint return or a surviving spouse,
$250,000;
b. in the case of a married taxpayer filing a separate return, $125,000;
and
c. in any other case $200,000.
EXAMPLE #1: Ennis T. Pea is single and he has a modified AGI of $180,000
and net investment income of $50,000. His calculation for determining his
additional HI under §1411(a)(1) is as follows:
Lesser of:
1. Modified AGI $180,000
Less: Threshold amount ( 200,000)
Excess AGI (if any) (20,000) $ -0-
2. Net investment income $50,000
Therefore the lesser of result
is zero $ -0-
This means the taxpayer does not pay any additional HI because his modified
AGI is $200,000 or less.
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EXAMPLE #2: Same as Example #1 except now the taxpayer has a modified
AGI of $220,000 and net investment income of $100,000. His calculation for
the additional HI under §1411(a)(1) is as follows:
Lesser of:
1. Modified AGI $220,000
Less: Threshold amount
Excess AGI (if any)
( 200,000)
$ 20,000
2. Net investment income $100,000
Therefore the lesser of result is
$20,000: $ 20,000
§1411(a)(1) Rate 3.8%
§1411(a)(1) Tax (Form 8960) $ 760
This means that the taxpayer pays the additional HI on his net investment
income limited to his excess AGI of $20,000 rather than on $100,000.
EXAMPLE #3: Same as Example #2 except now the taxpayer has a modified
AGI of $300,000. His calculation for determining his additional HI under
§1411(a)(1) is as follows:
Lesser of:
1. Modified AGI $300,000
Less: Threshold amount
Excess AGI (if any)
( 200,000)
$ 100,000
2. Net investment income $ 100,000
Lesser of results $ 100,000
§1411(a)(1) Rate 3.8%
§1411(a)(1) Tax (Form 8960) $ 3,800
This means that the taxpayer pays the additional HI on his full amount of net
investment income.
Tax Professional Note: The statutory threshold amounts are not indexed for
inflation. Therefore, more taxpayers will be paying the Medicare tax on net
investment income in future years as inflation rises.
5-50

In addition, the Medicare tax on net investment income and excess modified
AGI is in addition to the .9% Medicare tax on salaries and self-employment
income. Therefore, some taxpayers will have the new Medicare taxes assessed
on both sources of income.
EXAMPLE #4: Same as Example #3 except now the taxpayer has a modified
AGI of $375,000 which includes $300,000 of W-2 wages and an NOL of
$25,000. His total additional HI is calculated as follows:
W-2 Wages $300,000
Less: Threshold amount (200,000)
Excess over threshold $100,000
§3101(b)(2) Tax rate 0.9%
§3101(b)(2) Tax (Form 8959) $ 900
Plus: Lesser of:
1. Modified AGI $375,000
Less: Threshold amount
Excess AGI (if any)
( 200,000)
$ 175,000
2. Net investment income $100,000
Therefore the lesser of result
is $100,000 $ 100,000
§1411(a)(1) Rate x 3.8%
§1411(a)(1) Tax (Form 8960) $ 3,800
Add: §3101(b)(2) Tax 900
Total additional HI on Form
1040, Page 2, line 60
$ 4,700
As a result the taxpayer not only pays the additional 0.9% tax on wages in
excess of $200,000, but also the 3.8% tax on the entire $100,000 of
investment income.
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5. §1411(c)(1) provides a general rule that for purposes of this provision the term
“net investment income” means the excess (if any) of:
a. The sum of:
i. the gross income from:
a) Interest,
b) Dividends,
c) Annuities,
d) Royalties, and
e) Rents.
Other than such income per §1401(c)(2) which is derived in the
ordinary course of a trade or business which is described in
§1411(c)(2) as a passive activity within the meaning of §469 or a
trade or business of trading in financial instruments or
commodities as defined in §475(e)(2). (The IRS regulations refer
to these items as Category 1 items.);
ii.
plus other gross income from passive activities and trading other
than those described above. (The regulations refer to these items as
Category 2 items.);
iii.
plus, the net gain (to the extent taken into account in computing
taxable income) attributable to the disposition of property other than
property held in a trade or business not from passive activities and
commodity sales. (The regulations refer to these items as Category
3 items.);
minus
b. the deductions allowed which are properly allocable to such gross income
or net gain.
5-52

Tax Professional Note: The committee report states that for this purpose
gross income does not include items such as tax exempt bond interest,
veterans’ benefits and excluded gain from the sale of a principal residence if
these items are excluded from gross income for income tax purposes. This
seems to be an assurance that if an item is already excluded from gross income
for income tax purposes, then it also it excluded for the additional HI.
Tax Professional Reminder: Income from an active trade or business will
not be subject to the Medicare tax whether the business is conducted through
a sole proprietorship, partnership, limited liability company (LLC) or an
Subchapter S corporation. Therefore, rents from an active trade or business
are not subject to the Medicare tax, but the net rental income from a passive
activity is subject to the Medicare tax.
6. §1411(c)(4) provides for an exception to the definition of net investment
income for certain active interests in partnerships and Subchapter S
corporations.
7. §1411(c)(4)(A) provides that in the case of a disposition of an interest in a
partnership or S corporation, the gain from such disposition shall be taken into
account as net investment income only to the extent of the net gain that the
transferor would take into account if the partnership or S corporation had sold
all of its property at the FMV immediately before the disposition.
8. §1411(c)(4)(B) provides that a similar rule shall apply to a loss of such
disposition of an interest in a partnership or S corporation.
Tax Professional Explanation: This means that only net gain or loss
attributable to property held by the entity that is not property attributable to an
active trade or business is taken into account.
9. §1411(c)(5) provides that the term “net investment income” shall not include
any distribution from a plan or arrangement described in:
a. §401(a) Qualified pension profit-sharing and stock plans,
b. §403(a) Employee annuities,
5-53

c. §403(b) Beneficiary annuities purchased by §501(c)(3) organizations or
public school ,
d. §408 Individual Retirement Accounts,
e. §408A Roth IRAs, or
f. §457(b) Eligible deferred compensation plans .
10. §1411(c)(6) provides a special rule that net investment income shall not
include any item taken into account in determining self-employment income
for such taxable year on which a tax is imposed by §1401(b).
Tax Professional Awareness Issue: Generally, any item not included in gross
income under §61, (which provides that everything is income from whatever
source derived unless there is a specific exception, exemption or exclusion) is
also not included for the Medicare tax on net investment income and the
excess modified AGI threshold. Therefore, tax exempt bond interest, veterans’
benefits, life insurance benefits and the §121 exclusion of gain on the sale of
a principal residence would not be subject to the Medicare tax.
Example #1: The taxpayer is single and sells his principal residence meeting
all of the provisions for the §121 exclusion. Therefore his $250,000 maximum
exclusion not subject to income tax is also not subject to the 3.8% Medicare
tax.
Example #2: Same as Example #1 except now the taxpayer’s total gain from
the sale of the principal residence is $325,000. The amount of gain greater
than $250,000 ($75,000) is includible in gross income for federal income tax
purposes and also includible in gross income for purposes of the 3.8%
Medicare tax.
11. §1411(e) provides that the imposition of the additional HI shall not apply to:
a. a nonresident alien, or
b. a trust, all of the unexpired interests in which are devoted to one or more
of the purposes described in §170(c)(2)(B).
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Tax Professional Education and Research Fact: §170(c)(2)(B) is with
regard to contributions made to a corporation, trust or community chest, fund,
or foundation organized and operated exclusively for religious, charitable,
scientific, literary or education purposes, or to foster national or international
amateur sports competition (but only if no part of its activities involve the
provision of athletic facilities or equipment) or for the prevention of cruelty
to children or animals.
Example: Ennis T. Pea is a single taxpayer and has the following sources of
income:
i. $140,000 of salary income,
ii.
iii.
iv.
$35,000 of royalties,
$25,000 of taxable interest income,
$40,000 of tax-exempt interest,
v. $25,000 distribution from a Roth IRA,
vi.
vii.
$60,000 distribution from a traditional IRA, and
$50,000 gain from the sale of an interest in an active business.
His net investment income (NII) is $60,000 and his modified AGI is
$310,000. The tax applies to the lesser of NII $60,000 or the excess of
modified AGI of $110,000. Therefore, the Medicare tax payable is 3.8% of
$60,000 = $2,280. Note that the tax-exempt interest and Roth IRA distribution
are neither NII nor affect modified AGI; the royalty income and taxable
interest income are both NII and included in modified AGI; and the salary,
traditional IRA distribution and gain from the sale of the business are included
in modified AGI but not NII.
5-55

Calculation of Modified AGI:
Salary $140,000
Interest Income 25,000
Royalties 35,000
IRA distribution 60,000
Gain on sale of business interest 50,000
Total $310,000
Calculation of Net Investment Income:
Royalties 35,000
Interest Income 25,000
Total $60,000*3.8% = $ 2,280
DD. Estates And Trusts Subject To Medicare Tax On Net Investment Income
1. §1411(a)(2) imposes the HI tax on estates and trusts and provides that there
is hereby imposed for each taxable year a tax of 3.8% of the lesser of:
a. undistributed net investment income for such taxable year, or
b. the excess (if any) of:
i. the adjusted gross income (as defined in §67(e)) for such taxable
year, over
ii. the dollar amount at which the highest tax bracket in §1(e) begins
for such taxable year.
Tax Professional Education Fact: For 2015, the highest estate and trust
income tax rate is 39.6% and begins at $12,300 of taxable income. The
bracket is indexed for inflation. For 2016 this amount is increased to $12,400.
The importance of reviewing any undistributed income from the estate and
trust becomes more important than ever.
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2. For purposes of calculating the 2% floor on miscellaneous itemized
deductions, §67(e) provides that the AGI of an estate or trust shall be
computed in the same manner as in the case of an individual except that:
a. the deductions for costs which are paid or incurred in connection with the
administration of the estate or trust and which would not have been
incurred if the property were not held in such trust or estate, and
b. the deductions allowable under:
i. §642(b) personal exemption,
ii. §651 income distribution for current year income (Simple Trust),
and
iii. §661 income distribution for other amounts properly paid or
credited required to be distributed (Complex Trust).
EXAMPLE: In 2015 the taxpayer’s trust earns $10,000 of interest and
dividends and $15,000 of long-term capital gains. The trust states that the
income beneficiary is to receive all the fiduciary accounting income which for
this purpose is all income except the long-term capital gains. Therefore the
trust will distribute the $10,000 of interest and dividends to the beneficiary
and report it on Form 1041 Schedule K-1 to the beneficiary. The trust is a
simple trust and therefore receives a personal exemption of $300 resulting in
taxable income of $14,700 as follows:
Interest and dividends ....................................................... $10,000
Long-term capital gain ........................................................ 15,000
Total income ....................................................................... 25,000
Less: §651 Income distribution to the beneficiary ..........(10,000)
§642(b) Personal exemption ....................................... (300)
Taxable Income on Form 1041 ........................................ $14,700
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The trust’s income tax will be $1,950 which is calculated as follows:
Taxable Income
Income Tax
Total taxable income $14,700
Less: Amount taxed at 15% bracket subject
of preferential LTCG rate of 0% (2,500) -0-
Less: Amount taxed at 25%-33% brackets
subject to preferential LTCG rate of 15% (9,800) 1,470
Equals: Amount taxed at 39.6% bracket subject
to preferential LTCG rate of 20% (2,400) 480
Total income tax on Form 1041 $ 1,950
The 3.8% Medicare tax is calculated on Form 8960 as follows:
Lesser of:
1. Undistributed net investment income $15,000
or
2. The excess of adjusted gross income:
Total income $25,000
Less: §642(b) personal exemption (300)
§651 income distribution deduction (10,000)
Balance 14,700
Over: §1(e) highest tax bracket (12,300)
Balance $ 2,400
As a result, the lesser is $2,400 and the Medicare tax is 3.8% of $2,400 equal
to $92 reported on Form 8960.
EE. American Taxpayer Relief Act of 2012 Partial Chart of Provisions Changes
1. The American Taxpayer Relief Act of 2012 impacts various provisions of
the Internal Revenue Code. The charts below provide a partial list of these
provisions in the following categories:
a. Provisions made permanent;
b. Provisions extended in 2012 that expired after December 31, 2014 and
will have to be considered for extension in 2015 legislation;
c. Provisions extended and scheduled to expire after December 31, 2017;
and
d. Provisions reinstated by the sunset rules of the 2001 Tax Act.
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Code §
§1 Tax Rates:
Provisions Made Permanent
• 10% bracket for all taxpayers except estates and trusts
• 15% bracket for married couples filing joint is double that of a
single taxpayer and for married couples filing separately it is
the same as for a single taxpayer
§1(h) • 0% preferential long-term capital gain rate for taxpayers in
the10% and 15% brackets for both capital gain
transactions on Schedule D and qualified dividends on
Schedule B
• 15% LTCG rate for taxpayers in 25%-35% brackets
• 20% LTCG rate for taxpayers in 39.6% bracket
• 25% LTCG rate maximum for §1250 unrecaptured
depreciation
• 28% LTCG rate on collectibles
§21 Dependent care credit of up to $600 for 2 qualifying children with
expenses capped at $3,000 per qualifying person on Form 2441
§23 Adoption credit Form 8839
§24 Child Tax Credit (CTC) maximum per qualifying child of $1,000 on
Form 8812
§55(d)
§63(c)(2)
Alternative Minimum Tax (AMT) exemption amount increased to
inflation on Form 6251
Regular standard deduction for married taxpayers filing joint is
double that of a single taxpayer and married separate is the same as a
single taxpayer
§127 Employer provided education assistance exclusion up to $5,250
§163(d)(4)(B)
Election to exclude qualified dividends and LTCG transactions from
the definition of investment income for purposes of deducting
investment interest expense on Form 4952
§221 Student loan interest deduction on Page 1, Form 1040
§530 Coverdell educational savings accounts with nondeductible
contributions of up to $2,000 annually for each qualifying child
5-59

Code § Expired Provisions that need to be addressed in 2015
Legislation
§25C Maximum $500 energy credit for individuals on Form 5695
§62(a)(2)(D)
§108(a)(1)(E)
§132(f)
§163(h)(3)(E)(iv)
§164(b)(5)
§168(e)(3)(E)
Teachers classroom deduction up to $250 on page 1 of Form
1040
Home mortgage debt relief exclusion from gross income on
qualified residential debt up to $2M on Form 982
Tax-free transit passes provided by employers $250/month and
$20/month for bicycle commuting.
Mortgage insurance premium deduction on Schedule A
State and local sales tax deduction on Schedule A
Qualified leasehold/retail improvements and restaurant property
15 year recovery property Form 4562
§168(k) 50% bonus depreciation Form 4562
§179 Expense election deduction of qualified assets placed in service
for up to $500,000 on Form 4562
§222 Deduction for qualified tuition and fees of $4,000 or $2,000 on
Page 1, Form 1040, Line 34
§408(d)(8)
Qualified charitable distributions (QCD) for IRA RMD up to
$100,000
Code §
§24(d)(4)
Provisions Extended and Scheduled to Expire After December
31, 2017
Earned income phase-out threshold at $3,000 for joint filers on
Form 8812
§25A(i) American opportunity credit on Form 8863
§32(a)(2)(B)
§32(b)(3)(A)
EIC simplification rules such as tie breaking rules on Form EIC
Increased EIC credit percentage for families with 3 or more
qualifying children with a 45% rate on Schedule EIC
Code §
Provisions Reinstated by the Sunset Rules of the 2001 Tax Act
§1 39.6% bracket based on taxable income and filing status
§68 Phase-out of itemized deductions on Schedule A based on AGI
and filing status
§151 Phase-out of personal exemptions on Form 1040 based on AGI
and filing status
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Chapter V - Review Questions
1. In 2015 a single taxpayer has Medicare wages of $650,000. How much is the
additional Medicare Tax?
a. $4,050
b. $5,850
c. $6,525
d. $9,425
Answer:
a. is the correct answer as shown below
Total W-2 Wages (Box 5)
§3101(b)(1) Tax Rate
§3101(b)(1) Tax
$650,000
x 1.45%
$ 9,425
Less: Threshold Amount (200,000)
§3101(b)(2) Base $450,000
§3101(b)(2) Tax Rate x 0.9%
Total §3101(b)(2) Tax on Form 8959 $ 4,050
Add: §3101(b)(1) Tax 9,425
Total HI Imposed $13,475
2. A single taxpayer, not eligible for coverage through his employer purchased
health insurance from a private company. The taxpayers’ income is within the
range to qualify for a Premium Tax Credit and he is not claimed as a dependent
by anyone else. Which of the following statements is true? The taxpayer is
a. eligible for a PTC because he meets all the requirements.
b. not eligible for a PTC because he purchased health insurance from a private
company.
c. not eligible for a PTC because the credit is only available to families using
the Married Filing Jointly filing status.
d. not eligible for a PTC because the credit is only available for employees
covered under an employer sponsored plan.
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Answer:
a. is incorrect. The taxpayer meets all the criteria except he purchased the
insurance through a private company rather than the Health Benefit
Exchange (Marketplace).
b. is correct. Only insurance purchased from the Health Care Marketplace
qualifies for the Premium Tax Credit.
c. is incorrect. The credit is available for any filing status except Married Filing
Separately in most cases.
d. To qualify for the PTC the individual may not be eligible for coverage under
an employer plan.
3. Which of the following statements is true with respect to the Net Investment
Income Tax?
a. The rate for the NIIT is 3.8%.
b. This tax is imposed on adjusted gross income.
c. The NIIT does not apply if the taxpayer has no earned income.
d. It applies to both U.S citizens and nonresident aliens regardless of filing
status.
Answer:
a. is correct. §1411 imposes a tax of 3.8% on the lesser of net investment
income or the excess of the modified adjusted gross income over the
threshold amount.
b. is incorrect. The Net Investment Income Tax is imposed on investment
income, not adjusted gross income.
c. is incorrect. The Net Investment Income Tax applies regardless of the
taxpayer having earned income.
d. The Net Investment Income Tax does not apply to nonresident aliens
(§1411(e))
5-62

VI. Issues Concerning the
“Repair Regulations” and
the Impact on Small
Business (T.D. 9636)

VI. Issues Concerning the “Repair Regulations” and the Impact on Small
Business (T.D. 9636)
A. Background Issues of Current Year Deductibility vs. Capitalization and
Depreciation
1. The IRS and taxpayers have always had its issues over the deductibility of an
expenditure in the current tax year and the capitalization of the expenditure
and depreciation of the costs over a specified statutory life, depreciable
method and convention.
2. In 2011 the IRS issued temporary regulations which would have caused
businesses and especially small businesses to capitalize almost every
expenditure for a fixed asset for purposes of acquiring, maintaining, repairing
and replacing tangible property.
3. Tax professionals and taxpayers understand that the difference between
expensing a current year cost vs. capitalizing a cost can result in the difference
between a current year reduction of taxable income for the full amount instead
of spreading the cost over periods of 5 or more years. Facts and circumstances
surrounding the transaction have always been the determining factor.
4. When the IRS issued the temporary regulations they had an effective date for
tax years beginning on or after January 1, 2012 and then that date was pushed
back to on or after January 1, 2014. Note that taxpayers can elect to apply
the earlier date if desired.
5. §263 requires the capitalization of amounts paid to acquire, produce, or
improve tangible property. The issue that the taxpayer has to address is what
is the unit of property (UOP) that needs to be analyzed for determining
whether there is an actual improvement and whether or not the cost incurred
increases the useful life of the property or increases the fair market value of
the property. In other words does the work performed constitute an
improvement to the relevant unit of property.
6-1

6. §162 allows the deduction of all ordinary and necessary business expenses,
including the cost of certain supplies, repairs and maintenance. The final
regulations provide a general framework for distinguishing capital
expenditures from currently deductible supplies, repairs and a maintenance
cost. They also cover the issues for the retirement of §167 depreciable
property and the §168 Modified Accelerated Cost Recovery System
(MACRS).
B. Final Regulation Issues
1. The final regulations follow the basic outline of the proposed and temporary
regulations, with changes made within each of five main areas:
a. Materials and supplies (Reg. §1.162-3);
b. Repairs and maintenance (Reg. §1.162-4);
c. Capital expenditures: In General (Reg. §1.263(a)-1);
i. Capital Expenditures: de minimis Safe Harbor Election (Reg.
§1.263(a)-1(f)
d. Amounts paid for the acquisition or production of tangible property (Reg.
§1.263(a)-2); and
e. Amounts paid for the improvement of tangible property (Reg. §1.263(a)-
3).
Tax Professional Note: For purpose of B. 1. d above Reg. §1.263(a)–2 states
that for the purpose of the requirement to capitalize, a taxpayer must capitalize
amounts paid to acquire or produce a unit of real or personal property (UOP)
which includes all of the following costs:
• invoice price,
• transaction cost,
• costs for work performed prior to the date the UOP is placed in service
and
• amounts paid to defend or perfect the title to a UOP.
2. For purposes of a UOP which pertains to buildings Reg.1.263(a)–3(e)(2)
states that:
a. The unit of property is the building and its structural components;
6-2

. However, if an amount is paid to improve a building it will also qualify as
a UOP if the amount is paid for an improvement to any:
(i)
(ii)
Building Structure (building and structural components except for
designated building systems); or
Building Systems such as:
• HVAC
• Plumbing
• Electrical
• Escalators
• Elevators
• Fire Protection and Alarm
• Security
• Gas Distribution
• Systems identified in guidance from the IRS
3. For purpose of a UOP which pertains to non-buildings, Reg. §1.263(a)–
3(e)(3) states that under a general rule the UOP has functional interdependence.
Therefore, all components that are functionally interdependent comprise a single
unit of property. Components are functionally interdependent if the placing in
service of one component is dependent on the placing in service of the other
component.
4. According to the IRS, the changes to the temporary regulations were made to
“clarify, simplify and refine,” as well as to create several new safe harbors.
The changes singled out by the IRS include:
a. a revised and simplified de minimis safe harbor under Reg. §1.263(a)-1(f);
b. the extension of the safe harbor for routine maintenance to buildings;
c. an annual election for buildings that cost $1 million or less to deduct
up to $10,000 of maintenance costs or, if less, two percent of the
building’s unadjusted basis;
6-3

d. a new annual election to capitalize repair costs that are capitalized on a
taxpayer’s books and records; and
e. the refinement of the criteria for defining betterments and restorations to
tangible property.
Tax Professional Note: For purposes of item a. above there is a new de
minimis Safe Harbor under Reg. §1.263(a)-1(f) and the final regulations
replace the ceiling in Temp. Reg. §1.263(a)-2T(G)(1) with several
new provisions. Taxpayers with an Applicable Financial Statement
(AFS) can rely on the de minimis safe harbor if the amount paid for the
property does not exceed $5,000 per invoice or per item.
C. Taxpayers with Applicable Finanicial Statements (AFS) vs. Taxpayers
Without AFS
1. For this purpose an Applicable Financial Statement (AFS) is defined as:
a. A financial statement required to be filed with the Securities and Exchange
Commission (SEC) (the 10-K or the Annual Statement to Shareholders):
b. A certified audited financial statement that is accompanied by the report
of an independent certified public accountant (or in the case of a foreign
entity, by the report of a similarly qualified independent professional) that
is used for:
i. credit purposes;
ii. reporting to shareholders, partners, or similar persons; or
iii. any other substantial non-tax purpose;
2. Applicable Financial Statements also include a financial statement (other than
a tax return) required to be provided to the federal or a state government or
any federal or state agency (other than the SEC or the Internal Revenue
Service).
3. The de minimis safe harbor also applies to written financial accounting
procedures that the taxpayer has at the beginning of the taxable year that
expense amounts paid for property with a useful life of 12 months or less if
the amount per invoice or per item does not exceed $5,000.
6-4

4. A de minimis safe harbor for taxpayers without an AFS applies if the amount
paid for property does not exceed $500 per invoice or per item. Taxpayers
without an AFS are not required to have written accounting procedures.
However, in order to make the de minimis safe harbor election, a taxpayer
must expense amounts on his or her books and records for the taxable year in
accordance with a consistent accounting procedure or policy existing at the
beginning of the taxable year.
If a taxpayer does not have an AFS and does have a policy for books and
records of deducting amounts more than $500, then the taxpayer may properly
deduct the amounts for federal tax purposes, as long as the tax payer can show
the reporting policy clearly reflects the taxpayer’s income. In this situation, a
taxpayer may want to elect the de minimis safe harbor for items costing $500
or less to assure that the deduction of the items costing $500 or less will not
be questioned by the IRS.
Example #1: In 2015, Don purchases 5 desks at a cost of $250 each for a total
cost of $1,250 as detailed on the invoice. He does not have an AFS. However,
he has accounting procedures in place at the beginning of 2015 to expense
amounts paid for property costing less than $500, and Don treats the amounts
paid for the desks as an expense on his books and records. The amounts paid
for the desks meet the requirements for the de minimis safe harbor. If he elects
to apply the de minimis safe harbor in 2015, then he may not capitalize the
amounts paid for the 5 desks or any other amounts meeting the criteria for the
de minimis safe harbor. Instead, he may deduct these amounts in the taxable
year the amounts are paid provided the amounts otherwise constitute
deductible §162 ordinary and necessary expenses incurred in carrying on a
trade or business.
6-5

Example #2: In 2015, Ennis T. Pea purchases 5 computers at a cost of $600
each for a total cost of $3,000 as detailed on the invoice. He does not have an
AFS. However, he has accounting procedures in place at the beginning of
2015 to expense amounts paid for property costing less than $1,000 and he
treats the amounts paid for the computers as an expense on his books and
records. The amounts paid for the computers do not meet the requirements for
the de minimis safe harbor because the amounts paid for the property exceeds
$500 per invoice (or per item as substantiated by the invoice). He may not
apply the de minimis safe harbor election to the amounts paid for the 5
computers.
Tax Professional Note: The de minimis safe harbor provided in the final
tangible property regulations is intended as a new administrative convenience
whereby taxpayers are permitted to deduct small dollar expenditures for the
acquisition or production of new property or for the improvement or existing
property, which otherwise must be capitalized under the Code. The de
minimis safe harbor does not limit a taxpayer’s ability to deduct otherwise
deductible repair or maintenance costs that exceed the amount subject to the
safe harbor. The safe harbor merely establishes a minimum threshold below
which all qualifying amounts are considered deductible.
Consistent with longstanding law, a taxpayer may continue to deduct all
otherwise deductible repair or maintenance costs, regardless of amount.
In addition, the existence of the de minimis safe harbor does not mean that
a taxpayer cannot establish a de minimis deduction threshold in excess of
the safe harbor amount, provided the taxpayer can demonstrate that a higher
threshold clearly reflects the taxpayer’s income. In conjunction with §179,
which also allows small business taxpayers to immediately expense certain
otherwise capital expenditures, the de minimis safe harbor provides
significant tax simplification to small businesses. The de minimis safe
harbor exception is an annual election. It is not a change of accounting
method.
6-6

5. Even if the taxpayer elects the de minimis safe harbor, amounts paid for
tangible property qualifying under the safe harbor may be subject to
capitalization under §263A if the amounts paid for property comprise the
direct or allocable indirect costs of other property produced by the taxpayer or
property acquired for resale. For example the taxpayer must capitalize all the
direct and allocable indirect costs of construction a new building.
6. Under the final regulations, the taxpayer may elect to apply the de minimis
safe harbor amounts paid to acquire or produce tangible property to the extent
such amounts are deducted by the taxpayer for financial accounting purposes
or in keeping books and records. These limitations are for purposes of
determining whether particular expenses qualify under the safe harbor. They
are not intended as a ceiling on the amounts the taxpayer can deduct as a
business expense under the Code.
Tax Professional Note: Prior to these changes, neither the IRS nor prior
regulations included a de minimis safe harbor exception to capitalizations.
Taxpayers were required to determine whether each expenditure for tangible
property, regardless of amount, was required to be capitalized. The de minimis
safe harbor election eliminates the burden of determining whether every
small-dollar expenditure for the acquisition or production of property is
properly deductible or capitalizable. If the taxpayer elects to use the de
minimis safe harbor, then the taxpayer doesn’t have to capitalize the cost of
qualifying de minimis acquisitions or improvements.
D. Understanding the Deductibility of Materials and Supplies
1. The IRS states that the cost of non-incidental materials and supplies are
generally deducted in the tax year used or consumed. It is important for
taxpayers and tax professionals to remember that a safe harbor is not a
limitation on an appropriate deduction. A deductible amount is still a
deductible amount even if the amount does not qualify under the de minimis
safe harbor rules. Examples of deductions can still include
a. Incidental materials and supplies
b. Non-incidental materials and supplies
c. Repair and maintenance costs
6-7

2. The de minimis safe harbor election does not impose any additional
capitalization requirements beyond what was already in place before the final
regulations which is to include all costs necessary to get the asset ready for its
intended use and placed in service.
3. The final and temporary regulations define “materials and supplies” to mean
tangible property used or consumed in the taxpayer’s business operations that
is not inventory but is:
a. a component that is acquired to maintain, repair, or improve a unit of
tangible property owned, leased, or serviced by the taxpayer, but not
acquired as part of any single unit of tangible property;
b. consumable items which include fuel, lubricants, water, and similar items
that are reasonably expected to be consumed in 12 months or less,
beginning when used in a taxpayer’s operations;
c. a unit of property that has an economic useful life of 12 months or less,
beginning when the property is used or consumed in the taxpayer’s
operations;
d. a unit of property with an acquisition or production cost less than $200;
or
e. identified by the IRS in published guidance.
Tax Professional Note: For purpose of the treatment of materials and supplies
the effect of the final tangible property regulations, in most cases, do not
change the general rules for the deduction of materials and supplies. They
merely incorporate pre-existing precedents regarding the definition and
treatment of materials and supplies and they add safe harbors to provide
additional certainty for taxpayers.
6-8

4. The Service also addresses the issues dealing with materials and supplies and
their treatment as follows:
a. Incidental Materials and Supplies: Amounts paid to acquire or produce
incidental materials and supplies that are carried on hand and for which no
record of consumption is kept or of which physical inventories at the
beginning and end of the year are not taken, are deductible in the taxable
year in which these amounts are paid or incurred, provided taxable income
is clearly reflected.
b. Non-Incidental Materials and Supplies: These amounts are deductible
in the year in which the materials and supplies are first used in the
taxpayer’s operations or are consumed in the taxpayer’s operations.
5. For purposes of spare parts the final regulations retain the general rule that
rotable and temporary spare parts are materials and supplies that are deducted
in the year used or consumed unless the taxpayer elects an optional method of
accounting for the parts. The taxpayer can also elect to capitalize and
depreciate.
Tax Professional Note: It is important to understand the application of the
final regulations to materials and supplies. Because the final regulations
governing the treatment of materials and supplies are based primarily on prior
law, many taxpayers who were previously in compliance with the rules
generally will still be in compliance and no changes are required.
However, taxpayers who were not in compliance with the new materials and
supplies rules and who need to change their accounting methods to apply these
rules generally may apply these rules on a prospective basis, beginning with
amounts paid on or after January 1, 2014.
6. In addition, the final regulations add “standby emergency parts” to the
definition of a material or supply that is deducted in the year used or
consumed. The optional accounting method does not apply to standby
emergency parts.
6-9

Tax Professional Education Terminology: A rotable spare part is a material
or supply which is installed on a unit of property, removed from the property,
repaired or improved, and either reinstalled on the same or other property or
stored for later installation.
Temporary spare parts are components used temporarily until a new or
repaired part can be installed and then are removed and stored for later
installation.
Standby emergency spare parts are parts acquired for a particular machine
and set aside to avoid substantial operational time loss. Standby spare parts
are usually expensive, and they are not subject to periodic replacement,
acquired in quantity, repaired or reused.
7. Under the final regulations, only rotable, temporary or standby emergency
spare parts qualify for the election to capitalize and depreciate as a separate
asset amount paid for materials and supplies used to repair or improve a unit
of property. Without this limitation, different recovery periods could apply to
a capitalized material or supply and the property it improves or repairs. The
limitation is also consistent with previous IRS rulings.
Tax Professional Note: The procedure to revoke an election to capitalize and
depreciate materials and supplies is also clarified. The taxpayer must file a
request for a private letter ruling to obtain IRS consent, which the IRS may
grant if the taxpayer acted reasonably and in good faith and the revocation will
not prejudice the government. The IRS states that they can modify these
procedures through published guidance.
Tax Professional Reminder: For purposes of materials and supplies
identified in other published guidance the IRS clarified that prior published
guidance that permits certain property to be treated as materials and supplies
remains in effect, including smallwares or certain inventoriable items used by
small businesses.
6-10

8. For purposes of routine maintenance the temporary regulations provide that
the cost of certain routine maintenance need not be capitalized. Under a
routine maintenance safe harbor, an amount paid is deductible if it is as a result
of use of property in the taxpayer’s trade or business for recurring activities
that a taxpayer expects to perform in order to keep a unit of property in its
ordinarily efficient operating condition.
9. The IRS states that the activities are routine only if, at the time the unit of
property is placed in service, the taxpayer reasonably expects to perform the
activities more than once during the class life of the unit of property.
10. The final regulations state that buildings are now included in the safe harbor
rules and expand the routine maintenance safe harbor to allow expensing for
routine maintenance activities on a building and its structural components
(including building “systems”). However, an activity is covered only if the
taxpayer reasonably expects to perform such maintenance more than once
over a 10-year period. The safe harbor does not apply to betterments to the
property.
Tax Professional Note: The IRS reasoned that the inclusion of a routine
maintenance safe harbor for buildings should alleviate some of the difficulties
that could arise in applying the improvement standards for restorations to
building structures and building systems.
11. In determining whether maintenance is routine, the final regulations no longer
consider how the taxpayer treats the costs on its financial statements. This
issue was removed because taxpayers may have different reasons for
capitalizing maintenance activities on financial statements.
12. Under the final regulations, the routine maintenance safe harbor does not
apply to amounts paid for repairs, for maintenance, and for improvements to
network assets such as railroad track, oil and gas pipelines, water and sewage
pipelines, power transmission and distribution lines, and telephone and cable
lines. Network assets were excluded from the safe harbor because of the
difficulty in defining the unit of property and the IRS preference for resolving
network asset issues through what is called the Industry Issue Resolution (IIR)
program.
6-11

13. There is now an election to capitalize repair and maintenance costs. The final
regulations under Reg. §1.263(a)-3(m) allow taxpayers to make an annual
election to opt out of the expensing of repair and maintenance costs if the
taxpayer treats the costs as capital expenditures on its books and records to
compute its income. A taxpayer must elect to capitalize these expenses on its
timely filed return. An electing taxpayer must also depreciate the
expenditures.
TAX PROFESSIONAL ALERT: The preamble to the final regulations
provides that this annual election may not be revoked. The new election
allows a taxpayer to treat amounts paid during the tax year for the repair and
maintenance of tangible property as amounts paid to improve that property
and as an asset subject to the allowance for depreciation. The election applies
only to amounts that the taxpayer incurs in carrying on a trade or business and
treats as capital expenditures on its books and records used for regularly
computing income.
14. The election applies to all amounts paid for repair and maintenance to tangible
property that the taxpayer treats as capital expenditures on its books and
records for the tax year. An electing taxpayer must begin to depreciate the cost
of such improvements when they are placed in service by the taxpayer under
the applicable provisions of the Tax Code and regulations.
15. The election is made by attaching a statement to the taxpayer’s timely filed
original tax return (including extensions) for the tax year in which the repair
and maintenance expenditures are paid. The election may not be made by
filing an application for a change in method of accounting or, unless
permission to file a later election is first obtained, on an amended return.
Tax Professional Education Point: The election allows taxpayers to have
the same method of reporting for book and tax purposes and does not require
a book-to-tax adjustment.
16. The election does not apply to amounts paid for repairs or maintenance of
rotable or temporary spare parts that are subject to the elective optional
method of accounting for them.
6-12

Tax Professional Note: In the case of a partnership or S corporation, the
election is made by the partnership or S corporation and not by the partner or
shareholder.
Unlike certain other elections in the final regulations, there is no option to file
an amended 2012 or 2013 return to make this election.
• For additional information refer to the full set of regulations and the IRS
website by typing in the search box: “TANGIBLE PROPERTY
REQULATIONS-FREQUENTLY ASKED QUESTIONS”
17. In order to make the proper election annually and not have a change in
accounting method the statement should be titled as follows depending on the
specific election:
• “Reg. §1.263 (a)-1(f) De Minimis Safe Harbor Election”
• “Reg. §1.263(a)-3(h) Safe Harbor Election for Small Taxpayers”
• “Reg. §1.263(a)-3(n) Election to Capitalize Repair and Maintenance Costs”
18. In addition the statement should include the following information:
a. the taxpayer’s name;
b. address;
c. tax Identification Number; and
d. a statement indicating that the taxpayer is making a specified election.
19. For the “Reg. §1.263(a)-3(h) Safe Harbor Election for Small Taxpayers,” the
statement requires the taxpayer to include a description of each eligible
building property to which the taxpayer is applying the election.
6-13

Background on the Small Business Issues
1. On February 13, 2015 the IRS issued a Revenue Procedure addressing the
issue of methods of accounting and automatic consent procedures. That
document was Rev. Proc 2015-20 (2015-9 IRB694) which modified
previously issues Rev. Proc. 2015-14 (2015-5 IRB450). In Rev. Proc.
2015-20, the service first defines a small business as a business with:
a. Total assets of less than $10 million, or
b. Average annual gross receipts of $10 million or less for the 3 prior tax
years.
2. Rev. Proc. 2015-20 also permits a small business taxpayer to make certain
tangible property changes in methods of accounting with an adjustment under
§481(a) that takes into account only amounts paid or incurred and dispositions
in taxable years beginning on or after January 1, 2014.
3. Also, Rev. Proc 2015-20 states that for the first taxable year beginning on or
after January 1, 2014, small business taxpayers are permitted to make certain
tangible property changes without filing Form 3115.
4. Under Rev. Proc. 2015-20 a small business taxpayer choosing the option of
calculating a §481(a) adjustment that takes into account only amounts paid or
incurred, and dispositions, in taxable years beginning on or after January 1,
2014 does not receive audit protection under section 8.01 of Rev. Proc 2015-
13 (or any successor) for taxable years beginning prior to January 1, 2014.
5. The Rev. Proc. 2015-20 also states that the revenue procedure applies to a
taxpayer with one or more separate and distinct trades or businesses that has:
a. Total assets of less than $10 million as of the first day of the taxable year
for which a change in method of accounting under the final tangible
property regulations and corresponding procedures regarding related
changes in method of accounting is effective; or
b. Average annual gross receipts of $10 million or less for the prior 3
taxable years, as determined under Reg. §1.263(a)(-3(h)(3) (substituting
“separate and distinct trade or business” for taxpayer”).
6-14

Tax Professional Note:
This revenue procedures does not apply to a taxpayer’s separate and distinct
trade or business if that trade or business does not meet one (or both) of the
criteria in section 4.01(a) and (b) of Rev. Proc. 2015-20.
Example#1: Don is a qualifying taxpayer and owns a building. In 2015, the
building has an unadjusted basis of $750,000. In 2015, he pays $5,500 for
repairs, maintenance and improvements to the building. Because the building
unit of property has an unadjusted basis of $1,000,000 or less, his building
constitutes eligible building property. The aggregate amount paid during 2015
for repairs, maintenance and improvements on this eligible building property
does not exceed the lesser of $15,000 (2% of the building’s unadjusted basis
of $750,000), or $10,000.
Therefore, Don may elect to not apply the capitalization rule to the amounts
paid for repair, maintenance and improvements on the building in 2015. If he
properly makes the election for the office building and the amounts otherwise
constitute deductible ordinary and necessary expenses incurred in carrying on
a trade or business, he may deduct these amounts in 2015.
Example #2: Assume the same facts as in Example #1, except that Don pays
$10,500 for repairs, maintenance and improvements in 2015. Because the
amounts exceeds $10,000 (the lesser of the two limitations) Don may not
apply the safe harbor for small taxpayers to the total amounts paid for repairs,
maintenance and improvements. Therefore, he must apply the general
improvement rules to determine which of the aggregate amounts paid are for
improvements which must be capitalized and depreciated and which of the
amounts are for repair and maintenance which can be deducted in the current
tax year.
6-15

Example #3: Noel is a qualifying taxpayer and is the lessee of a building in
which he operates a retail store. The lease term is 20 years. He pays $4,000
per month in rent. In 2015, he pays $7,000 for repairs, maintenance and
improvements, on the building. The unadjusted basis of the leased unit of
property is $960,000 ($4,000 monthly rent x 12 months x 20 years). Because
the leased building has an unadjusted basis of $1,000,000 or less, the building
is eligible building property for 2015. The total amount paid by Noel during
2015 for repairs, maintenance and improvements on the leased building of
$7,000 does not exceed the lesser of $19,200 (2% of the building’s unadjusted
basis of $960,000) or $10,000 (the lesser of the two limits).
Therefore, for 2015, Noel may elect to not apply the capitalization rule to the
amounts he paid for repairs, maintenance and improvements on the leased
building. If he properly makes the election for the leased building and the
amounts otherwise constitute deductible ordinary and necessary expenses
incurred in carrying on his trade or business, then he may deduct these
amounts.
Chapter VI - Review Questions
1. A taxpayer can elect to capitalize and depreciate repair and maintenance costs
a. by filing a Form 3115
b. on an amended return
c. in the tax year the expenses are not capitalized for book accounting
d. on the tax return for the tax year the expense is capitalized for book accounting
Answer:
a. Incorrect. A taxpayer may not make an election by filing Form 3115, the
election must be made on a timely filed (including extensions) federal tax
return.
b. Incorrect: The election must be made on a timely filed (including extensions)
federal tax return.
6-16

c. Incorrect: A taxpayer cannot make an election under Reg 1.263(a)-3(n) if he
does not also capitalize the expenses on the books.
d. Correct: the election to capitalize and depreciate repair and maintenance costs
is made by attaching a statement to the return indicating that the taxpayer is
making the election to capitalize repair and maintenance costs under
§1.263(a)-3(n)
2. The de minimis safe harbor rules apply to which of the following?
a. the purchase of inventory in the amount of $480, the taxpayer has an
applicable financial statement
b. a purchase of $4,000 for rotable parts, the taxpayer has an applicable financial
statement
c. a purchase of four computers on the same invoice, each costing $250, the
taxpayer does not have an applicable financial statement
d. the purchase of a desk for $450 and a computer for $550 from the same store,
and on the same invoice, the taxpayer does not have an applicable financial
statement
Answer:
a. Incorrect: the de minimis safe harbor rules do not apply to inventory
purchases, land, rotable and standby emergency parts.
b. Incorrect: Generally the new regulations provide that rotable parts are
deducted in the year they are used, however the taxpayer may elect to
capitalize them. Even though the taxpayer has an applicable financial
statement, the purchase does not qualify under the de minimis safe harbor
rules.
c. Correct: Without an applicable financial statement, as long as the taxpayer
has a written accounting policy and the amount paid per unit of property is
less than $500 per invoice or per items on the invoice, the purchase qualifies
to be expensed. Since each item on this invoice is under $500 this purchase
qualifies to be expensed under the de minimis safe harbor rules.
6-17

d. Incorrect: The computer does not qualify under the safe harbor rules because
the cost is more than $500
3. Which of the following expenses must be capitalized?
a. Repainting the inside of a rental property
b. Replacement of all light fixtures in a multi-building apartment complex
c. Removal of walls to combine two retail spaces into one larger retail space
d. Costs paid for repairs after the initial purchase the building to bring it up to
standard
Answers:
a. Incorrect: Repainting is considered regular maintenance
b. Correct: Costs incurred to bring a building up to standard after the initial
purchase are considered a betterment and therefore must be capitalized.
c. Incorrect: A cost incurred to convert two small spaces into one larger one used
for the same purpose is not considered an improvement of the building and
therefore not required to be capitalized.
d. Incorrect: replacing light fixtures falls under general repairs and maintenance
and is not an improvement. An improvement must result in a betterment,
restoration, or adaptation.
6-18

VII. Capital Gain
and Loss
Transaction Issues

VII. Capital Gain and Loss Transaction Issues
A. §1(h) Long Term Capital Gains and Qualified Dividends Provided
Preferential Tax Rates
1. §1 tax imposed: §1 provides that a federal income tax will be imposed on the
taxable income of every individual based on filing status. The tax imposed is
based on a graduated rate system which ranges from 10% to 39.6% on the
taxpayer’s ordinary income.
2. As a result of the American Taxpayer Relief Act of 2012, the capital gain
rate in 2013 and beyond remains at 15% for taxpayers in the 25%-35% tax
brackets. However, beginning in 2013 the maximum rate is 20% for those
taxpayers who are subject to the 39.6% income tax bracket.
3. The law also provides that while a taxpayer is in the 10% and 15% brackets
and has net long-term capital gains, those gains will be taxed at a long-term
capital gain rate of 0%.
4. Ordinary dividends are the most common type of distribution from a
corporation. They are paid out of the earnings and profits of a corporation and
are taxed as ordinary income. Any dividend received on common or preferred
stock is an ordinary dividend unless the paying corporation reports otherwise.
Ordinary dividends will be shown in box 1a of Form 1099-DIV.
5. §1(h)(1)(D) provides that qualified dividends are subject to the 0%, 15%,
or 20% maximum tax rate that applies to net capital gains. They should be
reported in box 1b of Form 1099-DIV.
6. Those taxpayers subject to the 39.6% tax bracket will not enjoy the maximum
15% bracket on qualified dividends. When the taxpayer reaches the 39.6%
marginal bracket these qualified dividends and long term capital gains will be
taxed at a 20% preferential rate.
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Long-Term Capital Gains
and Qualified Dividends
If taxpayer is in 10% or
15% marginal bracket, then:
If taxpayer is in 25%-35%
marginal bracket, then:
If taxpayer is in the highest
marginal bracket (39.6% in
2013 and beyond), then:
2008-2012
2013
and Beyond
0% 0%
15% 15%
N/A 20%
EXAMPLE #1: On May 5, 2015, taxpayer sold 10 shares of ABC Inc. for
$1,000. The taxpayer had purchased the shares more than one year ago for
$400. If he is in a marginal tax bracket between 25% and 35%, then he will
compute his tax on his $600 of long-term gain by using the long-term capital
gain rate of 15%.
Some taxpayers will cross tax brackets and have a mix of long-term capital
gain rates.
EXAMPLE #2: A married couple filing jointly sell stock on May 5, 2015 that
they have owned for more than 12 months for a long term capital gain of
$40,000. They have no other gains or losses and their ordinary taxable income
is $35,000 and §the total taxable income is $75,000. Married taxpayers filing
jointly are taxed at a rate of 10% on the first $18,450 of taxable income and
the next $55,450 is taxed at 15%. The couple's year 2015 tax is computed as
follows:
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Tax on ordinary income:
TAX
10% x $18,450 $1,845
15% x $16,550 2,483
Total $35,000: Tax on ordinary income $4,328
Tax on the portion of capital gain in 15%
bracket
0% x ($74,900 - $35,000) = $39,900 $ -0-
Tax on the remaining capital gain
15% x ($40,000 - $39,000) = $100 15
Total tax on capital gains 15
Total tax liability $4,343
EXAMPLE #3: Ennis T. Pea is single. On May 5, 2015, he sold land that he
had purchased for investment more than one year ago and recognized gain of
$75,000. He has $24,000 of ordinary taxable income from other sources.
The 15% rate for a single taxpayer ends at $37,450 for 2015. Therefore,
$13,450 ($37,450 - $24,000) of his long-term capital gain would be taxed at
0%.
Here, the rate for long-term capital gains that would otherwise be taxed in the
10% and 15% brackets is 0%, and additional capital gains are taxed at 15%.
Therefore the $13,450 is taxed at 0% and the remaining $61,550 of capital
gain is taxed at 15%. Ennis’ tax is $12,372 computed as follows:
Tax on ordinary income:
TAX
10% x $ 9,225 $ 923
15% x $14,775 2,216
$24,000 Tax on ordinary income $ 3,139
Long-term capital gain:
0% x $13,450 ($37,450 - $24,000) $ -0-
15% x $61,550 9,233
$75,000 Tax on LTCG 9,233
Total Tax Liability $12,372
7-3

EXAMPLE #4: The taxpayer has $500,000 of taxable long-term capital gain
and qualified dividends. He is married and files a joint return with his spouse.
They have no other income. Their tax is calculated as follows:
Total taxable income $500,000
Less: Threshold for the 39.6% bracket (464,850)
Balance @ 39.6% bracket $ 35,150
Taxable
Tax Calculation: Income Tax
Amount @ 10% and 15% brackets taxed @
zero LTCG rate $ 74,900 $ -0-
Amount @ 25% to 35% brackets taxed
@ 15% LTCG rate ($464,850-$74,900) 389,950 58,493
Balance @ 39.6% brackets taxed @ 20%
LTCG rate > $464,850 35,150 7,030
Totals $500,000 $ 65,523
EXAMPLE #5: Same as Example #4 above except that now the $500,000 of
taxable income includes only $10,000 of Schedule B qualified dividends and
$20,000 of Schedule D long-term capital gains (LTCG). As a result the
taxpayer will have taxable income in excess of $464,800 on his joint return
and his $30,000 of qualified dividends and LTCG will be taxed at a 20%
preferential rate with the graduated rate structure of 10%-39.6% being
assessed against the ordinary income of $470,000.
Tax Professional Reminder: §1223(11) provides that Inherited Property is
eligible for the maximum 0%, 15% or 20% long-term capital gain rate no
matter how long the decedent held the property prior to the date of death.
EXAMPLE #6: Dead Fred acquired 100 shares of stock on March 15, 2015
at $1 per share. On May 16, 2015 when Dead Fred died the fair market value
was $1.50 per share. His beneficiary Lively Linda can sell the stock at any
time and will be treated as owning it for greater than one year and her
maximum capital gain rate will be 0%, 15% or 20%.
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B. §1(h)(10) Pass-Through Entities and Capital Gain Provisions
1. §1(h)(10) and §1259 provide that for this purpose pass-through entities are
partnerships, S-Corporations, estates, trusts, regulated investment companies,
real estate investment trusts, common trust funds, certain foreign investment
companies and qualified electing funds defined in §1259.
2. Also, an LLC that is taxed as a partnership, S-Corporation, or disregarded
entity should provide its members with the dates and types of capital gains
transactions.
C. §1250 Unrecaptured Depreciation on the Sale of Rental Real Estate
1. Not all gain from the sale of depreciable real estate will benefit from the
maximum capital gain rate of 0%, 15% or 20%.
2. The maximum capital gain rate on real property gain attributable to
depreciation, but not already "recaptured" at ordinary income tax rates, is
taxed at a maximum rate of 25%.
EXAMPLE: Ennis T. Pea is single and he acquired an apartment building for
$500,000. The accumulated depreciation which is §1250 unrecaptured
depreciation was $490,000. Ennis sells it on 5/6/15 for $800,000. The
property's adjusted basis is $10,000. The tax on this sale (ignoring other
factors and assuming he is in the top tax bracket) is $167,500, computed as
follows:
7-5

Description: Gain Tax Rate Tax
Sales proceeds $800,000
Adjusted basis (10,000)
Total gain 790,000
Less:
Gain subject to §1250
unrecaptured depreciation (490,000) x 25% = 122,500
Remaining gain (appreciation)
Total tax $300,000 x 20% 60,000
Total tax = $182,500
Note: If this was his only transaction then his 10% and 15% brackets would
tax the §1250 Unrecaptured depreciation at only 10% and 15% on the first
$37,450 and the balance of $452,500 would be taxed at 25%.
D. §55(b) (3) Alternative Minimum Tax (AMT) Rates
§55(b) (3) provides that the maximum capital gains rates also apply to AMT.
Therefore, long-term capital gains in 2015 are taxed at no more than the 0%,
15%, 25%, and 28% rates. (See Form 6251, page 2.)
E. §1211 Limitation on Capital Losses
1. §165(f) provides that losses from the sale or exchange of capital assets shall
be allowed but only to the extent allowed under §1211 and §1212.
2. §1211(b) provides that in the case of a taxpayer, except a corporation, losses
from sales or exchanges of capital assets shall be allowed but only to the extent
that capital gains are greater than capital losses. Those losses are then limited
to $3,000 and married taxpayers filing separate returns are limited to $1,500.
7-6

3. §1212(b) provides that if the taxpayer has excess capital losses because of the
limitation in §1211(b) then the carry forward of those losses is allowed to the
next tax year. The losses retain their character as short-term and long-term as
they are carried forward.
4. Capital gains and losses before death are netted against each other.
5. A decedent’s annual limitation on net capital losses is still only $3,000 on the
final Form 1040 ($1,500 if married filing separate from surviving spouse).
6. If the decedent has any unused capital losses at death they are lost at the time
of death.
Tax Professional Note: Both the law and regulations are silent as to the
availability of the capital losses when the property which generated the losses
was owned jointly by spouses who filed joint returns. It is presumed that
the losses are available to the surviving spouse.
F. §1091 Wash Sale Transactions
1. §1091(a) disallows a loss deduction from a sale or other disposition of shares
of stock or securities if, within a period beginning 30 days before the date of
sale or disposition and ending 30 days after the date, the taxpayer has acquires
by purchase or exchange, or has entered into a contract or option to acquire,
substantially identical stock or securities, then no deduction shall be allowed
under the capital loss provisions of §165(f).
2. §1091 does not define substantially identical stock or securities and the
regulations provide examples but do not define substantially identical and
refers to Reg. §1-1233-1(d)1 under the short sale rules which states that it is
a facts and circumstances situation.
3. §1091(d) provides the calculation of basis in the case of wash sales. The basis
shall be:
a. the basis of stock sold, plus or minus.
b. the difference between the price at which the new property was acquired
and the price at which the substantially identical stock was sold.
7-7

Example #1: The taxpayer purchased a share of common stock of X
Corporation for $100 in 2007, which he sold December 15, 2015 for $80.
On January 2, 2016 he purchased a share of common stock of the same
corporation for $90. In 2015 no loss from the sale is recognized under
§1091. The basis of the new share is $110; that is, the basis of the old share
($100) increased by $10, the excess of the price at which the new share was
acquired ($90) over the price at which the old share was sold ($80).
Basis of old stock sold 12/15/2015 $100
Less: New stock acquisition Price 1/2/2016 $90
Old Stock’s selling price (80)
Excess 10
Basis of new stock acquired 1/2/2016 $110
In other words, the basis of the new share is the cost of the original share plus
the amount of the disallowed loss.
Example #2: The taxpayer purchased a share of common stock of Y
Corporation for $100 in 2008, which he sold December 15, 2015, for $80. On
January 2, 2016, he purchased a share of common stock of the same
corporation for $70. In 2015, no loss from the sale is recognized under §1091.
The basis of the new share is $90; that is, the basis of the old share ($100)
decreased by $10, the excess of the price at which the old share was sold ($80)
over the price at which the new share was acquired ($70).
Basis of old stock sold 12/15/2015 $100
Less: New stock acquisition Price 1/2/2016 $70
O ld stock’s selling price (80) (10)
Basis of new stock acquired 1/2/2016 $ 90
7-8

Tax Professional Reminder: The reporting requirements for Schedule D will
need to be addressed since the sale is reported on Form 1099-B in the year of
disposition. The wash sale must be reflected to either increase the net capital
gain or decrease the net capital loss being reported. The wash sale transactions
are now required to be reported by brokers on Form 1099-B and will need to
be adjusted on Form 8949 in column (g). The required code for the “wash
sale” adjustment on Form 8949 column (b) is “w.”
G. §1233 Gains and Losses from Short Sale Security Transactions
1. §1233(a) provides that a gain or loss from the short sale of property shall be
considered as gain or loss from the sale or exchange of a capital asset to the
extent that the property used to close the short sale constitutes a capital asset
in the hands of the taxpayer.
2. As a result, a short sale is reported just like a normal acquisition and
disposition, but the dates of acquisition and disposition are reversed.
3. A short sale is a contract to sell property that the taxpayer “borrowed” for
delivery to a buyer.
4. At a later date, the taxpayer must either:
a. buy substantially identical property and deliver it to the lender, or
b. deliver property that the taxpayer held but did not want to transfer at the
time of the short sale.
NOTE: A short sale is not finished until the trade is closed, i.e. the shares are
bought back (covering the short). The issue is that the sale is reported on Form
1099-B in a year that the taxpayer did not actually own the stock.
7-9

EXAMPLE #1: Ennis T. Pea thinks the prospects for X Co. are poor. The
stock is trading for $60 a share. He decides to sell 200 shares short on 9/1/15.
What really happens is that his broker lends him 200 shares to sell. As the
result of selling the 200 shares he receives $11,685 net of commission. The
proceeds are deposited into his brokerage account, but he still owes the broker
200 shares of X Co. stock. On 1/2/16 the stock has dropped to $50 a share.
He buys 200 shares of X Co. stock for $10,015 and repays the shares to the
broker, covering the short. He has a short term capital gain of $1,670. On his
Schedule D, the sale date will be earlier than the purchase date.
Ennis will also incur margin interest on this transaction because he has
borrowed the stock. In addition he must also remember to include the sale in
a subsequent year if he acquires the stock to close the transaction in the next
tax year. This transaction should be reported by the broker on the 2016 IRS
Form 1099-B in the subsequent tax year.
H. Character of Capital Gain or Loss on Short Sales
1. As a general rule, you determine whether there is a short-term or long-term
capital gain or loss on a short sale by the amount of time the taxpayer actually
held the property eventually delivered to the lender to close the short sale.
EXAMPLE #1: Even though Ennis does not own any stock of Ace
Corporation, he contracts to sell 100 shares of it, which he borrows from the
broker. After 13 months, when the price of the stock has risen, he buys 100
shares of Ace Corporation stock and immediately delivers them to his broker
to close out the short sale. His loss is a short-term capital loss because his
holding period for the delivered property is less than one day.
2. An issue arises when the taxpayer cannot deliver the shares because the stock
has become substantially worthless. §1233(h) provides that the transaction
will be treated as if closed on the date the stock is considered substantially
worthless and the gain will be recognized at that time.
7-10

EXAMPLE #2: Same data as in Example #1 above but the Ace Corporation.
stock is deemed to be substantially worthless. Since Ennis is unable to acquire
and deliver the 200 shares of stock, the $11,685 he received is now recognized
as a short term capital gain since he has never held the stock.
I. §1244 Losses on Small Business Stock
1. §1244(a) provides a general rule that in the case of an individual, a loss on
§1244 stock issued to an individual or to a partnership shall be treated as an
ordinary loss.
Tax Professional Note: §1244(c) defines a “small business corporation” as
one where the aggregate amount of money and other property received by the
corporation for stock, contribution to capital, and paid-in surplus, does not
exceed $1,000,000. The determination shall be made as of the time of the
issuance of the stock in question but shall include amounts received for such
stock and for all stock subsequently issued.
2. §1244(b) provides that for any taxable year the aggregate amount of ordinary
loss shall not exceed $50,000 ($100,000 in the case of a husband and wife
filing a joint return).
3. The ordinary loss is applicable even if only one of the spouses owned the
stock. Therefore, if the loss is $110,000 and only one spouse owned the stock,
then they can deduct $100,000 as an ordinary loss on a joint return. The
remaining $10,000 is a capital loss. The $100,000 is reported on Form 4797,
line 10 and the $10,000 is reported on Schedule D.
4. §1244(c)(1) provides that the term “§1244 stock” means that this is stock that
was issued for money or property (other than stock and securities) in a
domestic small business corporation. During its 5 most recent tax years
before the loss, this corporation must have derived more than 50% of its
gross receipts from other than royalties, rents, dividends, interest, annuities
and gains from sales and trades of stock or securities.
7-11

5. If the Corporation was in existence for at least 1 year but less than 5 years
then the 50% test applies to the tax years ending before the loss.
6. If the corporation was in existence less than 1 year, then the 50% test applies
to the entire period the corporation was in existence before the day of the loss.
In order for ordinary loss treatment to apply the corporation must have been
an operating company
7. If the stock was issued before July 19, 1984, then the stock must be common
stock. If issued after July 18, 1984, then the stock may be either common or
preferred.
8. In order to be allowed ordinary loss treatment the taxpayer must be the
original owner of the stock. In order to claim a deductible loss on stock issued
to a partnership, the taxpayer must have been a partner when the stock was
issued and have remained so until the time of the loss.
9. Stock distributed by partnership: If the partnership distributes the stock to the
taxpayer, then the taxpayer cannot treat any later loss on that stock as an
ordinary loss.
10. Subsequent contributions to capital: If the basis of §1244 stock is increased
through contributions of additional capital without the issuance of additional
stock, then this increase is not treated as §1244 stock since additional stock is
not issued for the investment.
EXAMPLE. Ennis T. Pea buys 100 shares of §1244 stock for $10,000. He is
the original owner. He later makes a $2,000 additional contribution to capital
that increases the total basis of the 100 shares to $12,000. He then sells the
100 shares for $9,000 and has a loss of $3,000. Ennis can deduct only $2,500
($3,000 x $10,000/$12,000) as an ordinary loss under the §1244 rules because
the $2,000 was not in exchange for stock. The remaining $500 is a capital loss
calculated as follows:
Selling price $ 9,000
Less: adjusted basis (12,000)
Total loss ($ 3,000)
Less: §1244 ordinary loss limitation 2,500
Capital loss $ 500
7-12

Recordkeeping: The taxpayer must keep records sufficient to prove the stock
qualifies as §1244 stock. Records must also distinguish §1244 stock from any
other stock owned in the same corporation.
EXAMPLE: Don and Peter are partners in a partnership that invests $100,000
into a corporation which qualifies as a §1244 small business corporation. Don
then sells half of his partnership interest to Molly. The investment in the
corporation becomes worthless and the loss is passed through to all 3 partners
on Schedule K-1. Don and Peter will be deemed to own §1244 stock but
Molly will not because she was not an original owner and therefore her loss
will be a capital loss.
Tax Professional Note: §1244 Loss Treatment applies to both
C-Corporations and S-Corporations.
J. Nonqualified Use of a Principal Residence Disallows §121 Exclusion of
Income
1. The Housing Assistance Tax Act of 2008 included a provision which
disallows any exclusion of gain allocated to “non-qualifying use” of a
taxpayer’s principal residence.
2. §121(b) (4) (A) provides that the $250,000/$500,000 exclusion amount
allowed under §121 shall not include any gain from the sale or exchange of
property as is allocated to “periods of nonqualified use.”
3. §121(b) (4) (B) provides that gain shall be allocated to “periods of
nonqualified use” based on the ratio which:
a. The aggregate periods of nonqualified use during the period such property
was owned by the taxpayer, bears to
b. The period such property was owned by the taxpayer.
4. §121(b)(4)(C)(i) provides that the term “period of nonqualified use” means
any period (other than the portion of any period preceding January 1, 2009)
during which the property is not used as the principal residence of the taxpayer
or the taxpayer’s spouse or former spouse.
7-13

Tax Professional Background Guidance: Some taxpayers acquired a second
home or vacation home, with the intention of later converting the property into
their principal residence. Prior to §121(b)(4) being in effect, those taxpayers
could have excluded up to $250,000 ($500,000 for certain joint filers) at the
time of sale of the home as long as the two-year ownership and use tests for
the §121 exclusion were satisfied. §121(b) (4) provides that any gain allocated
to periods of nonqualified use of a property will not qualify for the §121
exclusion on this sale.
Tax Professional Note: According to the House Summary Report of PL 110-
289 (the 2008 Housing Assistance Tax Act), if a taxpayer moves his principal
residence to a second home, then the taxpayer will only be able to use the §121
exclusion to the extent it relates to the period of time when the home was first
used as a principal residence and to the extent that it relates to the period of
time that the home was owned before January 1, 2009.
5. §121(b)(4)(C)(ii) provides that the term “period of nonqualified use” does
not include:
a. any portion of the 5-year period under §121(a) in which the property
qualifies as the taxpayer’s principal residence (10 years for extended duty
stations, etc.) and,
b. any period of temporary absence (not to exceed the aggregate period of 2
years) due to a change of employment, health conditions, or such other
unforeseen circumstances as may be specified by the Secretary.
EXAMPLE #1: The taxpayer buys a principal residence on January 1, 2009
for $400,000, and moves out on January 1, 2019. On December 1, 2021, he
sells the property for $600,000. The entire $200,000 gain will be excluded
from gross income, which is the same result he would have had before
§121(b)(4) was in effect.
Since the period that the taxpayer did not use the residence as a principal
residence occurred after the last date that he had used the property as a
principal residence during the five-year holding period, that period will not be
considered to be a period of nonqualified use under the exception described
7-14

in §121(b)(4)(C)(ii)(i). Therefore, even if he had rented the residence (his
former principal residence) during years 2019 through 2021, that period will
not be considered to be a period of nonqualified use.
Tax Professional Note: Since the exception provided in §121(b)(4)(C)(ii)(i)
will only apply to any portion of the five-year testing period which is after the
last date that the property is used as the principal residence of the taxpayer or
the taxpayer’s spouse, the exception will not apply to periods of nonqualified
use that occurred before the five-year testing period. If a taxpayer uses the
property as his principal residence in more than one period of time during the
ownership period, then the exception will only apply to the period after the
last date that the property was used as a principal residence by the taxpayer or
his spouse. Any other periods that he did not use the property as his principal
residence will be considered to be periods of nonqualified use.
Unless one of the other exceptions (such as the temporary absence exception
or the exception for taxpayers serving on qualified official extended duty)
apply, those periods of nonqualified use will be included in the numerator of
the ratio (used to determine the amount of gain allocated to nonqualified use
under §121(b)(4)(B)), as part of the aggregate periods of nonqualified use
during the period the taxpayer owned the property.
EXAMPLE #2: The taxpayer buys a principal residence on January 1, 2009
for $400,000, and lives in it as his principal residence for five years until
December 31, 2013. Due to a change in his employment, he moves away and
does not use the property as his principal residence for the next five years. On
January 1, 2019, he moves back into the house and uses it as his principal
residence. On December 31, 2028, he sells the property for $600,000 and
realizes a gain of $200,000.
The five-year period from 2014-2018 will not qualify for the exception
provided in §121(b)(4)(C)(ii)(i) and therefore, is a period of nonqualified use.
That period of nonqualified use was not a portion of the five-year holding
period which was after the last date that the property was used as a principal
residence as required by §121(b)(4)(C)(ii)(i).
7-15

Therefore, 25% of the gain will be recognized gain allocated to periods of
nonqualified use, and the §121 exclusion will not apply to $50,000 (25% of
$200,000).
Aggregate period of nonqualified use = 5 = 25% x $200,000 Gain = $50,000 inclusion
Period of ownership 20
The remaining $150,000 of realized gain qualifies for the §121 exclusion. In
summary, the taxpayer total realized gain from the sale will include:
i. $50,000 recognized gain allocated to the periods of nonqualified use,
PLUS
ii. $150,000 excluded under §121 ($200,000 - $50,000).
His absence from the residence from 2014-2018 will not qualify for the
temporary absence exception (provided in §121(b)(4)(C)(ii)(III)), to the
definition of a period of nonqualified use because the absence exceeded an
aggregate period of two years.
The exception for certain use occurring after the residence has been used as a
principal residence (provided in §121(b)(4)(C)(ii)(i)), is limited to the
taxpayer and the taxpayer’s spouse. Therefore, the exception does not apply
to a period after the last date the property was used by the taxpayer’s former
spouse as a principal residence. However, if a former spouse uses a property
as a principal residence, then that use is not considered to be a nonqualified
use for purposes of the definition of a period of nonqualified use under
§121(b)(4)(C)(i).
6. §121(b) (4) shall be applied after the application of §121(d) (6) which means
that the §1250 gain from the unrecaptured depreciation must be includible in
income in all cases. Therefore, the allocated gain for nonqualified use will
include the §1250 unrecaptured depreciation. The effective date of this
provision applies to sales and exchanges after December 31, 2008 for
nonqualified use periods after December 31, 2008.
7-16

Tax Professional Note: The rule prevents use of the §121 exclusion of gain
from the sale of a principal residence of up to $250,000 ($500,000 for joint
filers) for appreciation attributable to periods after 2008 during which a
residence was used as a vacation home or as rental property before its use as
the principal residence. Rather than require a valuation of the property on
January 1, 2009, or at the time use is converted into a principal residence, the
new law determines excluded appreciation on a pro-rata basis.
EXAMPLE #1: The taxpayer buys property on January 1, 2010 for $400,000
and rents it for two years, claiming $20,000 of depreciation. On January 1,
2012, he begins to use the property as his home. He moves out of the house
on January 1, 2014 and sells it for $700,000 on January 1, 2015.
The period 2010-2011 is non-qualifying use. The year 2014, after the taxpayer
moved out, is treated as qualifying use. Of the $300,000 gain, 40 percent (two
years out of five years owned) or $120,000 is not eligible for the exclusion.
The balance of the gain, $180,000, may be excluded. The $20,000 gain
attributable to unrecaptured depreciation is included as required under current
law.
Nonqualified use period
= 2010-2011 = 2 years = 40%
Period owned 2010-2014 5 years
Total gain $300,00 x 40% $120,000
Less: §1250 unrecaptured depreciation ( 20,000 )
§1231 Gain $100,000
EXAMPLE #2: Ennis T. Pea is a single taxpayer and buys his principal
residence on January 1, 2010, for $400,000, moves out on January 1, 2020,
and on December 1, 2022 sells the property for $600,000. The entire
$200,000 gain is excluded from gross income because periods after the last
qualified use do not constitute nonqualified use (committee report).
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Chapter VII - Review Questions
1. What is the Capital Gain tax rate for a gain on collectibles?
a. 10%
b. 25%
c. 28%
d. 39.6%
Answer:
a. is incorrect. 10% is the capital gains tax rate for AGI up to $9,225 Single &
$18,450 MFJ.
b. is incorrect. 25% is the tax rate for gains on the sale of §1250 property
(depreciation recapture)
c. is correct. 28% is the rate at which gain on collectible items is taxed
d. is incorrect. 39.6% is the highest tax bracket for individual income tax
returns
2. A transfer of stock at a loss when the taxpayer acquires substantially identical
stock within 30 days after the sale is called a
a. rollover
b. wash sale
c. good investment
d. involuntary conversion
Answer:
a. is incorrect. A rollover is generally referred to as a rollover of one retirement
plan to another.
b.is correct: §1091(a) disallows a loss deduction from a sale or other disposition
of shares of stock or securities if, within a period beginning 30 days before the
date of sale or disposition and ending 30 days after that date, the taxpayer
acquires by purchase or exchange, or has entered into a contract or option to
acquire, substantially identical stock or securities, then no deduction shall be
allowed under the capital loss provisions of §165(f).
7-18

c. is incorrect. We are here to give tax not investment advice.
d. is incorrect. An IRC §1033 involuntary conversion is generally referred to
when discussing property that has been destroyed, stolen, condemned, or
disposed of under threat of condemnation, and the taxpayer receives other
property or money in payment, such as insurance proceeds or a condemnation
award.
3. On September 1, 2014, Ennis T. Pea paid $5,000 for 100 shares of FLIR stock.
On December 29, 2014, he sold the stock for $4,000.
On January 5, 2015, Ennis paid $4,100 for 100 shares of FLIR stock identical to
the stock he had recently sold.
What is the cost basis in the shares bought January 5 th ?
a. $4,000
b. $4,100
c. $5,000
d. $5,100
Answer:
a. is incorrect. $4,000 is the sales price of the original shares purchased
b. is incorrect. $4,100 is the purchase price for the stock bought in January, but
not the adjusted basis
c. is incorrect. $5,000 is the purchase price of the original shares sold in
September of 2014.
d. is correct. Since wash sale rules apply, Ennis T. Pea is not allowed to deduct
the $1,000 loss on the sale in 2014. His adjusted basis in the stock is $5,100
($4,100 cost + $1,000 disallowed loss from the wash sale).
7-19

VIII. Federal Tax
Court Cases

VIII. Federal Tax Court Cases
A. Individual’s Consulting Activity Not for Profit: Deductions Disallowed and
Penalties Imposed (Kurt Anthony Strode vs. Commissioner, TC Memo,
2015-117) (June 25, 2015)
An individual was denied deductions on his Schedule C because the Tax Court
ruled that his consulting activity was not engaged in for profit under §183. He
was also subject to §6662 accuracy related penalties. The years subject to denial
were 2008 and 2009.
Background
1. K.A. Strode was an attorney and employed by a health care company. On his
Form 1040 he also reported income and expenses from an international
business consulting activity that he operated out of his home. The activity
produced gross income in only one year. He had significant losses in all
years.
2. The taxpayer claimed that he kept records and abandoned unsuccessful
projects. However, his records contained no evidence that he actually
prepared any budgets, profit or loss statements, or books and records for this
activity. In addition he failed to change his investment methodology or
business practices in response to project failures. He didn’t establish how
much time he spent on this activity or the qualifications of his alleged
business consultants, of which included his girlfriend. His travel records
suggested that business expenses associated with the activity could be
personal.
3. His deductions for his Schedule C expenses were denied for failure to show
that the activity was a trade or business. He also failed to show a business
purpose for his cell phone, travel, gifts and meal expenses or that any of his
expenses were ordinary and necessary for production or collection of income
from the activity under the provisions of §162. The Court stated that he had
a hodgepodge of receipts, credit card statements, invoices and bills, none of
which bears any relationship to the alleged operations and all of which could
as easily represent personal expenditures.
8-1

4. The IRS determined that the consulting activity was not engaged in for profit
and, therefore, was not a trade or business. As a result all expense deductions
related to the activity were disallowed.
5. The Tax Court reviewed the hobby loss factors from Reg. §1.183-2(b) in
determining whether or not there was a trade or business purpose of this
activity. Factors favoring the IRS position that the activity was not an
activity engaged in for profit were as follows:
a. the activity was not conducted in a business-like manner; (No business
plan, no advertising, no hiring of an accounting firm, etc.)
b. no evidence showed that the taxpayer was qualified to act as an
international business consultant; (Attorney for a health care company.)
c. no evidence showed that the taxpayer spent substantial time on the
activity, or that he employed qualified, competent people to carry on the
activity; (A single individual who was his girlfriend.)
d. the activity continually produced losses, and there was no indication that
this would change;
e. there were no occasional profits from the activity;
f. the taxpayer had substantial income from his other source of income which
was his job as an attorney; and
g. the activity yielded considerable pleasure to the taxpayer. (Air travel and
hotels with the girlfriend, meals, golf magazines, bar due, etc.)
6. There were also some neutral factors from the regulations in this case which
included:
a. Expectation that assets used in the activity would appreciate in value; and
b. the taxpayer’s success at similar ventures.
8-2

7. The Tax Court determined that there were no factors which favored the
taxpayer’s position. However, the taxpayer was allowed two deductions under
§183(b)(1) related to the nonprofit activity. One was for a charitable
contribution and the other was for tax return preparation. All remaining
claimed deductions were denied because the consulting activity was not
shown to be a trade or business for purposes of §162 ordinary and necessary
business expenses, and the taxpayer did not substantiate any deductions other
than those that were allowed.
8. §183 “Activities Not Engaged in for Profit” provides under a general rule in
§183(a) that in the case of an activity engaged in by an individual or an S
Corporation, if such activity is not engaged in for profit, no deduction
attributable to such activity shall be allowed.
9. §183(b) provides an exception to the general rule allowing:
a. deductions which would be allowable without regard to whether or not the
activity is engaged in for profit (in this case the charitable deductions and
the tax return preparation), and
b. a deduction equal to an amount of the deduction which would be allowable
only if such activity were engaged in for profit (therefore §162 ordinary
and necessary business expenses) but only to the extent of the gross profit
derived from such activity. Therefore the best a taxpayer can do is
breakeven and not have a loss against other sources of income.
Burden of Proof Issues:
1. §183(d) provides that an activity is presumed to be a business if there is a loss
in 2 out of 5 tax years. As a result, the burden of proof is on the government
to show that the activity is in fact a hobby. However, if there are losses in 3
out of 5 years then the burden of proof shifts to the taxpayer who now has to
show that the activity is in fact a business. When a taxpayer cannot show that
he has records to support the activity as a trade or business under §162 the IRS
will prevail.
8-3

Accuracy Related Penalty Issues:
1. In addition to the denial of the deductions the taxpayer was subject to
accuracy-related penalties under §6662. His failure to substantiate any of his
claimed Schedule C deductions related to his consulting activity constituted
negligence.
2. In addition, the taxpayer did not establish a business purpose for any of his
claimed deductions on Schedule C. The Tax Court ruled that his attempts to
deduct personal expenses as business expenses were negligent. Also, the
taxpayer made a substantial understatement of tax liability, as his total
understatement was more than $5,000 and 10 percent of the tax required to be
shown on the return. The taxpayer did not address or dispute the penalties or
raise any affirmative defense such as reasonable cause which can be requested
under §6694. §7491 provides that once the Service assesses a taxpayer the
burden of proof is on the taxpayer to prove otherwise.
8-4

B. Individual’s Unsubstantiated Business Expense Deductions Denied:
Penalties Imposed (E.W. Lau, TC Memo 2015-137) (July 31, 2015)
Background:
1. A freelance graphic designer was not entitled to deduct her claimed business
expenses because she could not substantiate them. The taxpayer also failed to
show the relationship between her automobile, office, repair, supplies, internet
and cell phone expenses and her graphic design business. She was denied
deductions for tax years 2008 and 2009.
2. The only records that she was able to produce were her bank statements. She
claimed that the computer on which she stored records of business expenses
crashed and that the receipts she had filed were in a non-climate-controlled
area and they had disintegrated.
3. The taxpayer’s bank records contained highlighted entries denoting business
expenses, however the records did not establish a business purpose for the
expenses. In addition, she failed to show that the highlighted entries for meals
at various restaurants, purchases at gas stations, liquor or wine store
purchases, and purchases at retail stores such as Saks Fifth Avenue and
Shoes.com. were ordinary and necessary business expenses under §162.
4. Taxpayer claimed that she operated a business but her broad rationale for
deducting the expenses, was insufficient to satisfy her burden proof of
showing the expenses were ordinary and necessary. In addition, most of the
highlighted entries appeared to be for travel or meals and entertainment
expenses or listed property that required further documentation. Therefore,
she failed to satisfy the strict substantiation requirements of §274(d).
5. In addition, she was not entitled to her claimed depreciation deduction because
she offered no testimony or records regarding the type of property purchased
or used in her trade or business. She did not establish the property’s
depreciable basis by substantiating its cost, useful life, or any previously
allowed depreciation.
8-5

She also failed to show that she used a portion of her home exclusively for
business purposes and, therefore, she was not entitled to deduct home office
expenses for the two tax years at issue under §280A.
6. Finally, she did not offer a reasonable cause for her failure to timely file
income tax returns for the two tax years at issue and her subsequent
submission of Forms 1040 did not negate her earlier failure.
7. In addition, she was liable for additional tax under §6651 for failure to pay the
amounts due shown on the substitute returns the IRS prepared. She was also
subject to §6654 for failure to pay estimated income tax for one year because
the evidence showed that she had a tax liability for the prior year.
Burden of Proof and Opinion of the Court
1. The Commissioner’s determination as to a taxpayer’s tax liability is generally
presumed correct, and the taxpayer bears the burden of proving otherwise. See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a
matter of legislative grace. Deputy v. du Pont, 308 U.S 488,492 (1940; New
Colonial Ice Co. V. Helvering, 292 U.S. 435, 440 (1934). Taxpayers must
comply with specific requirements for any deductions claimed. See
INDOPCO, Inc. V. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice
Co. v. Helvering, 292 U.S. at 440. Taxpayers must also maintain adequate
records to substantiate the amounts of any credits and deductions. See §6001;
§1.6001-1(a), Income Tax Regs.
2. Generally, the Commissioner bears the burden of proof with respect to any
penalty or addition to tax. §7491(c); Higbee v. Commissioner, 116 T.C. 438,
446 (2001). To meet that burden, the Commissioner must come forward with
sufficient evidence indicating that it is appropriate to impose the relevant
penalty or addition. Higbee v. Commissioner, 116 T.C. at 446. However, once
the Commissioner has met the burden of proof, the burden of proof remains
with the taxpayer, including the burden of proving that the penalty or addition
is inappropriate. See Rule 142(a); Higbee v. Commissioner, 116 T.C. at 446-
449.
8-6

C. Accountant’s Unsubstantiated Deductions Denied: Penalties Imposed
(S. Flying Hawk, TC Memo. 2015-139) (August. 5, 2015)
Background
1. An accountant was not entitled to her claimed business expense deductions
for the two tax years at issue because they were unsubstantiated and lacked a
business purpose. She was also liable for negligence penalties and penalties
for substantial understatement of taxes.
2. The taxpayer was not entitled to home office deduction because she failed to
satisfy the §280A(c) (1) exceptions that allowed a deduction for the business
use of her homes. There was no separate structure at either of her residences,
nor did she use either to meet with clients. Moreover, neither residence
qualified as her principal place of business.
3. The individual conducted substantial administrative and management
activities at another fixed location (the office) for which she took a rent
deduction. Therefore, neither of the residences was the taxpayer’s principal
place of business. Further, she conducted at least 50 percent of her business at
the office and she failed to show that the work performed at either of her
residences was more important than the work performed at the office.
4. The taxpayer was not entitled to her claimed car and truck expense deductions
for two vehicles. Her own statement concerning the business use of the one
car was not credible. Further, the taxpayer could not use the standard mileage
rate to compute the deduction for a vehicle she did not own or lease and she
failed to produce other competent evidence to substantiate the expense
deduction for that vehicle.
8-7

5. The taxpayer was not entitled to her claimed deductions for “other expenses”
that included cultural supplies and health maintenance items because they
were personal expenses. The health maintenance items consisted of vitamins
and nutritional supplements that she purchased for personal use. Therefore,
her expenses for health maintenance items were personal expenses under
§262. Moreover, vitamins or organic foods purchased and consumed under a
self-imposed regimen are not deductible medical expenses under §213. The
cultural supplies included tea leaves and other plants, some of which she used
personally for medicinal purposes and some of which she allegedly gave as
gifts to clients.
6. She did not maintain contemporaneous records noting the recipients of the
claimed gifts or the business purpose for the gifts and, therefore, she failed the
substantiation requirements under §274. Therefore, her expenses for cultural
supplies were also nondeductible personal expenses.
7. Finally, the taxpayer was liable for accuracy-related penalties for negligently
claiming deductions for the two tax years at issue:
a. She was also liable for an accuracy-related penalty for an understatement
of taxes for one of the tax years at issue.
b. She negligently claimed deductions for the business use of her home while
simultaneously maintaining and deducting the costs of an office that was
her principal place of business.
c. She failed to examine the correctness of her return positions and a portion
of her tax understatement was attributed to careless disregard of rules or
regulations.
8. Her inflated claims of business use of passenger automobiles were negligent
under the circumstances, as were her claims of deductions for business gifts,
given the lack of records to substantiate these deductions. She failed to show
she acted with reasonable cause and good faith with exception to one
discrepancy related to the portion of her underpayment for one of the tax years
at issue.
8-8

D. Poor Substantiation Kills Charitable Deduction for $27,000 of Non-Cash
Contributions (Thad Deshawn vs. Commissioner 108 T.C.M. 384, TC Memo
2014-203) (October 2, 2014).
Despite its having no doubt that the taxpayer actually donated property to a
charitable organization, the Tax Court ruled that none of taxpayer’s contributions
were deductible because he failed the charitable contribution substantiation tests.
Facts:
1. At his Tax Court trial, the taxpayer testified that after his mother died he
donated the inherited furniture from her house to the American Veterans
National Service Foundation (AMVETS), in 2009. These items included
seven sofas, four televisions, five bedroom sets, six mattresses, a kitchen set,
a dining room set, a china cabinet and three rugs. For charitable contribution
purposes, the taxpayer deducted a value of $11,730 on these items.
2. The taxpayer testified that he also donated to AMVETS during 2009 the
following items of clothing belonging to him or his children: 180 shirts, 63
pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51 dresses, 35 sweaters,
nine overcoats and seven suits. Smith deducted a value of $14,487 on those
items.
3. Smith also testified that he donated to AMVETS during 2009 electronic
equipment that included two computer systems, a printer and a copier. The
record did not establish who previously owned this property. The taxpayer
deducted a value of $1,550 on those items.
4. Smith testified that he had visited AMVETS on several occasions earlier in
2009 and had obtained a number of blank “tax receipts” signed by AMVETS
representatives. Smith testified that he consolidated all of the contributions
described above on two blank receipts. He filled out each receipt by
identifying himself as the “donor,” inserting August 30, 2009 as the “date,”
and indicating the donation values mentioned above. The tax receipts
informed the donor that it was his responsibility to determine the fair market
values (FMVs) of all items.
8-9

5. The tax receipts didn’t identify any specific items of donated property. To
identify the property he allegedly contributed, Smith prepared a spreadsheet.
The record did not establish when this spreadsheet was prepared, and there
was no evidence that it was submitted to AMVETS.
6. In determining that the items listed on his spreadsheet had FMVs of $27,767,
Smith testified that he used a Salvation Army website that lists estimated
“low” and “high” values for used property. The record included a guide
printed from that website. The value that Smith placed on his spreadsheet for
many of the items he allegedly donated in 2009 were considerably higher than
the “high” values shown in this guide and the taxpayer offered no explanation
for this discrepancy.
7. He did not take photographs of any of the items he allegedly donated, and he
introduced no evidence to establish their condition. He did not obtain an
appraisal of any item.
Background:
1. §170(a)(1) provides that charitable contribution deductions are allowable only
if the taxpayer satisfies substantiation requirements. The nature of the required
substantiation depends on the size of the contribution and it depends on
whether it is a gift of cash or property. §170(f)(8) provides that there are
separate requirements for all contributions of:
a. $250 or more,
b. contributions of property with a claimed value exceeding $500
(§170(f)(11)(B)), and
c. contributions of property with a claimed value exceeding $5,000.
(§170(f)(11)(C))
2. §170(f)(11)(F) provides that for contributions exceeding $500, “similar items
of property” are aggregated for purposes of the substantiation rules. (Reg.
§1.170A-13(c)(1)(i)) The term “similar items of property” is defined to mean
“property of the same generic category or type,” such as clothing, jewelry,
furniture, electronic equipment, household appliances, or kitchenware. (Reg.
§1.170A-13(c)(7)(iii))
8-10

3. §170(f)(8)(A) provides that an individual may deduct a gift of $250 or more
only if he substantiates the deduction with “a contemporaneous written
acknowledgment of the contribution by the donee organization.”
§170(f)(8)(B) provides that this acknowledgment must include a description
of any property other than cash contributed.
4. For noncash contributions in excess of $500, taxpayers are required to
maintain written records with respect to each item of donated property that
include, among other things:
a. the approximate date the property was acquired and the manner of its
acquisition;
b. a description of the property in detail reasonable under the circumstances;
c. he cost or other basis of the property;
d. the FMV of the property at the time it was contributed; and
e. the method used in determining its FMV. (Reg. §1.170A-13(b)-(2)(ii)-
(C); Reg. §1.170A-13(b)(2)(ii)(D); Reg. §1.170A-13(b)(3)(i)(A); Reg.
§1.170A-13(b)(3)(i)(B))
5. §170(f)(16)(A) provides that no deduction is allowed for contributions of
clothing or “household items” unless such items are “in good used condition
or better.” §170(f)(16)(D) provides that the term “household items” includes
furniture, furnishings, electronics, appliances, linens and other similar items.
6. §1.170A-13(c)(2) states that for contributions of property valued in excess of
$5,000, the taxpayer must generally satisfy the substantiation requirements
discussed above and must also:
a. obtain a “qualified appraisal” of the items; and
b. attach to his tax return a fully completed appraisal summary.
The Court Disallows all of Taxpayer’s Charitable Deduction:
1. The Tax Court found that Smith did not meet the substantiation requirements
with respect to any of the contributions and therefore disallowed his entire
charitable contribution deduction.
8-11

2. For purposes of §1.170-A-13(c)(1)(i), the Tax Court found that there were
three categories of property, i.e., the household items from Mr. Smith’s
mother’s house, the clothing and the electronic equipment. It said that for all
three categories, Smith had to meet the substantiation requirements imposed
by §170(f)(8) and §170(f)(11)(B). For the first two categories of items, Smith
had to also meet the stricter substantiation requirements imposed by
§170(f)(11)(C).
3. The Court then analyzed whether taxpayer met those requirements:
Requirements for contributions of $250 or more: Smith obtained blank
signed forms from AMVETS and later filled them out himself by inserting
supposed donation values. Because these forms were signed before the
property was allegedly donated, the Court questioned whether they constituted
an “acknowledgment” by AMVETS that it received anything.
• In any event, the Court said, the AMVETS tax receipts do not contain a
“description...of any property...contributed.” (§170(f)(8)(B)(i)). Rather,
Smith created at a time that could not be ascertained, a spreadsheet
showing the property he allegedly contributed, and there was no evidence
that this spreadsheet was ever provided to or seen by AMVETS.
Moreover, the only evidence as to the contemporaneous nature of the
acknowledgment was the date August 30, 2009 which Smith placed on the
blank receipts himself. The Tax Court concluded that Smith failed to
satisfy the substantiation requirements for contributions of $250 or more.
4. Requirements for contributions exceeding $500: Smith allegedly made
noncash contributions to AMVETS of clothing, furniture and electronic
equipment, and for each category of items he claimed a value exceeding $500.
But he did not maintain written records establishing when or how these items
were acquired or what their cost bases were, nor did he maintain written
records establishing the items’ FMVs at the time they were donated.
8-12

He testified that he determined these values using a guide from a Salvation
Army website, but the values he used were considerably higher than the
“high” values the guide displays. He did not maintain photographs or other
records to establish the condition of the donated items, and he therefore
provided no reason for the Court to believe that each donated item should
be accorded a “high” rather than a “low” value.
Most of the items Smith allegedly donated consisted of clothing and
household items. He presented no evidence that these items were “in good
used condition or better” and therefore did not meet the requirements of
§170(f)(16)(A).
5. Requirements for contributions exceeding $5,000: Smith acknowledged
that he did not obtain a qualified appraisal for any of the items and did not
attach a fully completed appraisal summary to his 2009 tax return. He
therefore failed to satisfy the substantiation requirements for his claimed
contributions of clothing ($14,487) and household furniture ($11,730).
§6662 Individuals: Accuracy-related penalty:
1. Smith also was liable for an accuracy-related penalty under §6662 on the
portion of the underpayment attributable to negligence or disregard of rules
and regulations. The taxpayer’s original return was prepared by a tax
professional; however, the taxpayer provided no evidence that the preparer
gave tax advice on which he reasonable relied. In addition, the taxpayer
admitted that he had claimed deductions to which he was not entitled, and that
he had not carefully reviewed the return prior to its being filed.
2. §6662 imposes a 20% penalty upon the portion of any underpayment
attributable to (among other things) negligence or disregard of rules or
regulations. §6662(c) provides that the term “negligence” includes any failure
to make a reasonable attempt to comply with the tax laws, and “disregard”
includes any careless, reckless, or intentional disregard. Negligence also
includes any failure to keep adequate books and records or to substantiate
items properly. §1.6662-3(b)(1), Income Tax Regs.; see Olive v.
Commissioner [Dec. 59, 146], 139 T.C. 19, 43 (2012).
8-13

With respect to an individual taxpayer’s liability for a penalty, §7491(c) places
on the Commissioner the burden of proof, thereby requiring the Commissioner
to come forward with sufficient evidence indicating that imposition of a
penalty is appropriate. Higbee v. Commissioner [Dec. 54,356], 116 T.C. 438,
446-447 (2001). Once the Commissioner meets his burden or proof, the
taxpayer bears the burden of proving that the Commissioner’s determination
is incorrect. Ibid; Rule 142(a); Welch v. Helvering, 290 U.S. at 115.
8-14

E. Tax Court Denies Individual’s §170 Noncash Charitable Contributions
(Roberta Lee Howe v. Commissioner, U.S. Tax Court, T.C.
Summary Opinion 2015-26) (April 9, 2015)
Issues:
1. The Tax Court ruled that an individual was not entitled to deductions in excess
of the amount allowed by the IRS for contributions of noncash property to
various charities. The taxpayer did not satisfy the substantiation requirements,
and her receipts were insufficient to substantiate her claimed deductions.
2. The taxpayer admitted that she had modified certain receipts on the eve of the
trial by estimating fair market values and more detailed descriptions of the
property donated. However, the modified receipts were not considered
contemporaneous written acknowledgments from the donee charities. Four of
the unmodified receipts contained donation values, of which two were
required to meet the substantiation requirements for donations between $250
to $500. The receipts failed the substantiation requirement because the
description of the property was missing or not reasonably sufficient and
neither receipt contained a statement as to whether any goods or services were
rendered by the donee in exchange for the property given.
3. The receipts for property exceeding $500 did not provide the approximate date
and manner of acquisition, or the cost or basis in the property, and no
statement was attached detailing why this information was unavailable.
Finally, the descriptions of the property in this last receipt were not properly
detailed, and no statement was provided as to whether the donee provided any
goods or services in exchange for the donation.
Summary Opinion:
1. This case was heard pursuant to the provisions of §7463 of the Internal
Revenue Code in effect when the petition was filed Pursuant to §7463(b), the
decision to be entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case.
8-15

2. The IRS determined deficiencies of $1,035 and $2,486 in taxpayer’s Federal
income tax for tax years 2010 and 2011, respectively. In accordance with the
parties’ stipulations, the only remaining issue for decision is whether
petitioner is entitled to deductions for contributions of noncash property to
various charitable organizations.
Background:
1. Some of the facts have been stipulated and are so found. Petitioner resided in
California at the time she filed her petition.
Petitioner timely filed her 2010 and 2011 Federal income tax returns. On her
2010 tax return, she claimed deductions of $7,100 for cash contributions to
charity and $2,500 for noncash contributions to charity. On her 2011 tax
return, she claimed a deduction of $4,400 for cash contributions to charity.
2. For tax year 2010 respondent allowed deductions of $200 for cash
contributions to charity and $2,500 for noncash contributions to charity. For
tax year 2011 respondent allowed deductions of $380 for cash contributions
to charity and $1,000 for noncash contributions to charity even though
petitioner did not originally claim a deduction for any noncash contributions
to charity on her 2011 return.
3. Petitioner acknowledged that the original claimed cash charitable contribution
deduction amounts were incorrect but stated to respondent that they should
have been reported as noncash charitable contribution deductions. During
2010 and 2011 petitioner donated to various charities household items she had
inherited from her parents, who died before the tax years in issue, and from
her sister, who died in 2010. Petitioner made donations to the Baras
Foundation (Baras) and to the Animal Protection & Rescue League (APRL).
To support her claimed deductions for the donations, petitioner submitted
various receipts form Baras and APRL. Most of the receipts lack one or more
of the following:
(1) type of property donated,
(2) value of property donated,
(3) signature of anyone acting on behalf of the donee organization, or
8-16

(4) a statement to the effect that no goods or services were rendered in
exchange for the donated property. The following table represents the
receipts petitioner submitted to substantiated her donations to charity:
Donee Property Donated Value Date Signature
Baras - - 2/2010 -
APRL TVs - 2/2010 C. Suitre
APRL Furniture
$500 4/7/2010 Leslie Persen
TVs, stereos, living
room furniture
APRL Clothes and blankets - 10/2010 -
Baras - $500 2/2011 -
Baras - - 3/2011 -
Baras - $150 5/2011 -
Baras - - 8/2011 -
APRL TV, washer, dryer $600 8/7/2011 Olga Cortes
Furniture
Baras - - Illegible -
Petitioner submitted to the Court donation guides from Goodwill and the
Salvation Army that she used to assess the value of clothing donated to Baras and
APRL. Although only one receipt reflects a donation for clothes, and that receipt
does not place a value on the clothes donated, petitioner claims a deduction of
$1,848 for clothes donated to charity. Petitioner’s handwritten notes assign the
maximum recommended value to each item of clothing donated, except for three
coats, to which she assigned lower values than those recommended by the
Goodwill donation guide. The handwritten notes do not describe the age or
condition of the clothing donated.
At trial petitioner submitted amended receipts where she had filled in many of the
missing fields reflected on the above table. On cross-examination, petitioner
admitted to having filled in those values on the night before trial.
8-17

Burden of Proof:
1. The Commissioner’s determination as to a taxpayer’s tax liability is presumed
correct, and the taxpayer bears the burden of proving otherwise. See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a matter
of legislative grace. Deputy v. du Pont, 308 U.S. 488, 493 (1940); New
Colonial Ice Co. V. Helvering, 292 U.S. 435, 440 (1934).
2. Taxpayers must comply with specific requirements for any deductions
claimed. See INDOPCO, Inc. V. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. V. Helvering, 292 U.S. at 440. Taxpayers must also maintain
adequate records to substantiate the amounts of any credits and deductions.
See §6001; §1.6001-1(a), Income Tax Regs.
Charitable Contributions:
1. §170(a)(1) allows as a deduction any charitable contribution made within the
taxable year. Taxpayers must satisfy certain statutory and regulatory
substantiation requirements in order to deduct charitable contributions. See id;
Reg. §1.170A-23, Income Tax Regs. The nature of the required substantiation
depends on the size of the contribution and on whether the contribution
consists of cash or property.
2. For all donations of property, the taxpayer should maintain for each
contribution a receipt from the donee organization detailing the name of the
donee organization, the date and location of the contribution, and a description
of the property in detail reasonably sufficient under the circumstances. Reg.
§1.170A-13. If the donation is made under circumstances where obtaining a
receipt is impractical, such as by leaving property at a charity’s unattended
donation site, then the taxpayer shall maintain written records containing
certain information on the donation. Id.
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3. §170(f)(8)(A) and (B) provide that contributions of $250 or more in property
must be substantiated by a contemporaneous written acknowledgment from
the donee organization that contains a description of the property contributed
and a statement detailing whether the donee provided any goods and services
in exchange for the donation, and if so, a description and good-faith estimate
of the value of any such goods and services given in consideration for the
contribution.
4. §170(f)(8)(C) provides that an acknowledgment is considered
contemporaneous if the taxpayer obtains the acknowledgment on or before the
earlier of (1) the date on which the taxpayer files a return for the taxable year
in which the contribution was made, or (2) the due date (including extensions)
for filing that return.
5. When the claimed value of the donated property exceeds $500, taxpayers
must:
a. meet the information requirements for donations of $250 or more,
b. maintain record with a more detailed description of the property, including
the manner and approximate date of acquisition and cost or other basis
in the property, and
c. include certain information with the return. §170(f)(11)(B); Reg. 1.170A-
13(b)(3)(i)(A) and (B).
6. If the taxpayer has reasonable cause for not being able to provide the
acquisition date or the cost basis in the donated property, then the taxpayer
may attach an explanatory statement to his or her tax return to be excused from
these requirements. Reg. §1.170A-13(b)(3)(ii).
7. Reg. §1.170A-13(f)(10) states that for contributions of less than $250 each
contribution is treated separately for purposes of the §170(f)(8) requirements.
8-19

8. For purposes of the §170(f)(11) requirements, contributions of “similar items
of property” are aggregated in determining whether the $500 threshold has
been exceeded and whether the attendant substantiation requirements have
been met. §170(f)(11)(F). The phrase “similar items of property” means
property that falls into the same general category or type, such as furniture,
electronic equipment, or clothing. Reg. §1.170-13(c)(7)(iii).
A. Contributions of $250 or More:
1. §170(f)(8)(A) provides that all contributions of $250 or more must be
substantiated by a contemporaneous written acknowledgment from the donee
organization. Petitioner admitted to modifying the receipts from Baras and
APRL on the eve of trial by adding estimated fair market values and more
detailed descriptions of the property donated. These modified receipts do not
constitute contemporaneous written acknowledgments from Baras or APRL,
and the Court will not rely on them for purposes of determining whether
petitioner has met the substantiation requirements. Instead, the Court will rely
only on the unmodified receipts, the contents of which are laid out in the table
provided.
2. Of the unmodified receipts submitted to the Court, only four contain donation
values. Two receipts contain donation values of $500, which means they must
meet the substantiation requirements for donations of $250-$500. The first
receipt, for furniture donated to APRL on April 7, 2010, fails to meet the
substantiation requirements because:
a. “furniture” is not a description that is reasonably sufficient under the
circumstances, and
b. it does not contain a statement as to whether any goods and services were
rendered by APRL in exchange for the furniture. See §170(f)(8)(A) and
(B); §1.170A-13(b)(1).
3. The second receipt, for property donated to Baras in February 2011, fails to
meet the substantiation requirements because it:
a. contains no description of the property donated and
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. does not state whether Baras rendered any goods and services in exchange
for the donated property as required under §170(f)(8)(A) and (B).
B. Contributions Exceeding $500:
1. Contributions of property exceeding $500 in value must be further
substantiated with information about:
a. the approximate date the property was acquired and the manner of its
acquisition;
b. a description of the property in detail reasonable under the circumstances;
c. the cost or other basis in the property;
d. the fair market value of the property; and
e. the method used in determining its fair market value. §1.170(A)-
13(b)(2)(ii)(C) and (D), (3)(i)A) and (B). §170(f)(11)(B) provides that the
taxpayer must include with his return “a description of such property and
such other information as the Secretary may require.”
2. Petitioner provided one receipt for property exceeding $500 in value for a
donation on August 7, 2011, of a “TV, washer, dryer [and] furniture” to
APRL. Petitioner did not provide the required information under
§170(f)(11)(B) regarding the August 7, 2011, donation to APRL, such as the
approximate date and manner of acquisition or cost or other basis in the
property, nor did she attach an explanatory statement detailing why such
information was unavailable. (§1.170A-13(b)(3)(ii)) In addition, the
descriptions of the donated items are not sufficiently detailed, and the receipt
does not state whether APRL provided any goods and services in exchange
for the donation as provided under §170(f)(8)(A) and (B). Accordingly, this
receipt does not meet the substantiation requirements for donations exceeding
$500 in value.
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C. Remaining Contributions:
1. The remaining receipts petitioner submitted to the Court lack donation values.
The fair market value of contributed property need not be stated on the receipt,
but it is one of the circumstances to be considered when determining the
amount of detail included on the receipts. Reg. §1.170A-13(b)(1)(iii).
2. Except for the receipt from Baras with an illegible date, these receipts meet
two of the minimum requirements for contributions of property - namely, they
each list the name of the donee organization and the date and location of the
contribution. See §170A-13(b)(1). However, they fail to describe the
contributed property in detail reasonably sufficient under the circumstances.
The receipts from Baras dated February 2010, March 2011, and August 2011
and the receipt with an illegible date contain no description of the contributed
property at all. The February 20 and October 8, 2010, donations to APRL state
only that “TVs” and “clothes and blankets” were donated but do not give any
further description as to these items. Likewise, the October 2010 receipt from
Baras lists “TVs, stereos, living room furniture” but does not provide
sufficient detail under the circumstances. These receipts are insufficient to
provide substantiation for petitioner’s claimed deductions.
Conclusion:
1. Petitioner has failed to carry her burden of proving her entitlement to the
claimed deductions for charitable contributions. Because petitioner did not
satisfy the substantiation requirements, we are unable to allow her any
deduction in excess of what respondent has already allowed
2. In reaching our holding, we have considered all arguments made, and, to the
extent not mentioned above, we conclude they are moot, irrelevant, or without
merit.
To reflect the foregoing,
Decisions will be entered under Rule 155.
8-22

F. Noncustodial Parent Denied Dependency Exemption, Child Tax Credit and
Head of Household Filing Status (H.L. Porter, TC Memo 2015-151)
(August 6, 2015)
Background:
1. A noncustodial parent was not entitled to claim a dependency exemption for
his child since he failed to obtain a signed Form 8332, “Release of Claim to
Exemption for Child of Divorced or Separated Parents”, or any other
document signed by his former spouse stating that she would not claim that
child as a dependent. Since he did not have a dependent, he was not entitled
to file as head of household or claim the Child Tax Credit (CTC).
2. The taxpayer did not ask his former spouse to sign a Form 8332 because he
assumed that the divorce decree he provided to the IRS would be sufficient.
Although, his former spouse did not sign the divorce decree, he argued that
the decree should nevertheless satisfy the written declaration requirement
because a state court judge signed it. However a state court order that is not
signed by the custodial parent does not satisfy the express statutory
requirements of §152(e)(2)(A).
3. The taxpayer contended that he could have secured a timely signed declaration
from his former spouse if the IRS had not led him to believe that the divorce
decree alone would suffice. However, his contention was rejected because the
IRS notified him of the signature requirement and provided him with multiple
opportunities to produce the necessary documentation. Therefore, he was not
entitled to the dependent exemption for the year at issue.
8-23

G. Deduction For Officer Compensation Disallowed Because Check Was Not
Payable due to Insufficient Funds (Vanney Associates, Inc. v. Commissioner,
U.S. Tax Court, Dkt. No. 25684-11, TC Memo. 2014-184, 108 T.C.M. 265)
(September 11, 2014.)
Issues of the Case:
1. Deductions, officer compensation, relation-back doctrine:
a. The tax court ruled that a check payment to a corporate officer was not
deductible by the corporation in the year it was delivered because the
check was drawn on an account with insufficient funds. The officer was
the owner of the corporation so the transaction was subject to “special
scrutiny”.
b. The officer knew there were insufficient funds to pay the check and
endorsed the check back to the corporation, purportedly as a loan, which
was repaid to the officer during the following year. The payment by check
was conditional, and since the check was not cashed, the payment did not
relate back to the date the check was drafted.
Memorandum Findings Of Fact And Opinion:
1. The IRS issued Vanney Associates, Inc., a notice of deficiency for the 2008
taxable year. Among other issues, the IRS disallowed portions of the
deductions for officer compensation and taxes and licenses. The only issue
was whether Vanney Associates could deduct the portion of officer
compensation related to a yearend bonus to the sole shareholder of the
company that was paid by a check that Vanney Associates could not have
honored and that was returned to the company. The court ruled that the
Corporation could not deduct the payment.
8-24

Findings of Facts:
1. Vanney Associates, Inc., was incorporated in 1987. It is a personal service C
Corporation that used the cash method of accounting. Robert Vanney was a
licensed architect with over 39 years of architectural and interior design
experience. He is the sole shareholder, chief executive officer, chief financial
officer, vice president of marketing, vice president of operations, and director
of human resources of Vanney Associates. Vanney Associates employed
about 25 others, but Mr. Vanney was the one responsible for marketing,
bringing in new business, and signing construction documents.
2. Karen Vanney, Mr. Vanney’s spouse, was responsible for maintaining
Vanney Associates’ books and records. Ms. Vanney was a certified public
accountant with an inactive license and employed as the vice president of
finance for a company unrelated to Vanney Associates. She was not a
shareholder, director, employee, or independent contractor of Vanney
Associates. Ms. Vanney would prepare payroll checks for Vanney Associates.
Mr. Vanney would then sign the checks on behalf of Vanney Associates and
distribute them.
3. In 2008 Vanney Associates paid Mr. Vanney monthly wages totaling
$240,000. At the end of each year, it was the Vanneys’ practice to determine
Vanney Associates’ remaining profit after paying any outstanding bills and
paying bonuses to employees. After determining this amount, Ms. Vanney
would prepare a check on behalf of Vanney Associates and pay the remaining
profit to Mr. Vanney as a yearend bonus. The Vanneys testified that their
intent behind the yearend bonus was only to pay out the remaining profit; it
was not to zero out the tax liability of Vanney Associates even if that was the
effect.
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4. On December 30, 2008, Vanney Associates paid Mr. Vanney a yearend bonus
totaling $815,000. After withholding and paying to the IRS the appropriate
Federal income, Social Security, and Medicare taxes, Vanney Associates
wrote a check to Mr. Vanney for $464,183. Mr. Vanney signed the check on
behalf of Vanney Associates and then endorsed the check in his own name
and made it payable to Vanney Associates. He never attempted to cash the
check. Ms. Vanney recorded the payment on the books as a loan from Mr.
Vanney, and Vanney Associates repaid Mr. Vanney in March 2009.
5. Although Vanney Associates wrote Mr. Vanney a check for over $464,183 on
December 31, 2008, the total balance in Vanney Associates’ bank accounts
was $389,604; the balance was $283,033 after adjusting for outstanding
deposits and checks. Mr. Vanney testified that he “believe[d]” he knew that
Vanney Associates did not have the funds necessary to honor the check.
However, he maintained that Vanney Associates could have gotten a loan to
cover the check. Further, Ms. Vanney testified that Vanney Associates was a
strong company with considerable receivables; and although the Vanneys
considered taking out a loan for Vanney Associates, they decided not to
because they personally did not need the money and they wanted to avoid the
expenses that would come with obtaining the loan.
6. Vanney Associates timely filed its 2008 Form 1120, U.S. Corporation Income
Tax Return, which reflected no taxable income or tax. Vanney Associates
claimed various deductions, among them $1,055,000 for compensation of
officers and $123,191 for taxes and licenses, which included $11,818 paid for
Medicare taxes. The IRS selected the return for examination and mailed
Vanney Associates a notice of deficiency on August 5, 2011, disallowing
$815,000 of the deduction for compensation of officers and $11,818 of the
deduction for taxes and licenses. Vanney did not address IRS’s adjustments
to the deductions for taxes and licenses. The notice also made other
adjustments that were not at issue. In response, Vanney Associates timely
petitioned the tax court.
8-26

Opinion Of The Tax Court: Burden Of Proof
1. The Commissioner’s determinations in the notice of deficiency are generally
presumed correct, and taxpayers bear the burden of proving otherwise. This is
known as Rule 142(a): Welch v. Helvering (3 1164, 290 U.S. 111,115
(1933)). Although the burden may shift to the Commissioner under §7491(a),
Vanney Associates did not claim that the burden shifted to IRS and likewise
the Court did not find it appropriate to shift the burden to the IRS.
2. Deductibility of Officer Compensation
a. Income tax deductions are a matter of legislative grace, and the burden of
proving entitlement to any claimed deduction rests on the taxpayer.
(INDOPCO Inc. v. Commissioner [92-150, 113] 503 U.S. 79, 84 (1992),
also Rule 142(a)). §162 allows a deduction for “ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade
or business.”
b. A payment by check is known as a conditional payment because it is
subject to the condition subsequent that the check be paid upon
presentation to the drawee. (Estate of Hubble v. Commissioner [Dec.
16,470], 10 T.C. 1207, 1208 (1948) (quoting Eagleton v. Commissioner
[Dec. 9591], 35 B.T.A at 588] (1937) aff’d [38-29345] 97 F.2d 62 (8th
Cir. 1938)). Once the condition subsequent is fulfilled, it is generally
reasonable to conclude that the payment related back to the time when the
check was given. Therefore, the allowances of a deduction is dependent
on proper payment of the check. The tax court previously disallowed a
deduction where a check was not ultimately paid because of insufficient
funds. (Pike v. Commissioner [Dec. 39,037] 78 T.C. 822, 849 (1982)).
Further, the court held that the relation-back doctrine is inapplicable
where the payee knows the payor has insufficient funds and therefore
refrains from cashing the check. (Blumeyer v. Commissioner [Dec. 48,623
(M)] T.C. MEMO 1992-647).
8-27

c. Transactions between related entities are subject to special scrutiny.
(Weaver v. Commissioner [Dec. 55,318], T.C. 273, 278 (2003)). The
economic reality of a transaction will prevail over its form, and a finding
of economic reality depends on whether the transaction would have
followed the same form if the parties were unrelated. (ANG v.
Commissioner [Dec. 59,863 (M)] T.C. MEMO. 2014-53; Estate of Rosen
v. Commissioner [Dec. 56,533(M)], T.C. MEMO. 2006-115). Further, the
tax court previously disallowed deductions where there was no actual
economic outlay and the payments were “wholly circular.” (Oren v.
Commissioner [Dec. 54,811 (M)] T.C. Memo. 2002-172, aff’d [2004-1
50,165], 357 F. 3d 854 (8th Cir. 2004).
d. Mr. Vanney was the sole shareholder of Vanney Associates. Ms. Vanney,
as Vanney Associates’ bookkeeper, knew or should have known that
Vanney Associates did not have the funds to cover the bonus check to Mr.
Vanney, and Mr. Vanney testified to having at least some idea of this as
well.
e. Vanney Associates argued that the payment was unconditional and
payment occurred when Mr. Vanney took possession of the check. Vanney
Associates cited O’Connor V. Commissioner [Dec. 20,446(M)]. T.C.
Memo. 1954-90, where this court held that “the essential element is that
the control of property distributed by way of a dividend must have passed
absolutely and irrevocably”. The court in O’Connor also relied on the fact
that the payee had “unrestricted use” of the money and the “amount was
unqualifiedly his, to do with as he wished.” That is not the case before us.
If anything, Mr. Vanney had only restricted use of the check. He could not
cash it at the bank, use it to pay a debt, or use it to make a loan to someone
other than to Vanney Associates. In fact, Mr. Vanney’s only option to
make use of the money at that time was to lend it back to Vanney
Associates because the check could not be honored.
8-28

f. Additionally the tax court previously held that although a taxpayer
maintains possession of a check, the amount of the check may not be
treated as a distribution or may not be included in gross income when the
account has insufficient funds to honor the check. (Fountain v.
Commissioner [Dec. 31,864], 59 T.C. 696, 702 (1973)). Here the tax court
asked that holding the checks were not treated as distributions of money
when the accounts had insufficient funds and the payees treated this check
as notes payables.
• Accordingly, IRS disallowance of a portion of the deduction for officer
compensation was sustained.
Conclusion by Tax Court:
1. On the basis of the court’s examination of the record before them and the
parties’ arguments at trial, the court found that Vanney Associates is not
entitled to deduct the portion of officer compensation relating to Mr.
Vanney’s yearend bonus. Vanney Associates did not have the funds to
cover the check when it was presented to Mr. Vanney. Accordingly, the
check could not have been paid, and IRS’s determination to disallow the
deduction is sustained.
2. The court considered the parties’ arguments and, to the extent not
addressed herein, found them to be irrelevant, moot, or without merit.
Decision was entered for IRS.
8-29

H. Payments to Ex-Spouse Disallowed As Deductible Alimony Payments:
(Fred D. Murray v. Commissioner, U.S. Tax Court, T.C. Summary Opinion
2013-103) (December 12, 2013)
Issues related to §71 Alimony: Termination on Death and §6664 accuracyrelated
penalty and reasonable cause:
1. The tax court ruled that two installment payments owing under a divorce
agreement were not alimony because the recipient former spouse’s right to
payment would not terminate upon her death.
2. The agreement was silent on the issue, but the payments were lump sum
payments rather than periodic payments, and under state (Mississippi) law,
the right to the installment payments would not terminate upon the death of
the recipient spouse.
3. Further the taxpayer failed to prove that he was not liable for the accuracyrelated
penalty. He could not claim that he reasonably relied on his attorney
to draft the divorce agreement as the agreement had exculpatory language
relieving the attorney of legal liability for the tax consequence of the
agreement.
4. IRS determined a $14,430 deficiency in tax and a $2,886 accuracy-related
penalty under §6662(a).
5. The issues for decision for taxpayer’s taxable year 2009 were:
a. Do the two payments totaling $55,000 that taxpayer made to his former
spouse during 2009 constitute alimony deductible under §215(a)? The tax
court ruled no.
b. Is taxpayer liable for the accuracy-related penalty under §6662(a)? The
court ruled yes.
8-30

Findings of fact:
1. Taxpayer resided in Mississippi at the time he filed the petition in tax court.
Taxpayer and Lisa Lynn Murray (Ms. Murray) decided to end their marriage.
On March 5, 2009, they signed a document titled “PROPERTY
SETTLEMENT AGREEMENT” (settlement agreement), which they
indicated therein “makes fair and equitable provisions for the distribution of
the property of the parties”.
The settlement agreement set forth the agreement with respect to certain
matters that were identified as follows in that agreement: “REAL
PROPERTY”, “MOTOR VEHICLES”, “BANK ACCOUNTS AND
PERSONAL PROPERTY”, “RETIREMENT ACCOUNTS”, AND
“ALIMONY”.
2. The agreement with respect to “ALIMONY” was as follows:
Both parties acknowledge that they are both in good health and have no mental
or physical restriction that would prevent either from gainful employment.
The parties freely, voluntarily, expressly, and mutually agree to release one
another of any and all duty and obligation one may owe to the other for any
alimony or related support whether lump sum, periodic, rehabilitative or of
any nature, except as specifically as lump sum alimony to be paid as follows:
$25,000 by cashier’s funds upon the execution of this agreement and $30,000
by cashier’s funds within 30 days from the date of the execution of this
agreement. The funds shall be paid through the office of the wife’s attorney.
All provisions contained hereinabove for the payment of debts or division of
marital property is by way of support one to the other and shall not be
dischargeable in bankruptcy.
8-31

3. The agreement with respect to a “FINAL DECREE OF DIVORCE” was as
follows:
“In the event a Final Decree of Divorce is entered in any action or proceeding
herein, this Agreement and in particular the provisions relating to the property
rights and other matters set forth in the said Agreement, if the Court approves
the same , shall be incorporated therein, merged with and become a part of
such Final Decree of Divorce.”
4. The agreement with respect to “RELEASES AND OTHER
OBLIGATIONS” was in pertinent part as follows: “Both parties agree that
this Agreement shall be binding upon the parties and their respective heirs,
executors, administrators, and assigns.”
5. The agreement with respect to its “MODIFICATION” was in pertinent part
as follows: “A modification or waiver of any of the provisions of this
agreement shall be effective only if made in writing and executed with the
same formality as this agreement, and approved by the [Chancery] Court [of
DeSoto County, Mississippi].”
6. The agreement with respect to “TAX ADVICE” was as follows:
“Both parties further agree that no tax advice has been requested nor furnished
by said attorneys in this divorce action regarding the tax consequences of this
Property Settlement Agreement and shall hold the law firms and individual
attorneys harmless and blameless for any tax consequences related to this
Property Settlement Agreement.”
7. Taxpayer and Ms. Murray were divorced pursuant to a “DECREE OF
DIVORCE” (final divorce decree) that the Chancery Court of DeSoto
County, Mississippi, filed on April 1, 2009. That court “ratified, approved and
adopted” the settlement agreement, made it “part of the Decree of Divorce for
all property settlement and other purposes”, and ordered that it “shall and does
determine the rights of the parties”.
8-32

8. Pursuant to Paragraph 5 of the settlement agreement, titled, “ALIMONY”,
Taxpayer made payments of $25,000 and $30,000 to Ms. Murray on the two
respective dates in 2009 specified in that paragraph of that agreement. His
2009 return reported “total tax” of $5,331 and claimed a deduction as
alimony for the two payments totaling $55,000.
9. Before claiming that deduction, taxpayer did not seek any advice as to the
propriety of that deduction. He did, however, ask H&R Block to review his
return after he had prepared it but before he filed it. He did not provide H&R
Block a copy of the settlement agreement or the final divorce decree.
10. The IRS issued a notice of deficiency (notice) to the taxpayer. In the notice,
IRS disallowed the deduction for the two payments totaling $55,000. The IRS
also determined in the notice that the taxpayer was liable for the accuracyrelated
penalty under §6662(a).
Opinion of the Court:
1. Taxpayer bears the burden of establishing that the determinations in the notice
are erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,115
(1933).
2. The Court addressed initially the alimony deduction that taxpayer claimed in
his 2009 return for the two payments totaling $55,000. §215(a) allows an
individual to deduct “an amount equal to the alimony or separate maintenance
payments paid during such individual’s taxable year”.
3. §215(b) defines the term “alimony or separate maintenance payment” for
purposes of §215 to mean “any alimony or separate maintenance payment (as
defined in §71(b)) which is includible in the gross income of the recipient
under §71.
4. §71(b)(1) provides that in general: The term “alimony or separate
maintenance payment” means any payment in cash if:
a. such payment is received by (or on behalf of) a spouse under a divorce or
separation instrument,
8-33

. the divorce or separation instrument does not designate such payment as a
payment which is not includible in gross income under this section and
not allowable as a deduction under §215,
c. in the case of an individual legally separated from his spouse under a
decree of divorce or of separate maintenance, the payee spouse and the
payor spouse are not members of the same household at the time such
payment is made, and
d. there is no liability to make any such payment for any period after the
death of the payee spouse and there is no liability to make any payment
(in cash or property) as a substitute for such payments after the death of
the payee spouse.
5. §71(b)(2) provides that the term “divorce or separation instrument” means:
a. a decree of divorce or separate maintenance or a written instrument
incident to such a decree,
b. a written separation agreement, or
c. a decree (not described in subparagraph (a)) requiring a spouse to make
payments for the support or maintenance of the other spouse.
6. The parties agree that the payments at issue must meet all four requirements
in §71(b)(1)(A) through (D) in order to constitute an alimony or separate
maintenance payment that is deductible under §215(a) and includible in the
income of the recipient under §71(a). However, they disagree as to whether
those payments satisfy the requirement in §71(b)(1)(D).
7. The requirement in §71(b)(1)(D) is satisfied if the payor has “no liability to
make any payment for any period after the death of the payee spouse and no
liability to make any payment (in cash or property) as a substitute for such
payments after the death of the payee spouse.” Whether that requirement is
satisfied is determined by the terms of the applicable instrument or, if the
instrument is silent on the matter, by state law. See Kean v. Commissioner,
T.C. Memo. 2003-163, aff’d, 407 F.3d 186 (3d Cir. 2005).
8-34

8. The court considered first the terms of the settlement agreement. The
agreement is silent as to whether taxpayer’s obligation in that agreement to
make the payments at issue to Ms. Murray would have terminated if she (or
he) had died before he had made those payments.
9. Since the settlement agreement was silent, the court turned for guidance to the
law of the state of Mississippi (Mississippi law). Before addressing
Mississippi law, the tax court noted that their characterization of the payments
at issue as periodic alimony or lump sum alimony under that law is
determinative of whether those payments satisfy the requirement in
§71(b)(1)(D).
10. Under Mississippi law periodic alimony consists of periodic payments to the
payee spouse that are to continue indefinitely until the remarriage of the payee
spouse or the death of either the payor or payee spouse.” Barrett v. United
States, 74 F.3d 661, 664 (5th Cir. 1996) (citing Bowe v. Bowe, 557 So. 2d
793, 795 (Miss. 1990), and Wray v. Wray, 394 So. 2d 1341, 1344 (Miss.
1981)).
11. Also under Mississippi law, upon the request of either spouse, a court may
modify periodic alimony if the court were to find that the requesting spouse
had a material change in economic circumstances. Under Mississippi law, “the
court cannot deprive itself of the power to modify periodic alimony in the
future and cannot extend the payments past the remarriage of the payee spouse
or death of either spouse.” Id. (citing Armstrong v. Armstrong, 618 So. 2d
1278, 1281 (Miss. 1993), Bowe, 557 So. 2d at 795, and East v. East, 493 So.
2d 927, 931 (Miss. 1986)).
12. In Barrett, the U.S. Court of Appeals for the Fifth Circuit (the court to which
an appeal in this case would normally lie if this case were appealable),
indicated that periodic alimony under Mississippi law is in contrast to lump
sum alimony under that law. In the words of the Court of Appeals,
“Mississippi’s lump sum alimony is a final settlement, substituting as
a division of property, between a husband and wife that cannot be
subsequently modified for any reason except fraud. The death or
remarriage of the payee spouse does not affect [sic] the payor spouse’s
8-35

obligation; lump sum alimony is treated like a traditional debt and is
even chargeable to the estate of the payor spouse.”
Id. at 665 (fn. refs. omitted) (citing Armstrong, 618 So. 2d at 1281,
Cunningham v. Lanier 590 So. 2d 133, 136 (Miss. 1991), Bowe, 557 So. 2d
at 795, Wray, 394 So. 2d at 1344, 1345, Hubbard v. Hubbard, 656 So. 2d 124,
120-130 (Miss. 1995), and Maxcy v. Estate of Maxcy, 485 So. 2d 1077, 1078
(Miss. 1986).
13 Under Mississippi law, “an alimony decree is presumed to provide for
periodic alimony unless the decree ‘by clear and express language’ provides
for lump sum alimony. Ideally a lump sum alimony award will state that the
payor spouse must pay a certain total sum, payable in specified monthly
installments; however, there is no required form for lump sum alimony.” Id.
(fn. Refs. Omitted) (quoting Creekmore v. Creekmore, 651 So. 2d 513, 518
(Miss. 1995), Sharplin v. Sharplin, 465 So. 2d 1072, 1073 (Miss. 1985), and
Wray, 394 So. 2d at 1345).
14 In order to ascertain whether a decree or an award of alimony “by clear and
express language’ provides for lump sum alimony”, id., we must consider the
substance of, and not the label attached to, the alimony awarded, id. (citing
Creekmore, 651 So. 2d at 518).
15. In the settlement agreement taxpayer and Ms. Murray used the phrase “lump
sum alimony” to refer to the “sum of $55,000” that he was to pay to her in two
respective installments of $25,000 and $30,000 on the date of the execution
of that agreement (i.e., March 5, 2009) and 30 days from the date of that
execution (i.e., April 4, 2009). The court concluded that phrase “lump sum
alimony” that taxpayer and Ms. Murray used in the settlement agreement was
not intended by them to be a mere label. That is because in the sentence in the
settlement agreement immediately preceding the sentence in which taxpayer
and Ms. Murray agreed that he was to pay to her “the sum of $55,000 as lump
sum alimony” they acknowledged in unambiguous language that each of them
was aware of the different types of alimony under Mississippi law. That
immediately preceding sentence set forth the following agreement of taxpayer
and Ms. Murray: “The parties freely, voluntarily, expressly, and mutually
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agree to release one another of any and all duty and obligation one may owe
to the other for any alimony or related support whether lump sum, periodic,
rehabilitative or of any nature, except as specifically set out herein.”
(Emphasis added.)
16. The tax court concluded that when taxpayer and Ms. Murray used the phrase
“lump sum alimony” in the next sentence in the settlement agreement they
intended that the substance of the $55,000 amount that he was to pay her in
two installments was lump sum alimony under Mississippi law.
17. The characteristics of “the sum of $55,000” that taxpayer agreed to pay Ms.
Murray in paragraph 5 of the settlement agreement reinforce our conclusion.
One of the characteristics of lump sum alimony under Mississippi law is that
the alimony decree provides “a specified duration of time for the payments,
after which the obligation ceases.” Barrett, 74 F.3d at 665 (citing Creekmore,
651 So. 2d at 518).
18. In paragraph 5 of the settlement agreement, taxpayer and Ms. Murray agreed
that he make the two payments to her totaling $55,000 on the specified dates
in 2009.
19. Another characteristic of lump sum alimony under Mississippi law is that it
“constitutes a final settlement between the parties that is not subject to
subsequent modification.” Id. at 665-666. Taxpayer and Ms. Murray agreed
in the settlement agreement in pertinent part as follows with respect to its
“MODIFICATION”: “A modification or waiver of any of the provisions of
this agreement of this agreement shall be effective only if made in writing and
executed with the same formality as this agreement, and approved by the
[Chancery] Court [of DeSoto County, Mississippi]”. As a result, the Chancery
Court of De Soto County, Mississippi, was not allowed to modify, sua sponte
or on the request of either taxpayer or Ms. Murray, “the sum of $55,000” that
he was to pay to her “as lump sum alimony” in two installments on the dates
specified, as required in paragraph 5 of the settlement agreement.
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20. On the record, the tax court found that under Mississippi law the taxpayer’s
obligation to make the payments at issue to Ms. Murray would not have
terminated if he (or she) had died before he had made one or both of those
payments. On that record, the tax court further found that the payments at issue
did not satisfy the requirement in §71(b)(1)(D) and that the payments at issue
did not constitute alimony deductible under §215.
Accuracy and Related Penalty Issues:
1. The court then addressed whether the taxpayer was liable for the accuracyrelated
penalty under §6662(a), which imposes an accuracy-related penalty of
20 percent of the underpayment to the portion of any underpayment which is
attributable to:
a. “Negligence or disregard” of rules or regulations, or
b. §6662(b)(2) under a “substantial understatement” of tax.
2. The term “negligence” in §6662(b)(1) includes any failure to make reasonable
attempt to comply with §6662(c). Negligence has also been defined as a
failure to do what a reasonable person would do under circumstances.
Leuhsler v. Commissioner, 963 F .2d 907, 910 (6th Cir. 1992), aff’g T.C.
Memo. 1991-179; Antonides v. Commissioner, 91 T.C. 686, 699 (1988),
aff’d, 893 F .2d 656 (4th Cir. 1990).
3. Reg. §1.6662-3(b)(1) states that the term “negligence” also includes any
failure by the taxpayer to keep adequate books and records or to substantiate
items properly.
4. §6662(c) provides that the term “disregard” includes any careless, reckless, or
intentional disregard.
5. §6662(b)(2) provides that an “understatement” is equal to the excess of the
amount of tax required to be shown in the tax return over the amount of tax
shown in the return.
6. §6662(d)(1)(A) provides that an “understatement is substantial” in the case of
an individual if the amount of the “understatement” for the taxable year
exceeds the greater of:
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a. 10 percent of the tax required to be shown in the tax return for that year,
or
b. $5,000.
7. §6664(c)(1) provides that the accuracy-related penalty under §6662(a) does
not apply to any portion of an underpayment if it is shown that there was
reasonable cause for, and that the taxpayer acted in good faith with respect to
such portion.
8. Reg. §1.6664-4(b)(1) states that the determination of whether the taxpayer
acted with reasonable cause and in good faith depends on all the pertinent facts
and circumstances, including the taxpayer’s efforts to assess the taxpayer’s
proper tax liability, the knowledge and experience of the taxpayer, and the
reliance on the advice of a professional, such as an accountant.
9. Reliance on the advice of a professional may demonstrate reasonable cause
and good faith if, under all the circumstances, such reliance was reasonable
and the taxpayer acted in good faith. Id. In this connection, a taxpayer must
demonstrate that the taxpayer’s reliance on the advice of a professional
concerning substantive tax law was objectively reasonable. Goldman v.
Commissioner, 39 F .3d 402, 408 (2d Cir. 1994), aff’g T.C. Memo. 1993-480.
10. A taxpayer’s reliance on the advice of a professional will be objectively
reasonable only if the taxpayer has provided necessary and accurate
information to the professional. Neonatology Assocs. P.A. V. Commissioner,
115 T.C. 43, 99 (2000), aff’d, 299 F .3d 221 (3rd Cir. 2002); see also Ma-Tran
Crop. V. Commissioner, 70 T.C. 158, 173 (1978).
11. The IRS’s position was that taxpayer was liable for the accuracy-related
penalty because there is a substantial understatement of tax for that year under
§6662(b). The tax court agreed with the IRS that there is a substantial
understatement of tax because Murray reported a tax on the return of only
$5,331 and the IRS determined a deficiency of $14,430.
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12. Taxpayer’s position was that he was not liable for the accuracy-related penalty
because he “intended for the payments to be periodic alimony, believed that
his attorney structured the Property Settlement Agreement as such. For these
reasons, Taxpayer has reasonable cause for deducting his payments as
alimony.” Accordingly, he claimed, he “acted in good faith and has reasonable
cause for deducting the payments on his tax return.” The tax court rejected
taxpayer’s position because the record does not support taxpayer’s claims in
support of his position that he is not liable for the accuracy-related penalty.
13. On the record, the tax court found that Taxpayer failed to carry his burden of
establishing that there was reasonable cause for, and that he acted in good faith
with respect to the underpayment. On that record, the tax court found that he
failed to carry his burden of establishing that he is not liable for the accuracyrelated
penalty.
Decision entered for IRS
8-40

I. Taxpayers Denied Deduction for Farmhouse Expenses: (D.B. Meinhardt,
CA-8, 2014-250,430 September 12, 2014. Donald B. Meinhardt and Arvella
Meinhardt v. Commissioner, U.S. Tax Court Docket No. 21903-09, T.C.
Memo., 2013-85) (March 27, 2013)
Issues of the Case:
1. The tax court determined that a married couple could not deduct various
expenses associated with a farmhouse because the expenses were not related
to a property held for the production of income. The couple purchased a
farmhouse and farmland.
2. The couple leased the farmland to neighboring farmers but they were never
able to rent out the farmhouse. Therefore, all of the income was derived from
leasing the farmland, but all of the disallowed expenses were associated with
repairing and maintaining the farmhouse.
3. Contrary to their argument, the couple lacked a profit motive for their alleged
farmhouse rental business. The farmhouse was either vacant or occupied by
relatives who lived in it for free. Further, the couple made no changes to their
efforts to rent the property despite being unsuccessful for years, which
undermined their assertion that they sought to profit by renting the property.
4. Moreover, the farmland and the farmhouse were two different activities
because the couple rented out the farmland separately from the house and
never tried to rent or lease the farmhouse and farmland together. In addition,
they retained access and control over the farmhouse for personal purposes.
5. In addition, the couple never established that the farmhouse was held for the
production of income under §212. The farmhouse never generated any income
and the couple did not have any credible plans to operate it profitably. While
the repairs and improvements to the farmhouse increased the value of the
property, they failed to prove that they were improving the property to profit
from its rental or appreciation as opposed to for their personal use.
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6. The taxpayers never appropriated the property for the production of income.
They did not demonstrate that the services received from some tenants in
exchange for use of the property approximated the fair rental value of the
farmhouse.
7. Finally, the taxpayers did not keep records to substantiate their claimed
expenses or barter exchanges between them and occupants of the farmhouse.
As a result, they were not allowed to deduct expenses associated with
maintenance of the farmhouse.
8. §6662 and §6664 Penalties: Civil; accuracy-related penalty: negligence:
reasonable cause: reliance on tax advisor.
The taxpayers’ failure to keep records of the expenses they claimed in
connection with a farmhouse they tried unsuccessfully to rent out was
negligent and supported the imposition of accuracy-related penalties for the
years at issue. However, the taxpayers relied in good faith on a tax
professional and supplied him with all material related to their taxes and that
they thought relevant. Therefore, they acted reasonably and in good faith and
were not liable for the penalties.
Findings of Fact:
1. Taxpayers filed their 2005-2007 Forms 1040. On June 9, 2009, IRS issued
taxpayer a notice of deficiency determining tax deficiencies ($9,204 for 2005),
($10,052 for 2006), and ($3,535 for 2007) and determining penalties under
§6662(a) of ($1,840 for 2005), ($2,010 for 2006), and ($707 for 2007).
2. During the years in issue, taxpayer, an architect, worked full time at an
architectural firm. The spouse operated a day care center out of their home. In
1976 taxpayers purchased approximately 140 acres of land that was improved
with a farm house and outbuildings and that also consisted of crop land and
pasture land.
3. They rented out the farmland separately from the farmhouse. Since purchasing
the land they had numerous local farmers lease the crop land and the pasture
land. They attempted to rent out the farmhouse but were unsuccessful in
finding tenants to rent the house in exchange for cash.
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4. They claimed the following receipts, expenses, and losses on Schedule E of
their Forms 1040.
Category 2005 2006 2007
Rents Received $ 10,260 $ 10,800 $10,800
Total Expenses 29,474 26,611 18,449
(Losses) $(19,214) $(15,811) $(7,649)
All of the rental income reported on the Schedule E was from the rental of
the crop land and the pasture land. The Schedule E adjustments in the
notice of deficiency are associated only with the farmhouse.
IRS disallowed the following expenses that were reported on Schedule E of
taxpayers’ Forms 1040:
Category 2005 2006 2007
Auto/travel $ 2,587 $ -0- $ -0-
Insurance 315 541 586
Repairs 8,589 6,977 2,641
Supplies 1,320 1,489 1,280
Utilities 1,868 1,575 1,640
Other 5,844 3,754 1,688
Total $20,523 $14,336 $7,835
Taxpayers did not present any documentary evidence showing that they
actually incurred these disallowed expenses.
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5. From 1976 through 2007 various individuals lived in the farmhouse at
different times, often exchanging services (such as repairs and maintenance
on the farmhouse) for use of the house. Over the years the occupants included
petitioner wife’s brother, who lived in the farmhouse seasonally for 20 years;
taxpayer’s daughter and her husband, who lived in the farmhouse for four
years; and their son and his family, who lived in the farmhouse for three
months. They never received rent for use of the farmhouse. At various other
times the farmhouse remained vacant.
6. They did not keep or present at trial any detailed records of the value of these
barter exchanges or the fair market rental value of the farmhouse. It is unclear
whether the farmhouse was in use or remained vacant during the years in issue.
7. During the years in issue taxpayers occasionally used the farmhouse to stay
overnight, change clothes, or cook meals after working on the farm. They also
kept carpentry tools and supplies at the farmhouse, which they would use
when remodeling and working on the farmhouse. They had access to the
farmhouse at all times.
Note: Taxpayers hired Geoffrey Tenney to prepare their Federal income tax
returns for the years in issue. Mr. Tenney was a practicing Minnesota attorney
who regularly handled tax returns in the community.
Opinion of the Tax Court:
1. Generally, the Commissioner’s determinations in a notice of deficiency are
presumed correct, and the taxpayer bears the burden of proving that those
determinations are erroneous. Rule 142(a)(1); Welch v. Helvering
[3USTC1164], 290 U.S. 111, 115 (1933). Under §7491(a), in certain
circumstances, the burden of proof may shift form the taxpayer to the
Commissioner. Taxpayers have not claimed to meet and have not shown that
they meet the specifications of §7491(a) to shift the burden of proof to
respondent as to any relevant factual issue.
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2. Deductions are a matter of legislative grace, and a taxpayer must prove his or
her entitlement to a deduction. INDOPCO, Inc. v. Commissioner [92-1 USTC
50, 113], 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering [4
USTC 1292], 292 U.S. 435, 440 (1934).
3. §162 and §212 allow a deduction for all ordinary and necessary expenses paid
or incurred during the taxable year in carrying on a trade or business or for the
production or collection of income. If an activity is not engaged in for profit,
then generally no deduction is allowed under §162 and §212.
4. §183(c) defines an “activity not engaged in for profit” as any activity other
than one with respect to which deductions are allowable for the taxable year
under §162 or under paragraph (1) or (2) of §212.
5. §162 allows a taxpayer to deduct all ordinary and necessary expenses paid or
incurred during the taxable year in carrying on a trade or business. An ordinary
expense is one that commonly or frequently occurs in the taxpayer’s business,
Deputy v. de Pont [40-1 USTC9161[, 308 U.S. 488, 495 (1940), and a
necessary expense is one that is appropriate and helpful in carrying on the
taxpayer’s business, Welch v. Helvering, 290 U.S. at 113. The expense must
directly connect with or pertain to the taxpayer’s business. Reg. §1.162-1(a).
6. While Taxpayers reported insurance, supplies, repair, and other expenses
associated with the farmhouse, they failed to show that they operated a real
estate rental business with their farmhouse. They were unable to rent out the
farmhouse and consequently received no rental income for the house.
7. They contended that the farmhouse was available for rent during the years in
issue; however, they testified that during this time the farmhouse either
remained vacant or was occupied by relatives. §262(a) provides that a
taxpayer may not deduct a personal, living, or family expense unless the Code
expressly provides otherwise. They periodically allowed family members to
live in the farmhouse rent free and, at other times, left the farmhouse vacant.
They contended that these family members provided services in exchange for
use of the farmhouse; however, taxpayers did not report rental income from
these bartering transactions on their Federal income tax returns.
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8. In addition, they did not prove that the value of these barter exchanges was
equal to the fair market rental value of the farmhouse. They failed to prove the
deductibility of these expenses under §162 because they did not prove that
these expenses were tied to a real estate property rental business.
9. §212(1) and (2) provide, in relevant part, that an individual taxpayer can
deduct all the ordinary and necessary expenses paid or incurred for:
i. the production or collection of income, or
ii.
the management, conservation, or maintenance of property held for the
production of income.
10. The taxpayer bears the burden of proving the property was held for the
production of income during the years in issue. Meredith v. Commissioner
[Dec. 33,457[. 65 T.C. 34, 41 (1975). Whether property is held for the
production of income is a question of fact to be determined from all of the
facts and circumstances. Johnson v. Commissioner [Dec. 31,886], 59 T.C. 791
(1973), aff’d, 495 F .2d 1079 (6th Cir. 1974).
11. The term “income” for the purpose of §212 is not limited to current income.
As defined in the pertinent regulations, the term “income” for the purpose of
§212 includes not merely income of the taxable year but also income which
the taxpayer has realized in a prior taxable year or may realize in subsequent
taxable years and is not confined to recurring income but applies as well to
gains from the disposition of property. Reg. §1.212-1(b)
12. Taxpayers differentiated the farmland from the farmhouse and rented out the
farmland separately. The farmhouse could be used for taxpayers’ recreational
purposes if they chose.
13. They did try to rent out the farmhouse, but they did not receive offers to rent
for cash. Instead, residents of the farmhouse stayed in the house rent free in
exchange for providing services, which included carpentry work, roofing, and
other repair work on the house. There is no indication that the value of these
services in any way approximated the fair rental value of the property.
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14. From 1976 through 2007 there were no offers to rent the farmhouse and no
tenants paying rent to live in the farmhouse. Approximately 24 of the 31 years
the farmhouse was available for rent, taxpayers had relatives living in the
farmhouse rent free. They did not contend that they tried to sell the farmhouse
or that they held it for possible appreciation in value. The court found that they
did not put forth reasonable effort to rent out the farmhouse, and as in Ray we
noted that Taxpayers’ allowing individuals to live in the house rent free
connotes personal use. See id.
The Court concluded that taxpayers did not prove that the farmhouse was held
for the production of income during the years in question.
Substantiation:
1. §6001 provides that taxpayers are required to substantiate each claimed
deduction by maintaining records sufficient to establish the amount of the
deduction and to enable the Commissioner to determine the correct tax
liability. §6001; (Higbee v. Commissioner [Dec. 54,356], 116 T.C. 438, 440
(2001)).
2. The court may estimate the amount of a deductible expense if a taxpayer
establishes that an expense is deductible but is unable to substantiate the
precise amount. See Cohan v. Commissioner [2 USTC489], 39 F .2d 540,
543-544 (2nd Cir. 1930); Vanicek v. Commissioner [Dec. 42,468], 85 T.C.
731, 742-743 [*13] (1985). This is often referred to as the Cohan rule. See,
e.g., Estate of Reinke v. Commissioner [95-1 USTC50,064], 46 F.3d 760,
764 (8th Cir. 1995), aff’g T.C Memo. 1993-197.
3. §274(d) provides that certain expenses, including automobile and travel
expenses, require substantiation. Reg. §1.274-5T(c)(3)(i) states that in order
to substantiate by sufficient evidence corroborating the taxpayer’s own
statement, the taxpayer must establish each element by the taxpayer’s
statement and by direct evidence, such as documentary evidence.
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Note: §274(d) overrides the Cohan rule. Boyd v. Commissioner [Dec.
55,625], 122 T.C. 305, 320 (2004); sec. 1.274-5T (a), Temporary Income Tax
Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985) (flush language) (noting that §274
supersedes the Cohan Rule).
4. Taxpayer contended that they bartered accommodations at the farmhouse for
services; however, they failed to show that the farmhouse was a rental
property used for the production of income. They did not present adequate
records of these transactions or of the value of the barter exchanges for use of
the farmhouse, the property that they depreciated, or the deductible nature of
expenses claimed. Substantiation of the payment and business purpose of
claimed expenses requires records.
5. §6001 provides that the evidence presented to the Court is not sufficient to
enable us to verify the amounts of these expenses or whether they were
ordinary and necessary business expenses. See Dougherty v. Commissioner
[Dec. 43, 044 (M)], T.C. Memo. 1986-188, aff’d without published opinion,
822 F.2d 1093 (8th Cir. 1987). A tax return is merely a statement of the
taxpayer’s claim and does not establish the facts contained therein. Jewett v.
Commissioner [Dec. 55,529 (M)], T.C. Memo. 2004-26, slip op.at 5; see
Lamphere v. Commissioner [Dec. 35, 183], 70 T.C. 391, 394 (1978). The tax
court found that the taxpayers failed to establish that their expenses are
deductible under §162 and §212 and that they failed to substantiate these
reported expenses.
6. The IRS determined that for each year at issue taxpayers were liable for an
accuracy-related penalty pursuant to §6662(a). The IRS contended that
taxpayers are liable for the accuracy-related penalties on alternative grounds:
a. the underpayment is attributable to negligence or disregard of rules or
regulations within the meaning §6662(b)(1), or
b. here was a substantial understatement of income tax within the meaning
of §6662(b)(2). Only one accuracy-related penalty may be applied with
respect to any given portion of an underpayment, even if that portion is
subject to the penalty on more than one of the grounds set out in §6662(b).
Reg. §1.6662-2(c).
8-48

7. §7491(c) provides that the commissioner bears the burden of proof with
respect to this penalty. Once the commissioner meets this burden, the taxpayer
must come forward with persuasive evidence that the commissioner’s
determination is incorrect. See Rule 142(a); Higbee v. commissioner, 116
T.C. at 446-447.
8. §6662(a)(1) and (2) imposes a penalty equal to 20% of the amount of any
underpayment attributable to various factors, including negligence or a
substantial understatement of income tax.
9. §6662(c) provides that negligence includes any failure to make a reasonable
attempt to comply with the provisions of the Code and is the failure to exercise
due care or the failure to do what a reasonable and prudent person would do
under the circumstances. (Neely v. Commissioner [Dec. 42,540], 85 T.C. 934
(1985); Reg. § 1.6662-3(b)(1)). §1.6662-3(b)(1) states that negligence also
includes any failure by the taxpayer to keep adequate records to substantiate
items properly.
10. Taxpayers failed to properly substantiate their expenses on the farmhouse and
failed to keep adequate records of these expenses. The expenses on taxpayers’
Schedules E cannot be tied to any income-producing activity or rental activity
from the farmhouse. The IRS has met his burden of proof with regard to the
accuracy-related penalties on the basis of negligence.
11. §6662(a) accuracy-related penalty does not apply with respect to any portion
of the underpayment for which it is shown that the taxpayer had reasonable
cause and acted in good faith.
12. For purpose of §6664(c), a taxpayer may be able to establish reasonable cause
and good faith by showing reliance on professional advice. Reg. §1.6664-
4(b)(1). Whether the taxpayer acted with reasonable cause and in good faith
depends on all of the pertinent facts and circumstances.
13. §6664(c) provides that in order to show justified reliance on professional
advice, a taxpayer must show that:
a. the adviser was a competent professional who had sufficient expertise to
justify reliance,
8-49

. the taxpayer provided necessary and accurate information to the adviser,
and
c. the taxpayer actually relied in good faith on the adviser’s judgment. See
Neonatology Assocs., P.A. V. Commissioner [Dec. 53,970], 115 T.C. 43,
99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002); see also Estate of La Meres
v. Commissioner [Dec. 48,085], 98 T.C. 294, 315-316 (1992).
14. Taxpayers recognized their unfamiliarity with tax law and approached Mr.
Tenney, a practicing attorney during the years in issue, to assist in preparing
their Forms 1040. They testified that Mr. Tenney “did a high volume of tax
returns for the whole community”. They also testified that Mr. Tenney “asked
questions about the farm”. They gave him “all of the materials that they
thought were relevant”.
The court concluded that taxpayers in good faith took reasonable efforts to
assess their proper tax liabilities by seeking advice from a qualified tax return
preparer and reasonably relied on Mr. Tenney’s expertise. See Furnish v.
Commissioner {Dec. 54,530(M)], T.C. Memo. 2001-286; sec. 1.6664-4(b)(1),
Income Tax Regs. Accordingly, taxpayer are not liable for the §6662(a)
accuracy-related penalties.
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Chapter VIII - Review Questions
1. What might cause IRS to impose an accuracy related penalty on a taxpayer?
a. The taxpayer neglected to report 20% of his unemployment income.
b. The bookkeeper deducted wages that were never paid.
c. The appraiser of an estate substantially over-valued antiques
d. All of the above
Answer:
d. is correct. Taxpayers may be subject to an accuracy-related penalty if an
underpayment is attributable to negligence or various misstatements. The penalty is
20% of the portion of the underpayment attributable to the negligence or misstatement.
The accuracy-related penalty applies to the portion of any underpayment that is
attributable to one or more of the following:
(1) negligence or disregard of rules or regulations;
(2) substantial understatement of income;
(3) a substantial valuation misstatement;
(4) substantial overstatement of pension liabilities; and
(5) any substantial estate or gift tax valuation understatement.
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2. Which of the following statements is true with regards to alimony payments made under
a separation instrument executed after 1984?
a. The taxpayer may deduct payments he makes to keep up his property in which the
former spouse still lives.
b. The taxpayer may deduct as alimony money he pays to the spouse with a money
order because he doesn’t have a bank account.
c. Because the taxpayer was short on cash one month he gave his Mercedes to the
former spouse in lieu of cash and deducted the fair market value of the Mercedes
as alimony paid.
d. Even though the taxpayer and former spouse maintain a joint residence because of
financial reasons, the former spouse has to declare the alimony received as income.
Answer:
a. is incorrect. Payments to maintain property owned by the payor-spouse and used by
the payee-spouse are not payments on behalf of a spouse even if those payments
(including mortgage payments, real estate taxes, and insurance premiums) are made
pursuant to the terms of the divorce or separation instrument and therefore do not
qualify as alimony.
b. is correct: To qualify as alimony, payments to or on behalf of a spouse or former
spouse must meet several requirements. Only cash payments qualify as alimony or
separate maintenance payments. Checks or money orders payable on demand meet the
cash requirement.
c. is incorrect. Transfers of property, no matter how readily convertible into cash are
not alimony.
d. is incorrect. A payment under a divorce or separation agreement executed or
modified after 1984 qualifies as alimony if:
The payment is in cash.
The payment is received by or on behalf of a spouse (or former spouse) of the
payor.
The payment is made under a divorce or separation instrument.
The spouses are legally separated under a decree of divorce or separate
maintenance, and are therefore not members of the same household when the
payment is made.
The instrument does not state that the obligation to make the payments continues
after the payee-spouse's death.
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The divorce or separation instrument does not designate the payment as not
includable in the payee-spouse's gross income and nondeductible by the payorspouse
as alimony.
The payment is not fixed as child support.
The spouses do not file joint returns with each other.
3. Which of the following situations would qualify for a charitable deduction on Schedule
A?
a. The taxpayer donates an old car to his church; the church sends him a generic thank
you letter by January 31st of the next year.
b. The taxpayer pays $250 for a membership at the local zoo which normally costs
only $75. He deducts $250 on his tax return because the zoo sent him a thank you
letter for the $250 donation stating that no goods or services were provided.
c. The taxpayer donates several bags of old used clothing to a local charity. He forgot
to get a receipt at the time, but went back a few months later to get it when his tax
preparer requested to see it.
d. All of the above.
Answer:
a. is incorrect. Special rules apply for determining the value of used motor vehicles,
boats, and airplanes for purposes of deducting charitable contributions. The taxpayer
must obtain a written acknowledgement from the organization, which includes details
on the use or disposition of the vehicle by the organization. A copy of the written
acknowledgement must be attached to the tax return.
b. is correct. §170(f)(8)(A) provides that no deduction shall be allowed for any
contribution of $250 or more unless the taxpayer substantiates the contribution by a
contemporaneous written acknowledgment by the donee organization that meets
specified requirements. For donations of money, the donee’s written acknowledgment
must state the amount contributed, indicate whether the organization provided any
goods or services in consideration for the contribution, and provide a description and
good faith estimate of the value of any goods or services provided by the organization.
c. is incorrect. No deduction is allowed for a charitable contribution of clothing or
household items unless the clothing or household item is in good used condition or
better and the taxpayer obtains a receipt for the donation at the time of the donation.
8-53

IX. IRS Announcements,
Rulings, Revenue
Procedures, Etc.

IX.
IRS Announcements, Rulings, Revenue Procedures, Etc.
A. IRS Announcement 2014-32, I.R.B. 2014-48, November 10, 2014
§408 Individual Retirement Accounts: Rollovers: One-Per-Year Rule:
Transition Relief:
The IRS has provided transition relief for its change in the one-per-year limit
imposed on tax-free rollovers between IRAs announced in Announcement
2014-15, I.R.B. 2014-16, 973, and it went into effect on January 1, 2015.
Under transition relief, a distribution from an IRA received during 2014 and
properly rolled over (normally within 60 days) to another IRA, will have no
effect on any distributions and rollovers during 2015 involving any other IRAs
owned by the same individual. This will give IRA owners a fresh start in 2015
when applying the one-per-year rollover limit to multiple IRAs.
Application of One-Pear-Year Limit on IRA Rollovers:
1. This announcement is a follow-up to Announcement 2014-15, 2014-16
I.R.B. 973, addressing the application to Individual Retirement Accounts
and Individual Retirement Annuities (collectively, “IRAs”) of the onerollover-per-year
limitation of §408(d)(3)(B) of the Internal Revenue Code.
2. §408(d)(3)(A)(i) provides generally that any amount distributed from an
IRA will not be included in the gross income of the distributee to the extent
the amount is paid into an IRA for the benefit of the distributee no later than
60 days after the distributee receives the distribution (often referred to as a
“60-day rollover”). §408(d)(3)(B) provides that an individual is permitted to
make only one nontaxable 60-day rollover between IRAs in any 1-year
period.
3. As discussed in Announcement 2014-15, Proposed Regulation §1.408-
4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements
(IRAs), provided that the one-rollover-per-year limitation was applied on an
IRA-by-IRA basis.
9-1

4. However, the Tax Court in Bobrow v. Commissioner, T.C. Memo.2014-21,
held that the limitation applies on an aggregate basis, meaning that an
individual could not make more than one nontaxable 60-day rollover within
each 1-year period even if the rollovers involved different IRAs.
5. In Announcement 2014-15, the IRS indicated that it anticipated following the
interpretation of §408(d)(3)(B) in Bobrow, and accordingly that it would
withdraw the proposed regulation and revise Publication 590 to the extent
needed to follow that interpretation, but that it would not apply the Bobrow
interpretation of §408(d)(3)(B) before 2015. Consistent with Announcement
2014-15, Proposed Regulation §1.408-4(b)(4)(ii) was withdrawn on July 11,
2014 (79 FR 40031), and subsequent relevant IRS publications (including new
Publication 590-A, “Contributions to Individual Retirement Arrangments
(IRAs)”) will reflect the Bobrow interpretation of §408(d)(3)(B).
6. This announcement is intended to address certain concerns that have risen
since the release of Annoucement 2014-15. The IRS will apply the Bobrow
interpretation of §408(d)(3)(B) for distributions that occur on or after
January 1, 2015. This means that an individual receiving an IRA
distribution on or after January 1, 2015, cannot rollover any portion of the
distribution into an IRA if the individual has received a distribution from any
IRA in the preceding 1-year period that was rolled over into an IRA.
7. However, as a transition rule for distributions in 2015, a distribution
occurring in 2014 that was rolled over is disregarded for purposes of
determining whether a 2015 distribution can be rolled over under
§408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA
that neither made nor received the 2014 distribution. In other words, the
Bobrow aggregation rule, which takes into account all distributions and
rollovers among an individual’s IRAs, will apply to distributions from
different IRAs only if each of the distributions occurs after 2014.
9-2

8. A rollover from a traditional IRA to a Roth IRA (a “conversion”) is not
subject to the one-rollover-per-year limitation, and such a rollover is
disregarded in applying the one-rollover-per-year limitation to other
rollovers. However, a rollover between an individual’s Roth IRAs would
preclude a separate rollover within the 1-year period between the
individual’s traditional IRAs, and vice versa. (For purpose of this
announcement, the term “traditional IRA” includes a simplified employee
pension described in §408(k) and a SIMPLE IRA described in §408(p).)
9. The one-rollover-per-year limitation also does not apply to a rollover to or
from a qualified plan (and such a rollover is disregarded in applying the onerollover-per-year
limitation to other rollovers), nor does it apply to trusteeto-trustee
transfers. (See Rev. Rul. 78-406, 1978-2 C.B. 157). IRA trustees
are encouraged to offer IRA owners requesting a distribution for rollover the
option of a trustee-to-trustee transfer from one IRA to another IRA. IRA
trustees can accomplish a trustee-to-trustee transfer by transferring amounts
directly from one IRA to another or by providing the IRA owner with a
check made payable to the receiving IRA trustee.
Drafting Information
The principal author of this announcement is Roger Kuehnle of the
Employee Plans, Tax Exempt and Government Entities Division. Questions
regarding this announcement may be sent via e-mail to
RetirmentPlanQuestions@irs.gov
9-3

B. Alimony-Separate Maintenance Payments IRS Letter Ruling 201531013
(April 30, 2015)
Facts
An Ex-spouse and the Taxpayer entered into a Property Settlement
Agreement and a judge signed and entered the Decree which incorporated
the Property Settlement Agreement.
Law and Analysis
§71(a) provides that gross i ncome includes amounts receive d as alimony
or separate maintenance payments. §71(b)(l) defines the term “alimony” or
separate maintenance payment" as any payment in cash if:
(A)
(B)
(C)
(D)
such payment is received by (or on behalf of) a spouse under a divorce
or separation instrument,
the divorce or separation instrument does not designate such payment
as a payment which is not includible in gross income under §71 and
not allowable as a deduction under §215,
in the case of an individual legally separated from his spouse under a
decree of divorce or of separate maintenance , the payee spouse and the
payor spouse are not members of the same household at the time such
payment is made, and
there is no liability to make such payment for any period after the
death of the payee spouse and there is no liability to make any
payment (in cash or property) as a substitute for such payment after
the death of the payee spouse.
If a payment satisfies all of the factors set forth in §71(b) then it is alimony.
However, if it fails to satisfy any one of the above factors, then it is not
alimony. Rood v .Commissioner, T.C. Memo. 2012-122. See also Sperling v.
Commissioner, T.C. Memo. 2009-141 (payments are not alimony under
§71(b)(l), as payor spouse’s liability to make payments survived the death of
the payee spouse under the divorce decree and property settlement agreement.
9-4

If the divorce decree or other this relevant document does not expressly state
that the payment obligation terminates upon the death of the payee spouse,
then the payment will qualify as alimony provided that the termination of the
obligation would occur by operation of state law. Hoover v. Commissioner,
102 F. 3d 842, 845-46 (6 th Cir. 1996) [97-1 USTC SO, 111] [CCH Dec.
57,859(M)] [CCH Dec. 59,038(M)]. See also Notice 87-9, 1987-1
C.B. 421 (divorce or separation instrument executed after December 31, 1984,
need not expressly state that the payor spouse's liability ends upon payee's
death if termination would occur by operation of state law). The mere fact
that the documents may characterize a payment as alimony has no effect on
the consequences of that payment for federal tax purposes. Hoover, 102 F.3d
at 844.
Reg §1.71-l T(b), Q&A-10 of the Temporary Treasury Regulations, provides
that assuming all the other requirements relating to the qualification of certain
payments as alimony or separate maintenance payments are met, if the payor
spouse is required to continue to make the payments after the death of the
payee spouse, then none of the payments before (or after) the death of the
payee spouse qualify as alimony or separate maintenance payments.
In the instant case, based on the facts provided and the Taxpayer’s
representations, the requirements of subparagraphs (A), (B) and (C) of
§71(b)(l) are satisfied. However, paragraph B of the Property Settlement
Agreement provides that “Spousal maintenance shall not terminate at Wife’s
death…” so subparagraph (D) of §71(b)(l) is not satisfied because Ex-spouse
is required to continue making payments if the Taxpayer dies prior to the
expiration of the term set forth in the agreement. Therefore, the payments at
issue are not alimony for federal tax purposes.
Ruling
Based soley on the information submitted and the representations set forth
above, we rule that the payments of $E per month ordered pursuant to a decree
do not constitute alimony or separate maintenance payments within the meaning
of §71(b).
9-5

Caveats
Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter. No opinion is expressed as to the federal tax
treatment of the transaction under any other provision of the Internal Revenue
Code and the Treasury Regulations that may be applicable or under any other
general principles of federal income taxation. This letter ruling is only applicable
to matters under our jurisdiction. See Rev. Proc. 2015-1, 2015-1 I.R.B. 1, 18,
Section 1. No opinion is expressed as to the tax treatment of any conditions
existing at the time of, or effects resulting from the transaction that are not
specifically covered by the above ruling.
This ruling is directed only to the taxpayer requesting it. §6110(k)(3) provides
that it may not be used or cited as precedent.
A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their return electronically may satisfy this
requirement by attaching a statement to their return that provides the date and
control number of the letter ruling.
The rulings contained in this letter are based upon information and representations
submitted by the Taxpayer and accompanied by a penalty of perjury statement
executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification
on examination.
Enclosed is a copy of this letter ruling showing the deletions proposed to be made
in the letter when it is disclosed under §6110.
Sincerely, Norma C. Rotunno, Senior Technician Reviewer, Branch 2, Office of
the Associate Chief Counsel (Income Tax & Accounting)
9-6

C. IRS Collection Launches Early Interaction Initiative: Headliner Volume
351 (August 7, 2015)
In line with IRS efforts to provide timely service, the IRS Collection Division is
launching an “Early Interaction Initiative.” The goal of the initiative is to help
employers:
1. understand and meet their payroll tax responsibilities,
2. prevent missed payments from becoming delinquencies and
3. delinquencies pyramiding out of control.
For many years, the Collection Division’s field staff has been assigned Federal
Tax Deposit Alerts (FTD Alerts) where the IRS records indicate that an
employer's payroll tax deposits have declined. These cases were sent to Field
Collection staff near the end of the quarter but before the quarterly payroll tax
returns were due. Then as now, the goal was to:
1. meet the employer,
2. determine whether there was a missed payment or delinquency, and if so,
3. help to get it paid and,
4. help the employer to sustain payroll tax compliance.
The Early Interaction Initiative will accelerate and enhance the FTD Alert
process. Collection’s work plans have been adjusted to allow field officials to
work more FTD Alerts more quickly.
IRS does not have the resources to visit every employer whose payroll tax deposits
decline. So many will receive a letter saying that the IRS has reviewed their
federal payroll tax deposit history and their deposits appear to have decreased.
The letter will ask the employer to contact the IRS, by letter or phone, and help
the IRS understand the reason for the decrease in deposits. In addition, the letter
will:
1. remind the employer of their payroll tax responsibilities,
2. advise them of the consequences of not complying with those responsibilities,
and
3. provide assistance to help them comply.
9-7

Other FTD Alerts will be assigned to Field Collection with priority given to cases
where the employer has preexisting delinquencies. The number of cases assigned
to Field Collection will increase under the early interaction initiative. Where the
employer has an explanation for the decline in payroll tax deposits, a cut in staff
or a reorganization for example, the case will be closed. Where a delinquency
exists, Field Collection will work with the employer to correct the delinquent
condition going forward and address the unpaid tax, penalty and interest.
Finally, the IRS is currently adjusting systems to monitor federal payroll tax
deposits to get FTD Alerts out even more quickly. The sooner a potential problem
is identified the better the chances it can be successfully addressed and corrected
for both the employer and the IRS.
Payroll taxes withheld from employees' wages and salaries are a trust fund.
Employers withhold income and Federal Insurance Contribution Act (FICA)
taxes from employees' gross pay and hold it in trust until required to deposit it,
along with their share of FICA taxes, with the Treasury. When FICA taxes are not
deposited, the Social Security and Medicare trust funds suffer. When withheld
income taxes are not deposited, the employees still get credit for those
"withholdings" on their tax return, and will get their benefits later by proving the
withheld amounts, and the rest of the American taxpaying public effectively
makes up the difference and pays for their refunds and benefits.
Businesses are informed about their employment tax responsibilities by IRS, SSA,
SBA and others in the business community and marketplace upon their
establishment and advised about the consequences of missing required payments.
The reason for the advice and early alerts is that missed payments mount quickly
to employment tax delinquencies, along with interest and penalties, which
accumulate or pyramid beyond the ability of the business to repay the amounts
owed.
9-8

Businesses, especially when encountering liquidity difficulties, may use monies
withheld from employees' pay for working capital or other purposes. This may be
an innocent diversion of the employment tax funds initially but the withheld and
matching amounts owed quickly pyramid and become a liability beyond the
ability of the employer to repay. By the time the employer, IRS, or other creditors
realize the pyramiding condition, the options for repayment decrease and the
viability of the ongoing operation comes into question. Due to privacy and
disclosure laws, these pyramiding employment tax delinquencies are not known
to the business community or marketplace, beyond IRS liens placed on business
assets. Banks, suppliers, and others may, therefore, unwittingly continue to extend
credit to the delinquent business without knowing their true repayment risk.
Applying the tax laws with fairness for all requires that the IRS address payroll
tax delinquencies as soon as possible. This involves proactively precluding
delinquencies where we can keep delinquencies to a minimum.
Employers who need information on how to comply with their payroll tax
responsibilities are encouraged to explore the many resources on the IRS website,
IRS.gov. A search on the phrase “employment tax” is a good start. More
specifically, employers may want to visit any of the following IRS.gov pages.
What Are FTDs and Why are they Important?
Employment Taxes
Understanding Employment Taxes
Depositing and Reporting Employment Taxes
Employment Tax Publications
Small Business Taxes - The Virtual Workshop (video)
9-9

D. Subchapter S Corporation and §1362 Inadvertent Terminations Due to
Ineligible Shareholders: Private Letter Ruling 201536014, (09/04/2015).
Headnote:
A corporation will continue to be treated as a Subchapter S corporation at a stated
date and thereafter where termination of the co proration’s S status election was
inadvertent under §1362(f), due to corporation’s shares being transferred to an
ineligible shareholder, provided the corporation’s Subchapter S election was valid
and not otherwise terminated under §1362(d).
This letter responds to a letter dated October 31, 2014 and subsequent
correspondence, submitted on behalf of X by its authorized representative,
requesting a ruling under §1362(f).
FACTS
The information submitted states that X was organized under the laws of a
recognized state on a specific date and elected to have S corporation status on a
specified effective date. X's S corporation election terminated on a date when one
of X's shareholders transferred shares of X to A, an ineligible shareholder. On a
specified date, shortly after X learned of the termination of X's S corporation
election due to the transfer of stock to an ineligible shareholder, X redeemed A's
shares.
X represents that, on the date of the transfer, the shareholders of X were not aware
that A was prohibited from owning shares of X, and that such a transaction would
terminate X's S corporation election. X also represents that the shareholders of X
did not intend to terminate X's S corporation election. X and its shareholders have
agreed to make any adjustments that the Commissioner may require, consistent
with the treatment of X as an S corporation.
LAW AND ANALYSIS
§1362(a) provides that except as provided in §1362(g), a small business
corporation may elect, in accordance with the provisions of §1362, to be an S
corporation.
§1361(a)(1) provides that the term “S corporation” means, with respect to any
taxable year, a small business corporation for which an election under §1362(a)
is in effect for such year.
9-10

§l 361(b)(1) provides that the term “small business corporation” means a domestic
corporation which is not an ineligible corporation and which does not
(A) have more than 100 shareholders,
(B) have as a shareholder a person (other than an estate, a trust described in
§1361(c)(2), or an organization described in §1361(c)(6)) who is not an
individual,
(C) have a nonresident alien as a shareholder , and
(D) have more than one class of stock.
§1362(d)(2)(A) provides that an election under §1362(a) will be terminated
whenever (at any time on or after the first day of the first taxable year for which
the corporation is an S corporation) such corporation ceases to be a small business
corporation. §1362(d)(2)(B) provides that any termination under §1362(d)(2)(A)
is effective on and after the date of cessation.
§1362(f) provides, in relevant part, that if
(1) an election under §1362(a) by any corporation was terminated under
§1362(d)(2) or (3), (2), or (4)
(2) the Secretary determines that the circumstances resulting in the
termination were inadvertent,
(3) no later than a reasonable period of time after discovery of the
circumstances resulting in the termination, steps were taken so that the
corporation is a small a business corporation, and
(4) the corporation and each person who was a shareholder of the corporation
at any time during the period specified pursuant to §1362(f), agrees to make
such adjustments (consistent with the treatment of the corporation as an S
corporation) as may be required by the Secretary with respect to such period,
then, notwithstanding the circumstances resulting in the termination, the
corporation will be treated as an S corporation during the period specified by
the Secretary.
9-11

CONCLUSION
Based solely on the facts submitted and the representations made, we conclude
that X's S corporation election terminated on a specified date when shares of X
were transferred to an ineligible shareholder. We also conclude that the
circumstances resulting in the termination were inadvertent within the meaning of
§1362(f). Accordingly, under §1362(f), X will be treated as an S corporation from
the specified date and thereafter, provided X's S corporation election was
otherwise valid and has not otherwise terminated under §1362(d) for reasons not
addressed in this letter.
This ruling is conditioned on the shareholders of X, being treated as the owners
of X stock that was held by (A) in proportion to their ownership interests in X. X
and its shareholders must amend any prior federal tax returns that are inconsistent
with this treatment before the earlier of:
1. the expiration of the statute of limitations of any tax year affected by the
granting of the requested relief or
2. 120 days of the date of this letter.
Except as specifically ruled above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other
provisions of the Code. Specifically, we express no opinion regarding X's
eligibility to be an S corporation.
This ruling is directed only to the taxpayer that requested it. §6110(k)(3) of the
Code provides that it may not be used or cited as precedent.
In accordance with a power of attorney on file with this office, we are sending a
copy of this letter to X's authorized representative.
Sincerely,
Holly Porter
Branch Chief, Branch 3
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2); Copy of this letter Copy for §6110 purposes
cc:
9-12

E. §6035 Basis Information to Persons Acquiring Property from Decedent:
Required Statements and Filing Due Date: Notice 2015-57, 2015-36 IRB,
(8/21/2015).
The IRS announced that the due date for §6035 statements that are required to be
filed with IRS or furnished to beneficiaries before 2/29/2016 are delayed until
2/29/2016 for executors of estates of decedents and others who file returns under
§6018(a) or §6018(b) after 7/31/2015. The purpose of the delay is to allow
Treasury Department and IRS to issue guidance implementing §6035 reporting
requirements.
A. Purpose
1. On July 31, 2015, the President of the United States signed H.R. 3236,
Surface Transportation and Veterans Health Care Choice Improvement
Act of 2015 (P.L.114-41), into law. Section 2004 of H.R 3236 enacted
§1014(f) and §6035. For each statement required by § 6035 to be filed
with the Internal Revenue Service (IRS) or furnished to a beneficiary
before February 29, 2016 , this notice delays until February 29, 2016, the
due date for filing or furnishing that statement. This notice applies to
executors of estates of decedents and to other persons who are required
under §6018(a) or (b) to file a return if that return is filed after July 31,
2015.
B. Background
1. §1014(f) provides rules requiring that the basis of certain property
acquired from a decedent, as determined under §1014, may not exceed
the value of that property as finally determined for federal estate tax
purposes, or if not finally determined, the value of that property as
reported on a statement made under s §6035.
2. §6035 imposes new reporting requirements with regard to the value of
property included in a decedent's gross estate for federal estate tax
purposes.
9-13

3. §6035(a)(1) provides that the executor of any estate required to file a
return under §6018(a) must furnish, both to the Secretary and the person
acquiring any interest in property included in the decedent's gross estate
for federal estate tax purposes, a statement identifying the value of each
interest in such property as reported on such return and such other
information with respect to such interest as the Secretary may prescribe.
4. §6035(a)(2) provides that each person required to file a return under
§6018(b) must furnish, both to the Secretary and each other person who
holds a legal or beneficial interest in the property to which such return
relates, a statement identifying the information described in §6035(a)(1).
5. §6035(a)(3)(A) provides that each statement required to be furnished
under §6035(a)(1) or (a)(2) shall be furnished at such time as the Secretary
may prescribe, but in no case at a time later than the earlier of :
a. the date which is 30 day after the date on which the return under §6018
was required to be filed (including extensions, if any) or
b. the date which is 30 days after the date such return is filed.
6. §6035(b) authorizes the Secretary to prescribe such regulations as
necessary to carry out §6035. §7805(a) provides generally that the
Secretary shall prescribe all needful rules and regulations for the
enforcement of this title, including all rules and regulations as may be
necessary by reason of any alteration of law in relation to Internal Revenue
Code.
7. §7805(b)(2) provides that regulations may apply retroactively if they are
issued within 18 months of the date of the enactment of the statutory
provisions to which they relate.
8. §6081(a) provides that the Secretary may grant a reasonable extension of
time for filing any return, declaration, statement, or other document
required by this title or by regulations. Except in the case of taxpayers who
are abroad, no such extension shall be for more than 6 months.
9-14

C. Guidance
1. For statements required under §6035(a)(1) and (a)(2) to be filed with the
IRS or furnished to a beneficiary before February 29, 2016, the due date
under §6035(a)(3) is delayed to February 29, 2016. This delay is to allow
the Treasury Department and IRS to issue guidance implementing the
reporting requirements §6035.
2. Executors and other persons required to file or furnish a statement under
§6035(a)(1) or (a)(2) should not do so until the issuance of forms or
further guidance by the Treasury Department and the IRS addressing the
requirements of §6035.
3. The Treasury Department and the IRS expect to issue additional
guidance to assist taxpayers with complying with §1014(f) and §6035.
The Treasury Department and the IRS invite comments. Submissions
should be submitted to: CC:PA:LPD:PR ( Notice 2015-57), Room 5203,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR ( Notice 2015-57), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW, Washington, DC 20044, or sent
electronically , via the following e-mail address:
Notice.comments@irscounsel.treas.gov. Please include “Notice 2015-
57” in the subject line of any electronic communication. All comments
submitted will be available for public inspection and copying.
4. Effective Date
This notice is effective on August 21, 2015. This notice applies to
executors and of the estates of decedents and to other persons who are
required under §6018(a) or (b) to file a return if that return is filed after
July 31, 2015.
Drafting Information
The principal author of this notice is Theresa Melchiorre of the Office of
the Associate Chief Counsel (Passthroughs & Special Industries) For
further information regarding this notice contact Theresa Melchiorre at
(202) 317-6859 (not a toll-free call).
9-15

F. Taxpayer Receives Waiver of §72(t) Penalty for Medical Reasons: §408
Individual Retirement Account Rollover Contribution, IRS Letter Ruling
201431035 (May 06, 2014)
1. The IRS responded to a private letter ruling request dated August 16, 2013, as
supplemented by correspondence dated January 17, 2014, submitted in which
taxpayer requested a waiver of the 60 day rollover requirement contained in
§408(d)(3).
2. The following facts and representations were submitted under penalty of
perjury in support of the ruling requested:
a. Taxpayer A represented that she received a distribution from IRA Z
totaling $X. Taxpayer A asserted that her failure to accomplish a rollover
within the 60-day period prescribed by §408(d)(3) was due to her medical
condition during the 60-day rollover period which affected her ability to
handle her financial affairs.
b. On January 10, 2012, Taxpayer A was hospitalized and the doctor told
her that she may have suffered some type of amnesia. Following her
discharge from the hospital on January 13, 2012, Taxpayer A represented
that she suffered from dizziness, headaches and confusion for
approximately nine months after her discharge. As a result, Taxpayer A
avoided interactions with other persons and made some irrational
decisions.
c. On January 16, 2012, Taxpayer A’s IRA Z Certificates of Deposit (CDs)
matured and she decided to move the funds to Account E, a non-IRA
account with Credit Union F. A representative of Credit Union F told her
that moving the funds from IRA Z to Account E would be a taxable
transaction, but she demanded that $X be transferred to Account E.
Documentation shows that she did not comprehend what was happening
and thought the distribution was a required minimum distribution (RMD).
She illogically noted on the withdrawal form from IRA Z that the
distribution would be taxed on her 2011 income tax return. She also
incorrectly dated the withdrawal form as February 25, 2012, rather than
the correct date of February 2, 2012.
9-16

d. She represented that she first became aware of her failure to complete a
timely rollover when her 2012 income taxes were being prepared.
e. Based upon the facts and representations, Taxpayer A requested a ruling
that the Internal Revenue Service waive the 60-day rollover requirement
contained in §408(d)(3) with respect to the distribution of $X.
f. §408(d)(1) provides that, except as otherwise provided in §408(d), any
amount paid or distributed out of an IRA shall be included in gross income
by the payee or distributee, in the manner provided under §72, which
allows an exclusion ratio based on nondeductible contributions divided by
the fair market value of the IRA on the December 31 of the year prior to
the year of the distribution.
g. §408(d)(3)(A) provides that §408(d)(1) does not apply to any amount paid
or distributed out of an IRA to the individual for whose benefit the IRA is
maintained if:
i. The entire amount received (including money and any other
property) is paid into an IRA for the benefit of such individual not
later than the 60th day after the day on which the individual
received the payment or distribution, or
ii.
The entire amount received (including money and any other
property) is paid into an eligible retirement plan (other than an IRA)
for the benefit of such individual not later than the 60th day after
the date on which the payment or distribution is received, except that
the maximum amount which may be paid into such plan may not
exceed the portion of the amount received which is includible in
gross income (determined without regard to §408(d)(3)).
h. §408(d)(3)(B) provides that §408(d)(3) does not apply to any amount
described in §408(d)(A)(i) received by an individual from an IRA if at any
time during the 1-year period ending on the day of such receipt such
individual received any other amount described in §408(d)(3)(A)(i) from
an IRA which was not included in gross income because of the application
of §408(d)(3).
9-17

i. §408(d)(3)(D) provides a similar 60-day rollover period for partial
rollovers.
j. §408(d)(3)(E) provides that the rollover provisions of §408(d) do not
apply to any amount required to be distributed under §408(a)(6). (RMD)
k. §408(d)(3)(I) provides that the Secretary may waive the 60-day
requirement under §408(d)(3)(A) and §408(d)(3)(D) where the failure to
waive such requirement would be against equity or good conscience,
including casualty, disaster, or other events beyond the reasonable control
of the individual subject to such requirement.
l. Rev. Proc. 2003-16, 2003-4 I.R.B. 359, states that in determining whether
to grant a waiver of the 60-day rollover requirement pursuant to
§408(d)(3)(I), the Service will consider all relevant facts and
circumstances, including:
i. Errors committed by a financial institution;
ii.
iii.
iv.
Inability to complete a rollover due to death, disability,
hospitalization, incarceration, restrictions imposed by a foreign
country or postal error;
The use of amount distributed (for example, in the case of payment
by check, whether the check was cashed); and
The time elapsed since the distribution occurred.
m. The information presented and documentation submitted by the taxpayer
is consistent with her assertion that her failure to accomplish a timely
rollover was due to her medical condition during the 60-day rollover
period which affected her ability to handle her financial affairs.
9-18

n. Therefore, as allowed by §408(d)(3)(I), the Service waived the 60-day
rollover requirement with request to the distribution of $X. Taxpayer is
granted a period of 60 days from the issuance of this letter ruling to
contribute $X into a rollover IRA. Provided all other requirements of
§408(d)(3), except the 60-day requirement, are met with respect to such
contribution, the contribution of $X will be considered a rollover
contribution within the meaning of §408(d)(3).
Tax Professional Reminder: This ruling does not authorize the rollover of
amounts that are required to be distributed by §408(a)(6)(RMD). In addition,
this ruling is directed only to the taxpayer that requested it. §6110(k)(3)
provides that it may not be used or cited by others as precedent.
9-19

G. The Simplified Option For Claiming A Home Office Deduction: Rev. Proc.
2013-13
1. §280A(a) provides a general rule that no deduction shall be allowed with
respect to the use of a dwelling unit which is used by the taxpayer during the
taxable year as a residence.
2. §280A(b) provides an exception if the taxpayer uses the dwelling unit in
connection with a trade or business (or income producing activity) and allows
a deduction for interest, taxes, casualty losses, etc.
3. §280A(c) allows an exception for certain business or rental use with
limitations on deductions for such use, allowing a deduction for a portion of
the dwelling unit which is used exclusively on a regular basis:
a. As the principal place of business for any trade or business of the taxpayer;
b. As a place of business which is used by patients, clients, or customers in
meeting or dealing with the taxpayer in the normal course of his trade or
business;
c. In the case of a separate structure which is not attached to the dwelling
unit, in connection with the taxpayer’s trade or business; or
d. In the case of an employee, the deductions are only available if the
exclusive use is for the convenience of the employer.
4. For purposes of the term “principal place of business” it is a place of business
which is used by the taxpayer for the administrative or management activity
of any trade or business of the taxpayer if there is no other fixed location of
such trade or business where the taxpayer conducts substantial administrative
or management activities of such trade or business.
9-20

5. §280A(b)(5) provides for a limitation on the amount of the deductions allowed
under the exceptions for the business use of a dwelling unit to the extent of
the gross income derived from such trade or business over the deductions
allocable to mortgage interest and real estate taxes which are permitted to
allow a loss on Form 8829. The taxpayer is also permitted to deduct the trade
or business expenses for the dwelling unit which are direct expenses and not
allocable for the space used resulting in a loss on Form 8829.
6. §280A(b)(5) limits any other allocable deductions for operating the space in
the dwelling unit for items including but not limited to: homeowners dues
and insurance, utilities, maintenance, repairs, etc. To the extent that these
expenses exceed the gross revenue derived from the trade or business, they
are carried forward to the next business year and allowable to the extent of
income in the future years.
7. If the gross income is in excess of the allocable interest and real estate taxes,
direct operating costs and allocable expenses, then the depreciation allocable
to the allowable deduction is deducted. If there is not sufficient gross income,
then the excess depreciation is limited and carried forward to the next tax year
and allowable as a deduction to the extent of the gross income test in the future
tax year.
8. According to the IRS Spring 2013 Statistics of Income Bulletin the details
concerning Schedule C included with Form 1040 for 2010, the deduction
taken for a home office used in a trade or business was in excess of $10 billion
claimed by almost 3.4 million taxpayers. On January 15, 2013 IRS issued
Rev. Proc. 2013-13 allowing a new optional deduction which is limited and
capped at $1,500 per year based on a standard square footage amount of $5
for up to 300 square feet. The Service believes that the standardized amount
will reduce the paperwork and record keeping burden on small businesses by
an estimated 1.6 million hours annually.
9-21

9. The Service has a worksheet for the simplified method relieving many
taxpayers from dealing with the complex calculations of allocated expenses,
depreciation and carryovers of limited deductions on Form 8829 which is 43
lines. The taxpayers using the new option cannot depreciate the portion of the
dwelling unit and will not deduct any mortgage interest or real estate taxes
except for on Schedule A of Form 1040.
Tax Professional Note: Schedule C of Form 1040 requests that the taxpayer
state the number of square feet used for business as well as the number of total
square feet available in the dwelling unit and provides instructions for a
simplified method worksheet.
10. The new option does not change anything in the Code requiring that a home
office must be used regularly and exclusively for business purposes. In
addition, the standard square footage election cannot be amended.
9-22

H. TIGTA Says IRS Needs To Improve Correspondence Audit Selection
Process, (Reference Number: 2013-30-077), (September 6, 2013)
1. According to a report by the Treasury Inspector General for Tax
Administration (TIGTA), the IRS needs to improve its correspondence audit
selection process. The IRS uses correspondence audits to address individuals
suspected of underreporting their income tax liabilities. Correspondence
audits often result in significant additional tax assessments and are more
economical than other types of audits. The report was issued to the IRS
Commissioner for the Small Business/Self-Employed Division on August 27,
2013.
2. Impact on taxpayers: Correspondence audits result in significant additional
tax assessments and are more economical than other types of audits. IRS
statistics show that in fiscal year 2012, the IRS conducted 1.1 million
correspondence audits and recommended approximately $9.2 billion in
additional taxes.
3. Why TIGTA did the audit: This audit was initiated to determine the
effectiveness of “filing checks” made during the correspondence audit process
in the Small Business/Self-Employed Division.
“Filing checks” are used, in part, to determine whether the same pattern of
noncompliance identified on an audited tax return is present on the prior
and/or subsequent year tax returns, and if those tax returns warrant an audit.
When properly completed, filing checks leverage IRS audit resources by
increasing the overall compliance coverage of every audit.
4. What TIGTA found: During its audit TIGTA evaluated a statistical sample
of 102 of 7,470 single-year correspondence audits in which the taxpayer
involved agreed that they understated their tax liabilities by at least $4,000.
Similar tax issues also existed on the prior and/or subsequent year tax returns
for 43 of the 102 taxpayers (40%). TIGTA found that 32 of the 43 individuals
(75%) did not have those tax returns audited and, as a consequence, may have
avoided additional assessments ranging from $2,343 to $18,874.
9-23

TIGTA found that a factor that contributed to the limited number of prior
and/or subsequent year tax audits in the sample is the emphasis the IRS places
on keeping its audit inventories free of older tax years so there is sufficient
time to complete audits and assess any resulting taxes within the three-year
assessment statute of limitations. TIGTA also found that control issues also
exist over how current year audit results are used in deciding whether to audit
the prior and/or subsequent year returns.
5. What TIGTA recommended: TIGTA recommended that the IRS develop
and implement procedures that instruct how current year correspondence audit
results are to be used in deciding whether the prior and/or subsequent year tax
returns warrant an audit. In order to ensure that the instructions are followed,
the procedures should include instructions for monitoring how well current
year correspondence audit results are used in deciding to audit prior and/or
subsequent year returns.
The IRS agreed with TIGTA’s recommendation and plans to develop an
Internal Revenue Manual section to address the case selection and delivery
process and the duties and roles of analysts and examiners.
For the full report refer to Reference Number 2013-30-077 at TIGTA
website www.Treasury.gov/TIGTA.
9-24

Chapter IX - Review Questions
1. The taxpayer has a home office where he performs services for the
convenience of his employer. Which of the following will disqualify him
from deducting expenses for the business use of his home?
a. The area is not marked off by a permanent partition.
b. The work area is a separate structure not attached to the
taxpayer’s house.
c. The employer pays rent for the portion of the taxpayer’s home
used as a home office.
d. The taxpayer works only 4 hours per week in the office but does
work there on a regular basis.
Answer:
To take a business deduction, a taxpayer must use part of his or her
home:
• exclusively and regularly as the principal place of business,
• exclusively and regularly as a place where the taxpayer meets or
deals with patients, clients, or customers in the normal course of a
trade or business,
• in the case of a separate structure which is not attached to the home,
the structure is used in connection with a trade or business,
• an area in the home is used on a regular basis for storage of inventory
or product samples
a.. is incorrect: there is no requirement that the area must be separated
from the rest of the house.
b. is incorrect: a separate structure would qualify as a home office.
c. is correct: There are additional tests for employees. In addition to
meeting all the other tests, an employee must also meet both of the
following:
9-25

• The business use of a home must be for the convenience of the
employer, and
• The employee cannot rent any portion of the home to the employer
and use the rented portion to perform services as an employee for
that employer.
d. is incorrect: the requirement for exclusive and regular use is met
2. Which of the following statements is true with regards to alimony
payments made under a separation instrument executed after 1984?
a. The taxpayer may deduct payments he makes to keep up his property
in which the former spouse still lives.
b. The taxpayer may deduct as alimony money he pays to the spouse
with a money order because he doesn’t have a bank account.
c. Because the taxpayer was short on cash one month he gave his
Mercedes to the former spouse in lieu of cash and deducted the fair
market value of the Mercedes as alimony paid.
d. Even though the taxpayer and former spouse maintain a joint
residence because of financial reasons, the former spouse has to
declare the alimony received as income.
Answer:
a. incorrect: Payments to maintain property owned by the payor-spouse and
used by the payee-spouse are not payments on behalf of a spouse even if
those payments (including mortgage payments, real estate taxes, and
insurance premiums) are made pursuant to the terms of the divorce or
separation instrument and therefore do not qualify as alimony.
b. correct: To qualify as alimony, payments to or on behalf of a spouse or
former spouse must meet several requirements. Only cash payments qualify
as alimony or separate maintenance payments. Checks or money orders
payable on demand meet the cash requirement.
c. incorrect: Transfers of property, no matter how readily convertible into
cash are not alimony.
9-26

d. incorrect: A payment under a divorce or separation agreement executed or
modified after 1984 qualifies as alimony if:
• The payment is in cash.
• The payment is received by or on behalf of a spouse (or former
spouse) of the payor.
• The payment is made under a divorce or separation instrument.
• The spouses are legally separated under a decree of divorce or
separate maintenance, and are therefore not members of the same
household when the payment is made.
• The instrument does not state that the obligation to make the
payments continues after the payee-spouse's death.
• The divorce or separation instrument does not designate the payment
as not includable in the payee-spouse's gross income and
nondeductible by the payor-spouse as alimony.
• The payment is not fixed as child support.
• The spouses do not file joint returns with each other.
3. Which of the following statements regarding retirement plan rollovers is
correct?
a. A taxpayer may make unlimited non-taxable rollovers from IRA to
another IRA during the tax year as long as they are completed within
60 days.
b. Non-taxable rollovers from IRA to IRA are limited to one per year
per taxpayer, all others will be taxable and possibly subject to an
early withdrawal penalty.
c. Trustee to trustee rollovers from one IRA to another are permitted
unlimited times during the tax year without incurring penalties.
d. A distribution from a SIMPLE IRA may be rolled over to a
traditional IRA and then to a SEP-IRA as long as both transfers occur
within 60 days.
9-27

Answer:
a. Is incorrect: §408(d)(3)(A)(i) provides generally that any amount
distributed from an IRA will not be included in the gross income of the
distribute to the extent the amount is paid into an IRA for the benefit of
the distributee no later than 60 days after the distributee receives the
distribution (often referred to as a “60-day rollover”). §408(d)(3)(B)
provides that an individual is permitted to make only one nontaxable 60-
day rollover between IRAs in any 1-year period.
b. Is incorrect: see a. above. Non-taxable rollovers are permitted only once
in a 1-year period (12 months), not once per tax year.
c. Is correct: The one-rollover-per-year limitation also does not apply to a
rollover to or from a qualified plan (and such a rollover is disregarded in
applying the one-rollover-per-year limitation to other rollovers), nor does
it apply to trustee-to-trustee transfers. See Rev. Rul. 78-406, 1978-2 C.B.
157. IRA trustees are encouraged to offer IRA owners requesting a
distribution for rollover the option of a trustee-to-trustee transfer from
one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee
transfer by transferring amounts directly from one IRA to another or by
providing the IRA owner with a check made payable to the receiving
IRA trustee.
d. Is incorrect: For purpose of announcement 2014-32, the term “traditional
IRA” includes a simplified employee pension described in §408(k) and a
SIMPLE IRA described in §408(p).
9-28

Self – Study Questions
and
Answer Sheet

2015 Federal Tax Update and Review Self-Study Final Exam
Please mark your answers on the answer sheet at the end of the test.
1. In 2015, for married couples filing joint returns, what is the beginning of the
phase-out range for contributions to §530 Education Savings Plans?
a. $95,000
b. $110,000
c. $190,000
d. $220,000
2. Which of the following is an add-back to AGI for purposes of the §530 Coverdell
contribution?
a. Foreign Earned Income
b. Deductible IRA contributions
c. Non-taxable Social Security Benefits
d. Domestic Production Activities Deduction
3. Which of the following AGI test provisions are indexed to inflation in year 2015?
a. Passive Activity Losses (PALs)
b. §32 Earned Income Credit (EIC)
c. §530 Coverdell Savings Plan Contributions
d. Social Security Benefits
4. Which of the following is not reportable on a tax return?
a. A sports car won on a game show
b. Unemployment compensation
c. A gift from grandparents
d. Reinvested dividend
SS-1

5. A married couple filing a joint tax return in 2015 with a modified AGI of $162,000
paid $16,000 of qualified tuition and fees for their dependent child. How much is
their American Opportunity Tax Credit and how much is refundable?
a. $ -0- and $ -0-
b. $1,350 and $ -0-
c. $1,350 and $ 900
d. $2,500 and $1,000
6. In 2015, the modified adjusted gross income threshold for the phase-out of the
American Opportunity Credit for a married taxpayer filing a separate return is
a. $ -0-
b. $ 80,000
c. $160,000
d. $180,000
7. The taxpayer is unable to pay his full tax liability when filing his return. Which of
the following items concerning an Administrative Installment Payment Program is
correct?
a. He can enter an agreement if he owes $50,000 or less.
b. The penalty will be 1/4 of 1% per month
c. He will have penalties and interest
d. All of the above
SS-2

8. A sole-proprietor has a net loss of $40,000 on Schedule C. He borrowed $25,000
from his brother and used the proceeds in his business. How much, if any, can be
deduct as an allowable deduction in the current year? He repaid $2,000 to his
brother on December 31.
a. $0
b. $15,000
c. $17,000
d. $40,000
9. During 2015 the taxpayer, age 55, with an AGI of $50,000 had medical expenses
in the amount of $10,000. What is the allowable medical deduction?
a. $ -0-
b. $3,750
c. $5,000
d. $7,500
10. Which of the following transactions is not allowed after January 1, 2015?
a. Rollover from a traditional IRA to a Roth IRA
b. Rollover from a traditional IRA to another traditional IRA
c. Distributions from several IRA accounts and re-depositing to one IRA account.
d. Distribution from an IRA and re-deposited to the IRA within 60 days of the
distribution
SS-3

11. A taxpayer died in the current year with suspended Passive Activity losses of
$10,000. On the date of death the property had an adjusted basis of $150,000 and a
Fair Market Value of $153,000. How much, if any, can be deducted on his final Form
1040?
a. $ -0-
b. $ 3,000
c. $ 7,000
d. $10,000
12. The taxpayer has a modified AGI of $120,000 and a $31,000 net rental real estate
loss from properties in which he actively participates. How much, if any, can he
deduct in the current year to reduce his gross income and how much if any is
suspended?
a. $25,000 and $-0-
b. $16,000 and $-0-
c. $15,000 and $16,000
d. $16,000 and $15,000
13. Taxpayers own a rental property jointly, but are filing separate tax returns. They
show a loss of $40,000 on the rental, each claiming half that amount on their
separate tax returns. The taxpayers lived together only during the month of
January, then separated. How much, if any, loss can they each deduct on their
separate returns?
a. -0-
b. $12,500
c. $20,000
d. None of the above
SS-4

14. Which of the following is not an exemption to the requirement to obtain minimum
essential coverage?
a. the individual was in jail all year and has a filing requirement
b. the individual has no filing requirement for the tax year
c. the taxpayer was insured March 20 through December 31 only
d. the taxpayer could have, but did not obtain coverage through the spouse’s
employee
15. What is the maximum business use of home deduction under the optional safe
harbor method?
a. $150
b. $1,000
c. $1,500
d. No limit
16. Household income levels must fall between what percentages of the federal
poverty level for the family size to be eligible for the Premium Tax Credit?
a. 100% to 200%
b. 100% to 400%
c. 200% to 400%
d. None of the above
17. What is the maximum shared responsibility payment in 2015 for a single
taxpayer?
a. $ 325
b. $2,484
c. 2% of the tax liability shown on Form 1040 line 47
d. 2% of household income over the applicable threshold amount
SS-5

18. Which of the following is used to determine whether an employer provides
affordable coverage?
a. The premium an employee pays must not exceeds 9.5% of their income
b. The plan provides maximum value for the cost
c. The employer has more than 100 employees
d. The plan covers all employees
19. Which of the following is true of the Health Insurance Premium Tax Credit?
a. The credit may be used to pay for Medicare premiums
b. Anyone claiming the credit must file an income tax return
c. The credit is available for insurance offered through employers
d. If too much credit was received during the year, it must be repaid in full
20. How much is the minimum penalty for tax year 2015 for failure to maintain minimum
essential coverage per adult taxpayer?
a. $ 95
b. $ 325
c. $ 975
d. $2,484
21. What is the maximum amount of the American Opportunity Credit that is
refundable in 2015?
a. $ 500
b. $1,000
c. $1,250
d. $2,500
SS-6

22. For purposes of the §32 Earned Income Tax Credit (EIC) the amount of
disqualified income that a taxpayer may have before losing the entire EIC in 2015
is:
a. $ -0-
b. $3,400
c. depends on AGI
d. ½ of the earned income
23. For purposes of the Alternative Minimum Tax (AMT) which of the following
statements is false?
a. The provisions of the AMT create a second tier of tax rules
b. The AMT is a flat tax assessed against a tax base which is different than the tax
base calculated for regular tax purposes
c. In 2015 the exemption amount for AMT is increased over the amount from 2014
d. The exemption amount is not indexed to inflation
24. In 2015 Ennis T. Pea is 40 years old and has a modified AGI $66,000. He has
$60,000 of earned income. His employer has a SIMPLE plan available but Ennis
does not participate in the plan. How much of a deductible IRA is allowed?
a. $-0-
b. $2,750
c. $3,850
d. $5,500
25. Same data as in #22 above except now Ennis would like to make a Roth IRA
contribution and he has a modified AGI of $123,500. How much is his maximum
allowable Roth IRA contribution?
a. $-0-
b. $2,750
c. $4,400
d. $5,500
SS-7

26. The taxpayer owns a commercial building which he rents out. He has to replace about
60% of the roof of the building. What is the correct tax treatment? The taxpayer
a. must replace the entire roof in order to recognize a loss.
b. is required to apply the partial disposition rule to the roof replacement.
c. may have a partial disposition for the roof replacement if he makes the proper
election.
d. is not allowed to recognize a loss as the roof is considered a component of the
building.
27. Ennis T. Pea chooses the simplified procedure for changing his accounting method to
comply with the treasury regulations. Which of the following statements is correct?
a. He may choose which final regulation method applies to his business.
b. Ennis may choose to make an adjustment for an expenditure he capitalized on a
prior tax return without filing anything else.
c. He receives audit protection for all tax years, past and future.
d. Ennis adopts the final regulations on his tax return by filing his return and
including a statement.
28. The taxpayer owns a tax preparation business. During the tax year he had the
following expenses:
$550 copy machine repair, included new parts
$600 painting the office a different color
$350 carpet repair due to water damage
$750 adding a permanent partition to the office for his secretary
How much if any can he deduct currently?
a. $ 350
b. $ 900
c. $1,500
d. $2,200
SS-8

29. Section 72(t)(10) provides that distributions from retirement plans will waive the
§72(t) penalty for some taxpayers. This group will include:
a. Air traffic controllers and federal firefighters
b. Customs and border protection officers
c. Qualified public safety employees
d. All of the above
30. In 2015, a single taxpayer has a modified AGI of $220,000 and net investment
income of $15,000. What is his Net Investment Income Tax?
a. $135
b. $180
c. $570
d. $760
31. A single taxpayer has wages of $500,000 in 2015. How much is his additional
Medicare tax?
a. $-0-
b. $2,700
c. $4,350
d. $11,400
32. Which of the following items is not subtracted in determining a taxpayer’s
adjusted gross income?
a. Losses from sale or exchange of property
b. Domestic Production Activities Deduction
c. Trade or business deductions
d. Roth IRA contribution
SS-9

33. Which of the following statements about the capital gain provisions is correct?
a. The preferential capital gain rates generally are effective for sales and exchanges
in 2015 for all taxpayers
b. The capital gain rates are available for qualified dividends for all taxpayers
c. The maximum capital gain rates also apply for AMT purposes
d. All of the above
34. What is the long-term capital gain tax rate in 2015 for taxpayers in the 10% and
15% ordinary tax brackets to the extent the gain would otherwise be taxed at those
ordinary rates?
a. 0%
b. 10%
c. 15%
d. 20%
35. A dividend distribution received from a mutual fund (i.e. regulated investment
company) is eligible for the capital gains tax rates to the extent the distribution is
attributable to:
a. interest income
b. short-term capital gains
c. shares held more than 60 days before the ex-dividend date
d. None of the above
36. For 2015 qualified dividends are taxed at:
a. Ordinary income at rates based on each taxpayer’s marginal tax rate
b. Capital gains at a rate of 20% for taxpayers in the 39.6% ordinary bracket
c. Capital gains at a rate of 28% for taxpayers in the 39.6% bracket
d. Capital gains at a rate of 15% and 20%
SS-10

37. Generally, a business location in a taxpayer’s residence must satisfy the principal
place of business test to qualify for business use of the home. Which of the
following is an exception to the principal place of business test?
a. The area is used for investment activities
b. The area is used exclusively in the taxpayer’s trade or business
c. The taxpayer uses the area to perform services for his or her employer
d. The taxpayer uses the area for meeting patients, clients, or customers
38. A member of a Limited Liability Company (LLC) is subjected to self-employment
tax if the individual:
a. participates in the LLC’s trade or business for more than 500 hours during the tax
year
b. has personal liability for debts of or claims of the LLC by reason of being a
member
c. has authority to contract on behalf of the LLC
d. All of the above
39. If a taxpayer converted a traditional IRA to a Roth IRA in 2015, which of the
following statements is true? The converted amount is
a. included in income in 2015 and 2016 equally
b. included in income equally from 2015-2018
c. fully includible in gross income in 2015
d. includible in income for the current tax year and subject to the §72(t) 10% penalty
tax if the taxpayer is not over age 59 ½
40. Which of the following types of insurance does not qualify under the minimum
essential coverage health insurance law?
a. Medicare.
b. Long-term care insurance.
c. Children’s Health Insurance Program.
d. Eligible employer-sponsored plans.
SS-11

National Society of Tax Professionals
2015 FEDERAL TAX UPDATE & REVIEW SELF-STUDY
ANSWER SHEET
Instructions:
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• Submit your completed answer sheet by:
Fax: (360) 695-7115; Email: taxes@nstp.org; Mail: NSTP
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Vancouver, WA 98682
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2. 12. 22. 32.
3. 13. 23. 33.
4. 14. 24. 34.
5. 15. 25. 35.
6. 16. 26. 36.
7. 17. 27. 37.
8. 18. 28. 38.
9. 19. 29. 39.
10. 20. 30. 40.
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Address:
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E-Mail:
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2015 Fall Update and Review
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Draft Forms

Selected Year 2015 Federal Income Tax Forms and Schedules Page
941 Employer’s Quarterly Federal Tax Return DF – 1
1040 U.S. Individual Income Tax Return DF – 3
Schedule A Itemized Deductions DF – 5
Schedule B Interest & Ordinary Dividends DF – 6
Schedule C Profit or Loss from Business DF – 7
Schedule D Capital Gains and Losses DF – 9
Schedule E Supplemental Income & (Loss) DF – 11
Schedule H Household Employment Taxes DF – 13
Schedule SE Self-Employment Tax DF – 15
Form 1041 U.S. Income Tax Return for Estates and Trusts DF – 17
Schedule D Capital Gains and Losses DF – 19
(Form 1041)
Schedule K-1 Beneficiary’s Share of Income, Deductions, Credits, etc. DF – 21
(Form 1041)
Form 1065 U.S. Return of Partnership Income DF – 23
Schedule K-1 Partner’s Share of Income, Deductions, Credits, etc. DF – 28
(Form 1065)
Form 1094-B Transmittal of Health coverage Information Returns DF – 30
Form 1094-C Transmittal of Employer-Provided Health Insurance Offer and DF – 31
coverage Information Returns
Form 1095-A Health Insurance Marketplace Statement DF – 34
Form 1095-A Instructions DF – 36
Form 1095-B Health Coverage DF – 38
Form 1095-B Instructions DF – 40
Form 1095-C Employer-Provided Health Insurance Offer and Coverage DF – 47
Form 1095-C Instructions DF – 49
Form 1099-B Proceeds from Broker and Barter Exchange Transactions DF – 66

Form 1099-K Payment Card and Third Party Network Transactions DF – 67
Form 1120 U.S. Income Tax Return for Corporations DF – 68
Form 1120S U.S. Income Tax Return for an S Corporation DF – 73
Schedule K-1 Shareholder’s Share of Income, Deductions, Credits, etc. 348 DF – 78
(Form 1120S)
Form 2106 Employee Business Expense DF – 80
Form 4562 Depreciation and Amortization DF – 82
Form 4797 Sales of Business Property DF – 84
Form 5695 Residential Energy Credits DF – 86
Form 6198 At-Risk Limitations DF – 87
Form 6251 Alternative Minimum Tax – Individuals DF – 88
Form 6252 Installment Sale Income DF – 90
Form 8082 Notice of Inconsistent Treatment or Administrative Adjustment DF – 94
Request (AAR)
Form 8606 Nondeductible IRAs DF – 95
Schedule 8812 Additional Child Tax Credit DF – 97
(Form 1040A
or 1040)
Form 8815 Exclusion of Internet From Series EE and I U.S. Savings Bonds DF – 99
Form 8829 Expenses for Business Use of Your Home DF – 100
Form 8863 Education Credits DF – 101
Form 8867 Paid Preparer’s Earned Income Credit Checklist DF – 103
Form 8941 Credit for Small Employer Health Insurance Premiums DF – 107
Form 8959 Additional Medicare Tax DF – 108
Form 8960 Net Investment Income Tax Individuals, Estates, and Trusts DF – 109
Form 8962 Premium Tax Credit (PTC) DF – 110
Form 8962 Instructions DF – 112
Form 8965 Health Coverage Exemptions DF – 127

Form 8965 Instructions DF – 128
Form 9465 Installment Agreement Request DF – 146
W-2 Wage and Tax Statement DF – 148

Form 941 for 2015:
(Rev. January 2015)
Employer’s QUARTERLY Federal Tax Return
Department of the Treasury — Internal Revenue Service
950114
OMB No. 1545-0029
Employer identification number (EIN)
Name (not your trade name)
Trade name (if any)
—
Report for this Quarter of 2015
(Check one.)
1: January, February, March
2: April, May, June
3: July, August, September
Address
Number Street Suite or room number
City State ZIP code
4: October, November, December
Instructions and prior year forms are
available at www.irs.gov/form941.
Foreign country name Foreign province/county Foreign postal code
Read the separate instructions before you complete Form 941. Type or print within the boxes.
Part 1: Answer these questions for this quarter.
1 Number of employees who received wages, tips, or other compensation for the pay period
including: Mar. 12 (Quarter 1), June 12 (Quarter 2), Sept. 12 (Quarter 3), or Dec. 12 (Quarter 4) 1
2 Wages, tips, and other compensation . . . . . . . . . . . . . . . . . 2 .
3 Federal income tax withheld from wages, tips, and other compensation . . . . . . 3 .
4 If no wages, tips, and other compensation are subject to social security or Medicare tax Check and go to line 6.
Column 1 Column 2
5a Taxable social security wages . . . × .124 = .
5b Taxable social security tips . . . . × .124 = .
5c Taxable Medicare wages & tips. . . × .029 = .
5d Taxable wages & tips subject to
Additional Medicare Tax withholding . × .009 = .
5e Add Column 2 from lines 5a, 5b, 5c, and 5d . . . . . . . . . . . . . . . 5e .
5f Section 3121(q) Notice and Demand—Tax due on unreported tips (see instructions) . . 5f .
6 Total taxes before adjustments. Add lines 3, 5e, and 5f . . . . . . . . . . . . 6 .
7 Current quarter’s adjustment for fractions of cents . . . . . . . . . . . . . 7 .
8 Current quarter’s adjustment for sick pay . . . . . . . . . . . . . . . . 8 .
9 Current quarter’s adjustments for tips and group-term life insurance . . . . . . . 9 .
10 Total taxes after adjustments. Combine lines 6 through 9 . . . . . . . . . . . 10 .
11 Total deposits for this quarter, including overpayment applied from a prior quarter and
overpayments applied from Form 941-X, 941-X (PR), 944-X, 944-X (PR), or 944-X (SP) filed
in the current quarter . . . . . . . . . . . . . . . . . . . . . . . 11 .
12 Balance due. If line 10 is more than line 11, enter the difference and see instructions . . . 12 .
13 Overpayment. If line 11 is more than line 10, enter the difference . Check one: Apply to next return. Send a refund.
You MUST complete both pages of Form 941 and SIGN it.
Next
For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher. Cat. No. 17001Z Form 941 (Rev. 1-2015)
DF-1

Name (not your trade name)
Employer identification number (EIN)
950214
Part 2:
Tell us about your deposit schedule and tax liability for this quarter.
If you are unsure about whether you are a monthly schedule depositor or a semiweekly schedule depositor, see Pub. 15
(Circular E), section 11.
14 Check one: Line 10 on this return is less than $2,500 or line 10 on the return for the prior quarter was less than $2,500, and you did not incur a
$100,000 next-day deposit obligation during the current quarter. If line 10 for the prior quarter was less than $2,500 but line 10 on this return
is $100,000 or more, you must provide a record of your federal tax liability. If you are a monthly schedule depositor, complete the deposit
schedule below; if you are a semiweekly schedule depositor, attach Schedule B (Form 941). Go to Part 3.
You were a monthly schedule depositor for the entire quarter. Enter your tax liability for each month and total
liability for the quarter, then go to Part 3.
Tax liability: Month 1 .
Month 2 .
Month 3 .
Total liability for quarter . Total must equal line 10.
You were a semiweekly schedule depositor for any part of this quarter. Complete Schedule B (Form 941),
Report of Tax Liability for Semiweekly Schedule Depositors, and attach it to Form 941.
Part 3:
Tell us about your business. If a question does NOT apply to your business, leave it blank.
15 If your business has closed or you stopped paying wages . . . . . . . . . . . . . . . Check here, and
enter the final date you paid wages / / .
16 If you are a seasonal employer and you do not have to file a return for every quarter of the year . . Check here.
Part 4:
Part 5:
May we speak with your third-party designee?
Do you want to allow an employee, a paid tax preparer, or another person to discuss this return with the IRS? See the instructions
for details.
Yes. Designee’s name and phone number
No.
Select a 5-digit Personal Identification Number (PIN) to use when talking to the IRS.
Sign here. You MUST complete both pages of Form 941 and SIGN it.
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge
and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Print your
Sign your
name here
name here
Print your
title here
Date / / Best daytime phone
Paid Preparer Use Only Check if you are self-employed . . .
Preparer’s name
Preparer’s signature
Firm’s name (or yours
if self-employed)
PTIN
Date / /
EIN
Address
Phone
City
State
ZIP code
Page 2 Form 941 (Rev. 1-2015)
DF-2

Form
1040
Department of the Treasury—Internal Revenue Service (99)
U.S. Individual Income Tax Return 2015 OMB No. 1545-0074 IRS Use Only—Do not write or staple in this space.
For the year Jan. 1–Dec. 31, 2015, or other tax year beginning , 2015, ending , 20 See separate instructions.
Your first name and initial Last name Your social security number
If a joint return, spouse’s first name and initial Last name Spouse’s social security number
DRAFT AS OF
July 29, 2015
DO NOT FILE
Home address (number and street). If you have a P.O. box, see instructions.
City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions).
Apt. no.
Foreign country name Foreign province/state/county Foreign postal code
Filing Status
Check only one
box.
Exemptions
If more than four
dependents, see
instructions and
check here
Income
Attach Form(s)
W-2 here. Also
attach Forms
W-2G and
1099-R if tax
was withheld.
If you did not
get a W-2,
see instructions.
Adjusted
Gross
Income
1 Single
2 Married filing jointly (even if only one had income)
Make sure the SSN(s) above
and on line 6c are correct.
Presidential Election Campaign
Check here if you, or your spouse if filing
jointly, want $3 to go to this fund. Checking
a box below will not change your tax or
refund. You Spouse
4 Head of household (with qualifying person). (See instructions.) If
the qualifying person is a child but not your dependent, enter this
3 Married filing separately. Enter spouse’s SSN above
child’s name here.
and full name here.
5 Qualifying widow(er) with dependent child
6a Yourself. If someone can claim you as a dependent, do not check box 6a . . . . .
}
b Spouse . . . . . . . . . . . . . . . . . . . . . . . .
c
Dependents:
(1) First name Last name
(2) Dependent’s
social security number
(3) Dependent’s
relationship to you
(4) if child under age 17
qualifying for child tax credit
(see instructions)
d Total number of exemptions claimed . . . . . . . . . . . . . . . . .
7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . 7
8a Taxable interest. Attach Schedule B if required . . . . . . . . . . . . 8a
b Tax-exempt interest. Do not include on line 8a . . . 8b
9 a Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . 9a
b Qualified dividends . . . . . . . . . . . 9b
10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . 10
11 Alimony received . . . . . . . . . . . . . . . . . . . . . 11
12 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . 12
13 Capital gain or (loss). Attach Schedule D if required. If not required, check here 13
14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . 14
15 a IRA distributions . 15a b Taxable amount . . . 15b
16 a Pensions and annuities 16a b Taxable amount . . . 16b
17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17
18 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . 18
19 Unemployment compensation . . . . . . . . . . . . . . . . . 19
20 a Social security benefits 20a b Taxable amount . . . 20b
21 Other income. List type and amount 21
22 Combine the amounts in the far right column for lines 7 through 21. This is your total income 22
23 Reserved . . . . . . . . . . . . . . 23
24 Certain business expenses of reservists, performing artists, and
fee-basis government officials. Attach Form 2106 or 2106-EZ 24
25 Health savings account deduction. Attach Form 8889 . 25
26 Moving expenses. Attach Form 3903 . . . . . . 26
27 Deductible part of self-employment tax. Attach Schedule SE . 27
28 Self-employed SEP, SIMPLE, and qualified plans . . 28
29 Self-employed health insurance deduction . . . . 29
30 Penalty on early withdrawal of savings . . . . . . 30
31 a Alimony paid b Recipient’s SSN 31a
32 IRA deduction . . . . . . . . . . . . . 32
33 Student loan interest deduction . . . . . . . . 33
34 Reserved . . . . . . . . . . . . . . 34
35 Domestic production activities deduction. Attach Form 8903 35
36 Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . 36
37 Subtract line 36 from line 22. This is your adjusted gross income . . . . . 37
Boxes checked
on 6a and 6b
No. of children
on 6c who:
• lived with you
• did not live with
you due to divorce
or separation
(see instructions)
Dependents on 6c
not entered above
Add numbers on
lines above
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2015)
DF-3

Form 1040 (2015) Page 2
Tax and
Credits
Standard
Deduction
for—
• People who
check any
box on line
39a or 39b or
who can be
claimed as a
dependent,
see
instructions.
• All others:
Single or
Married filing
separately,
$6,300
Married filing
jointly or
Qualifying
widow(er),
$12,600
Head of
household,
$9,250
Other
Taxes
38 Amount from line 37 (adjusted gross income) . . . . . . . . . . . . . . 38
39a Check You were born before January 2, 1951, Blind. Total boxes
{ }
if: Spouse was born before January 2, 1951, Blind. checked 39a
b If your spouse itemizes on a separate return or you were a dual-status alien, check here 39b
40 Itemized deductions (from Schedule A) or your standard deduction (see left margin) . . 40
41 Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . 41
42 Exemptions. If line 38 is $154,950 or less, multiply $4,000 by the number on line 6d. Otherwise, see instructions 42
DRAFT AS OF
July 29, 2015
DO NOT FILE
43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- . . 43
44 Tax (see instructions). Check if any from: a Form(s) 8814 b Form 4972 c 44
45 Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . 45
46 Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . 46
47 Add lines 44, 45, and 46 . . . . . . . . . . . . . . . . . . . 47
48 Foreign tax credit. Attach Form 1116 if required . . . . 48
49 Credit for child and dependent care expenses. Attach Form 2441 49
50 Education credits from Form 8863, line 19 . . . . . 50
51 Retirement savings contributions credit. Attach Form 8880 51
52 Child tax credit. Attach Schedule 8812, if required . . . 52
53 Residential energy credit. Attach Form 5695 . . . . . 53
54 Other credits from Form: a 3800 b 8801 c 54
55 Add lines 48 through 54. These are your total credits . . . . . . . . . . . . 55
56 Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- . . . . . . 56
57 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . 57
58 Unreported social security and Medicare tax from Form: a 4137 b 8919 . . 58
59 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required . . 59
60 a Household employment taxes from Schedule H . . . . . . . . . . . . . . 60a
b First-time homebuyer credit repayment. Attach Form 5405 if required . . . . . . . . 60b
61 Health care: individual responsibility (see instructions) Full-year coverage . . . . . 61
62 Taxes from: a Form 8959 b Form 8960 c Instructions; enter code(s) 62
63 Add lines 56 through 62. This is your total tax . . . . . . . . . . . . . 63
Payments 64 Federal income tax withheld from Forms W-2 and 1099 . . 64
65 2015 estimated tax payments and amount applied from 2014 return 65
If you have a
qualifying
child, attach
Schedule EIC.
Refund
Direct deposit?
See
instructions.
Amount
You Owe
Third Party
Designee
Sign
Here
Joint return? See
instructions.
Keep a copy for
your records.
Paid
Preparer
Use Only
66a Earned income credit (EIC) . . . . . . . . . . 66a
b Nontaxable combat pay election 66b
67 Additional child tax credit. Attach Schedule 8812 . . . . . 67
68 American opportunity credit from Form 8863, line 8 . . . 68
69 Net premium tax credit. Attach Form 8962 . . . . . . 69
70 Amount paid with request for extension to file . . . . . 70
71 Excess social security and tier 1 RRTA tax withheld . . . . 71
72 Credit for federal tax on fuels. Attach Form 4136 . . . . 72
73 Credits from Form: a 2439 b Reserved c 8885 d 73
74 Add lines 64, 65, 66a, and 67 through 73. These are your total payments . . . . . 74
75 If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid 75
76a Amount of line 75 you want refunded to you. If Form 8888 is attached, check here . 76a
b Routing number c Type: Checking Savings
d
Account number
77 Amount of line 75 you want applied to your 2016 estimated tax 77
78 Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions 78
79 Estimated tax penalty (see instructions) . . . . . . . 79
Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. No
Personal identification
number (PIN)
Designee’s
name
Phone
no.
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief,
they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Your signature Date Your occupation Daytime phone number
Spouse’s signature. If a joint return, both must sign.
Date
Spouse’s occupation
Print/Type preparer’s name Preparer’s signature Date
Firm’s name
Firm’s address
If the IRS sent you an Identity Protection
PIN, enter it
here (see inst.)
PTIN
Check if
self-employed
Firm's EIN
Phone no.
www.irs.gov/form1040 Form 1040 (2015)
DF-4

SCHEDULE A
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on Form 1040
Itemized Deductions
Information about Schedule A and its separate instructions is at www.irs.gov/schedulea.
Attach to Form 1040.
OMB No. 1545-0074
2015
Attachment
Sequence No. 07
Your social security number
Medical
and
Dental
Expenses
Taxes You
Paid
Interest
You Paid
Note.
Your mortgage
interest
deduction may
be limited (see
instructions).
Gifts to
Charity
If you made a
gift and got a
benefit for it,
see instructions.
Caution. Do not include expenses reimbursed or paid by others.
1 Medical and dental expenses (see instructions) . . . . . 1
2 Enter amount from Form 1040, line 38 2
3 Multiply line 2 by 10% (.10). But if either you or your spouse was
born before January 2, 1951, multiply line 2 by 7.5% (.075) instead 3
DRAFT AS OF
July 30, 2015
DO NOT FILE
4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . . . . . . . 4
5 State and local
a Income taxes
b Reserved } . . . . . . . . . . . 5
6 Real estate taxes (see instructions) . . . . . . . . . 6
7 Personal property taxes . . . . . . . . . . . . . 7
8 Other taxes. List type and amount
8
9 Add lines 5 through 8 . . . . . . . . . . . . . . . . . . . . . . 9
10 Home mortgage interest and points reported to you on Form 1098 10
11 Home mortgage interest not reported to you on Form 1098. If paid
to the person from whom you bought the home, see instructions
and show that person’s name, identifying no., and address
11
12 Points not reported to you on Form 1098. See instructions for
special rules . . . . . . . . . . . . . . . . . 12
13 Reserved . . . . . . . . . . . . . . . . . . 13
14 Investment interest. Attach Form 4952 if required. (See instructions.) 14
15 Add lines 10 through 14 . . . . . . . . . . . . . . . . . . . . . 15
16 Gifts by cash or check. If you made any gift of $250 or more,
see instructions . . . . . . . . . . . . . . . . 16
17 Other than by cash or check. If any gift of $250 or more, see
instructions. You must attach Form 8283 if over $500 . . . 17
18 Carryover from prior year . . . . . . . . . . . . 18
19 Add lines 16 through 18 . . . . . . . . . . . . . . . . . . . . . 19
Casualty and
Theft Losses 20 Casualty or theft loss(es). Attach Form 4684. (See instructions.) . . . . . . . . 20
Job Expenses
and Certain
Miscellaneous
Deductions
Other
Miscellaneous
Deductions
Total
Itemized
Deductions
21 Unreimbursed employee expenses—job travel, union dues,
job education, etc. Attach Form 2106 or 2106-EZ if required.
(See instructions.) 21
22 Tax preparation fees . . . . . . . . . . . . . 22
23 Other expenses—investment, safe deposit box, etc. List type
and amount
23
24 Add lines 21 through 23 . . . . . . . . . . . . 24
25 Enter amount from Form 1040, line 38 25
26 Multiply line 25 by 2% (.02) . . . . . . . . . . . 26
27 Subtract line 26 from line 24. If line 26 is more than line 24, enter -0- . . . . . . 27
28 Other—from list in instructions. List type and amount
29 Is Form 1040, line 38, over $154,950?
No. Your deduction is not limited. Add the amounts in the far right column
for lines 4 through 28. Also, enter this amount on Form 1040, line 40.
Yes. Your deduction may be limited. See the Itemized Deductions
Worksheet in the instructions to figure the amount to enter.
30 If you elect to itemize deductions even though they are less than your standard
deduction, check here . . . . . . . . . . . . . . . . . . .
28
}
. . 29
For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 17145C Schedule A (Form 1040) 2015
DF-5

SCHEDULE B
(Form 1040A or 1040)
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Interest and Ordinary Dividends
Attach to Form 1040A or 1040.
Information about Schedule B and its instructions is at www.irs.gov/scheduleb.
OMB No. 1545-0074
2015
Attachment
Sequence No. 08
Your social security number
Part I
Interest
(See instructions
on back and the
instructions for
Form 1040A, or
Form 1040,
line 8a.)
Note: If you
received a Form
1099-INT, Form
1099-OID, or
substitute
statement from
a brokerage firm,
list the firm’s
name as the
payer and enter
the total interest
shown on that
form.
Part II
Ordinary
Dividends
(See instructions
on back and the
instructions for
Form 1040A, or
Form 1040,
line 9a.)
1 List name of payer. If any interest is from a seller-financed mortgage and the
buyer used the property as a personal residence, see instructions on back and list
this interest first. Also, show that buyer’s social security number and address
DRAFT AS OF
June 26, 2015
DO NOT FILE
2 Add the amounts on line 1 . . . . . . . . . . . . . . . . . . 2
3 Excludable interest on series EE and I U.S. savings bonds issued after 1989.
Attach Form 8815 . . . . . . . . . . . . . . . . . . . . . 3
4 Subtract line 3 from line 2. Enter the result here and on Form 1040A, or Form
1040, line 8a . . . . . . . . . . . . . . . . . . . . . . 4
Note: If line 4 is over $1,500, you must complete Part III.
5 List name of payer 5
1
Amount
Amount
Note: If you
received a Form
1099-DIV or
substitute
statement from
a brokerage firm,
list the firm’s
name as the
payer and enter
the ordinary
6 Add the amounts on line 5. Enter the total here and on Form 1040A, or Form
dividends shown
on that form.
1040, line 9a . . . . . . . . . . . . . . . . . . . . . . 6
Note: If line 6 is over $1,500, you must complete Part III.
You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a
foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust.
Part III
Foreign
Accounts
and Trusts
(See
instructions on
back.)
7a At any time during 2015, did you have a financial interest in or signature authority over a financial
account (such as a bank account, securities account, or brokerage account) located in a foreign
country? See instructions . . . . . . . . . . . . . . . . . . . . . . . .
If “Yes,” are you required to file FinCEN Form 114, Report of Foreign Bank and Financial
Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114
and its instructions for filing requirements and exceptions to those requirements . . . . . .
b If you are required to file FinCEN Form 114, enter the name of the foreign country where the
financial account is located
8 During 2015, did you receive a distribution from, or were you the grantor of, or transferor to, a
foreign trust? If “Yes,” you may have to file Form 3520. See instructions on back . . . . . .
Yes No
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 17146N Schedule B (Form 1040A or 1040) 2015
DF-6

SCHEDULE C
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Name of proprietor
Profit or Loss From Business
(Sole Proprietorship)
Information about Schedule C and its separate instructions is at www.irs.gov/schedulec.
Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065.
OMB No. 1545-0074
2015
Attachment
Sequence No. 09
Social security number (SSN)
A Principal business or profession, including product or service (see instructions) B Enter code from instructions
DRAFT AS OF
July 14, 2015
DO NOT FILE
C Business name. If no separate business name, leave blank. D Employer ID number (EIN), (see instr.)
E
Business address (including suite or room no.)
City, town or post office, state, and ZIP code
F Accounting method: (1) Cash (2) Accrual (3) Other (specify)
G Did you “materially participate” in the operation of this business during 2015? If “No,” see instructions for limit on losses . Yes No
H If you started or acquired this business during 2015, check here . . . . . . . . . . . . . . . . .
I Did you make any payments in 2015 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . Yes No
J If "Yes," did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . Yes No
Part I Income
1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on
Form W-2 and the “Statutory employee” box on that form was checked . . . . . . . . . 1
2 Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . 4
5 Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . 5
6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . 6
7 Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . 7
Part II Expenses. Enter expenses for business use of your home only on line 30.
8 Advertising . . . . . 8
18 Office expense (see instructions) 18
9 Car and truck expenses (see
instructions). . . . . 9
10 Commissions and fees . 10
11 Contract labor (see instructions) 11
12 Depletion . . . . . 12
13 Depreciation and section 179
expense deduction (not
included in Part III) (see
instructions) . . . . . 13
14 Employee benefit programs
(other than on line 19) . . 14
15 Insurance (other than health) 15
16 Interest:
a Mortgage (paid to banks, etc.) 16a
b Other . . . . . . 16b
17 Legal and professional services 17
19 Pension and profit-sharing plans . 19
20 Rent or lease (see instructions):
a Vehicles, machinery, and equipment 20a
b Other business property . . . 20b
21 Repairs and maintenance . . . 21
22 Supplies (not included in Part III) . 22
23 Taxes and licenses . . . . . 23
24 Travel, meals, and entertainment:
a Travel . . . . . . . . . 24a
b
Deductible meals and
entertainment (see instructions) . 24b
25 Utilities . . . . . . . . 25
26 Wages (less employment credits) . 26
27 a Other expenses (from line 48) . . 27a
b Reserved for future use . . . 27b
28 Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . 28
29 Tentative profit or (loss). Subtract line 28 from line 7 . . . . . . . . . . . . . . . . . 29
30 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829
unless using the simplified method (see instructions).
Simplified method filers only: enter the total square footage of: (a) your home:
and (b) the part of your home used for business:
. Use the Simplified
Method Worksheet in the instructions to figure the amount to enter on line 30 . . . . . . . . . 30
31 Net profit or (loss). Subtract line 30 from line 29.
• If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2.
(If you checked the box on line 1, see instructions). Estates and trusts, enter on Form 1041, line 3.
}
31
• If a loss, you must go to line 32.
32 If you have a loss, check the box that describes your investment in this activity (see instructions).
}
• If you checked 32a, enter the loss on both Form 1040, line 12, (or Form 1040NR, line 13) and
on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and
32a All investment is at risk.
trusts, enter on Form 1041, line 3.
32b Some investment is not
at risk.
• If you checked 32b, you must attach Form 6198. Your loss may be limited.
For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11334P Schedule C (Form 1040) 2015
DF-7

Schedule C (Form 1040) 2015 Page 2
Part III Cost of Goods Sold (see instructions)
33 Method(s) used to
value closing inventory: a Cost b Lower of cost or market c Other (attach explanation)
34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No
DRAFT AS OF
July 14, 2015
DO NOT FILE
35 Inventory at beginning of year. If different from last year’s closing inventory, attach explanation . . . 35
36 Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . 36
37 Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . 37
38 Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . 38
39 Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
40 Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . 40
41 Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . 41
42 Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 . . . . . . 42
Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9
and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must
file Form 4562.
43 When did you place your vehicle in service for business purposes? (month, day, year) / /
44 Of the total number of miles you drove your vehicle during 2015, enter the number of miles you used your vehicle for:
a Business b Commuting (see instructions) c Other
45 Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . Yes No
46 Do you (or your spouse) have another vehicle available for personal use?. . . . . . . . . . . . . . Yes No
47a Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . Yes No
b If “Yes,” is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . Yes No
Part V Other Expenses. List below business expenses not included on lines 8–26 or line 30.
48 Total other expenses. Enter here and on line 27a . . . . . . . . . . . . . . . . 48
DF-8
Schedule C (Form 1040) 2015

SCHEDULE D
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Capital Gains and Losses
Attach to Form 1040 or Form 1040NR.
Information about Schedule D and its separate instructions is at www.irs.gov/scheduled.
Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.
OMB No. 1545-0074
2015
Attachment
Sequence No. 12
Your social security number
Part I
DRAFT AS OF
August 4, 2015
DO NOT FILE
Short-Term Capital Gains and Losses—Assets Held One Year or Less
See instructions for how to figure the amounts to enter on the
lines below.
This form may be easier to complete if you round off cents to
whole dollars.
1a Totals for all short-term transactions reported on Form
1099-B for which basis was reported to the IRS and for
which you have no adjustments (see instructions).
However, if you choose to report all these transactions
on Form 8949, leave this line blank and go to line 1b .
1b Totals for all transactions reported on Form(s) 8949 with
Box A checked . . . . . . . . . . . . .
2 Totals for all transactions reported on Form(s) 8949 with
Box B checked . . . . . . . . . . . . .
3 Totals for all transactions reported on Form(s) 8949 with
Box C checked . . . . . . . . . . . . .
(d)
Proceeds
(sales price)
(e)
Cost
(or other basis)
(g)
Adjustments
to gain or loss from
Form(s) 8949, Part I,
line 2, column (g)
(h) Gain or (loss)
Subtract column (e)
from column (d) and
combine the result with
column (g)
4 Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824 . 4
5 Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from
Schedule(s) K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover
Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . 6 ( )
7 Net short-term capital gain or (loss). Combine lines 1a through 6 in column (h). If you have any longterm
capital gains or losses, go to Part II below. Otherwise, go to Part III on the back . . . . . 7
Part II
Long-Term Capital Gains and Losses—Assets Held More Than One Year
See instructions for how to figure the amounts to enter on the
lines below.
This form may be easier to complete if you round off cents to
whole dollars.
(d)
Proceeds
(sales price)
(e)
Cost
(or other basis)
(g)
Adjustments
to gain or loss from
Form(s) 8949, Part II,
line 2, column (g)
(h) Gain or (loss)
Subtract column (e)
from column (d) and
combine the result with
column (g)
8a Totals for all long-term transactions reported on Form
1099-B for which basis was reported to the IRS and for
which you have no adjustments (see instructions).
However, if you choose to report all these transactions
on Form 8949, leave this line blank and go to line 8b .
8b Totals for all transactions reported on Form(s) 8949 with
Box D checked . . . . . . . . . . . . .
9 Totals for all transactions reported on Form(s) 8949 with
Box E checked . . . . . . . . . . . . .
10 Totals for all transactions reported on Form(s) 8949 with
Box F checked. . . . . . . . . . . . . .
11 Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or (loss)
from Forms 4684, 6781, and 8824 . . . . . . . . . . . . . . . . . . . . . . 11
12 Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 12
13 Capital gain distributions. See the instructions . . . . . . . . . . . . . . . . . . 13
14 Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss Carryover
Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . 14 ( )
15 Net long-term capital gain or (loss). Combine lines 8a through 14 in column (h). Then go to Part III on
the back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11338H Schedule D (Form 1040) 2015
DF-9

Schedule D (Form 1040) 2015 Page 2
Part III
Summary
16 Combine lines 7 and 15 and enter the result . . . . . . . . . . . . . . . . . . 16
• If line 16 is a gain, enter the amount from line 16 on Form 1040, line 13, or Form 1040NR, line
14. Then go to line 17 below.
• If line 16 is a loss, skip lines 17 through 20 below. Then go to line 21. Also be sure to complete
line 22.
DRAFT AS OF
August 4, 2015
DO NOT FILE
• If line 16 is zero, skip lines 17 through 21 below and enter -0- on Form 1040, line 13, or Form
1040NR, line 14. Then go to line 22.
17 Are lines 15 and 16 both gains?
Yes. Go to line 18.
No. Skip lines 18 through 21, and go to line 22.
18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet in the instructions . . 18
19 Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet in the
instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
20 Are lines 18 and 19 both zero or blank?
Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions
for Form 1040, line 44 (or in the instructions for Form 1040NR, line 42). Do not complete lines
21 and 22 below.
No. Complete the Schedule D Tax Worksheet in the instructions. Do not complete lines 21
and 22 below.
21 If line 16 is a loss, enter here and on Form 1040, line 13, or Form 1040NR, line 14, the smaller of:
• The loss on line 16 or
• ($3,000), or if married filing separately, ($1,500) } . . . . . . . . . . . . . . . 21 ( )
Note. When figuring which amount is smaller, treat both amounts as positive numbers.
22 Do you have qualified dividends on Form 1040, line 9b, or Form 1040NR, line 10b?
Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions
for Form 1040, line 44 (or in the instructions for Form 1040NR, line 42).
No. Complete the rest of Form 1040 or Form 1040NR.
Schedule D (Form 1040) 2015
DF-10

SCHEDULE E
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Supplemental Income and Loss
(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)
▶ Attach to Form 1040, 1040NR, or Form 1041.
▶ Information about Schedule E and its separate instructions is at www.irs.gov/schedulee.
OMB No. 1545-0074
2015
Attachment
Sequence No. 13
Your social security number
Part I Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property, use
Schedule C or C-EZ (see instructions). If you are an individual, report farm rental income or loss from Form 4835 on page 2, line 40.
A Did you make any payments in 2015 that would require you to file Form(s) 1099? (see instructions) Yes No
B If “Yes,” did you or will you file required Forms 1099? Yes No
1a Physical address of each property (street, city, state, ZIP code)
A
B
C
1b
2 For each rental real estate property listed
Fair Rental
A
B
C
DRAFT AS OF
June 12, 2015
DO NOT FILE
Type of Property
(from list below)
Type of Property:
1 Single Family Residence
2 Multi-Family Residence
above, report the number of fair rental and
personal use days. Check the QJV box
only if you meet the requirements to file as
a qualified joint venture. See instructions.
A
B
C
Days
Personal Use
Days
3 Vacation/Short-Term Rental 5 Land
7 Self-Rental
4 Commercial
6 Royalties 8 Other (describe)
Income: Properties: A B C
3 Rents received . . . . . . . . . . . . . 3
4 Royalties received . . . . . . . . . . . . 4
Expenses:
5 Advertising . . . . . . . . . . . . . . 5
6 Auto and travel (see instructions) . . . . . . . 6
7 Cleaning and maintenance . . . . . . . . . 7
8 Commissions. . . . . . . . . . . . . . 8
9 Insurance . . . . . . . . . . . . . . . 9
10 Legal and other professional fees . . . . . . . 10
11 Management fees . . . . . . . . . . . . 11
12 Mortgage interest paid to banks, etc. (see instructions) 12
13 Other interest. . . . . . . . . . . . . . 13
14 Repairs. . . . . . . . . . . . . . . . 14
15 Supplies . . . . . . . . . . . . . . . 15
16 Taxes . . . . . . . . . . . . . . . . 16
17 Utilities . . . . . . . . . . . . . . . . 17
18 Depreciation expense or depletion . . . . . . . 18
19 Other (list) ▶ 19
20 Total expenses. Add lines 5 through 19 . . . . . 20
21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If
result is a (loss), see instructions to find out if you must
file Form 6198 . . . . . . . . . . . . . 21
22 Deductible rental real estate loss after limitation, if any,
on Form 8582 (see instructions) . . . . . . . 22 ( ) ( ) ( )
23a Total of all amounts reported on line 3 for all rental properties . . . . 23a
b Total of all amounts reported on line 4 for all royalty properties . . . . 23b
c Total of all amounts reported on line 12 for all properties . . . . . . 23c
d Total of all amounts reported on line 18 for all properties . . . . . . 23d
e Total of all amounts reported on line 20 for all properties . . . . . . 23e
24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24
25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( )
26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here.
If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Form 1040, line
17, or Form 1040NR, line 18. Otherwise, include this amount in the total on line 41 on page 2 . . . . 26
For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11344L Schedule E (Form 1040) 2015
QJV
DF-11

Schedule E (Form 1040) 2015 Attachment Sequence No. 13 Page 2
Name(s) shown on return. Do not enter name and social security number if shown on other side.
Your social security number
Caution. The IRS compares amounts reported on your tax return with amounts shown on Schedule(s) K-1.
Part II Income or Loss From Partnerships and S Corporations Note: If you report a loss from an at-risk activity for which
any amount is not at risk, you must check the box in column (e) on line 28 and attach Form 6198. See instructions.
27 Are you reporting any loss not allowed in a prior year due to the at-risk, excess farm loss, or basis limitations, a prior year
unallowed loss from a passive activity (if that loss was not reported on Form 8582), or unreimbursed partnership expenses? If
you answered “Yes,” see instructions before completing this section. Yes No
DRAFT AS OF
June 12, 2015
DO NOT FILE
28 (a) Name
A
B
C
D
Passive Income and Loss
(f) Passive loss allowed
(attach Form 8582 if required)
(g) Passive income
from Schedule K–1
(b) Enter P for
partnership; S
for S corporation
(h) Nonpassive loss
from Schedule K–1
(c) Check if
foreign
partnership
(d) Employer
identification
number
Nonpassive Income and Loss
(i) Section 179 expense
deduction from Form 4562
(e) Check if
any amount is
not at risk
(j) Nonpassive income
from Schedule K–1
A
B
C
D
29a Totals
b Totals
30 Add columns (g) and (j) of line 29a . . . . . . . . . . . . . . . . . . . . . 30
31 Add columns (f), (h), and (i) of line 29b . . . . . . . . . . . . . . . . . . . 31 ( )
32 Total partnership and S corporation income or (loss). Combine lines 30 and 31. Enter the
result here and include in the total on line 41 below . . . . . . . . . . . . . . . 32
Part III Income or Loss From Estates and Trusts
33 (a) Name
A
B
Passive Income and Loss
(c) Passive deduction or loss allowed
(attach Form 8582 if required)
(d) Passive income
from Schedule K–1
(b) Employer
identification number
Nonpassive Income and Loss
(e) Deduction or loss
from Schedule K–1
(f) Other income from
Schedule K–1
A
B
34a Totals
b Totals
35 Add columns (d) and (f) of line 34a . . . . . . . . . . . . . . . . . . . . . 35
36 Add columns (c) and (e) of line 34b . . . . . . . . . . . . . . . . . . . . 36 ( )
37 Total estate and trust income or (loss). Combine lines 35 and 36. Enter the result here and
include in the total on line 41 below . . . . . . . . . . . . . . . . . . . . 37
Part IV Income or Loss From Real Estate Mortgage Investment Conduits (REMICs)—Residual Holder
38 (a) Name
(b) Employer identification
number
(c) Excess inclusion from
Schedules Q, line 2c
(see instructions)
(d) Taxable income (net loss)
from Schedules Q, line 1b
39 Combine columns (d) and (e) only. Enter the result here and include in the total on line 41 below 39
Part V Summary
40 Net farm rental income or (loss) from Form 4835. Also, complete line 42 below . . . . . . 40
41 Total income or (loss). Combine lines 26, 32, 37, 39, and 40. Enter the result here and on Form 1040, line 17, or Form 1040NR, line 18 ▶ 41
42 Reconciliation of farming and fishing income. Enter your gross
farming and fishing income reported on Form 4835, line 7; Schedule K-1
(Form 1065), box 14, code B; Schedule K-1 (Form 1120S), box 17, code
V; and Schedule K-1 (Form 1041), box 14, code F (see instructions) . . 42
43 Reconciliation for real estate professionals. If you were a real estate
professional (see instructions), enter the net income or (loss) you reported
anywhere on Form 1040 or Form 1040NR from all rental real estate activities
in which you materially participated under the passive activity loss rules . . 43
DF-12
(e) Income from
Schedules Q, line 3b
Schedule E (Form 1040) 2015

SCHEDULE H
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Name of employer
Household Employment Taxes
(For Social Security, Medicare, Withheld Income, and Federal Unemployment (FUTA) Taxes)
Attach to Form 1040, 1040NR, 1040-SS, or 1041.
Information about Schedule H and its separate instructions is at www.irs.gov/scheduleh.
Social security number
OMB No. 1545-1971
2015
Attachment
Sequence No. 44
Employer identification number
DRAFT AS OF
July 17, 2015
DO NOT FILE
Calendar year taxpayers having no household employees in 2015 do not have to complete this form for 2015.
A Did you pay any one household employee cash wages of $1,900 or more in 2015? (If any household employee was your
spouse, your child under age 21, your parent, or anyone under age 18, see the line A instructions before you answer this
question.)
Yes. Skip lines B and C and go to line 1.
No. Go to line B.
B Did you withhold federal income tax during 2015 for any household employee?
Yes. Skip line C and go to line 7.
No. Go to line C.
C Did you pay total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to all household employees?
(Do not count cash wages paid in 2014 or 2015 to your spouse, your child under age 21, or your parent.)
No. Stop. Do not file this schedule.
Yes. Skip lines 1-9 and go to line 10.
Part I
Social Security, Medicare, and Federal Income Taxes
1 Total cash wages subject to social security tax . . . . . . . . 1
2 Social security tax. Multiply line 1 by 12.4% (.124) . . . . . . . . . . . . . . . . 2
3 Total cash wages subject to Medicare tax . . . . . . . . . . 3
4 Medicare tax. Multiply line 3 by 2.9% (.029) . . . . . . . . . . . . . . . . . . 4
5 Total cash wages subject to Additional Medicare Tax withholding . . 5
6 Additional Medicare Tax withholding. Multiply line 5 by 0.9% (.009) . . . . . . . . . . 6
7 Federal income tax withheld, if any . . . . . . . . . . . . . . . . . . . . . 7
8 Total social security, Medicare, and federal income taxes. Add lines 2, 4, 6, and 7 . . . . 8
9 Did you pay total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to all household employees?
(Do not count cash wages paid in 2014 or 2015 to your spouse, your child under age 21, or your parent.)
No. Stop. Include the amount from line 8 above on Form 1040, line 60a. If you are not required to file Form 1040, see the
line 9 instructions.
Yes. Go to line 10.
For Privacy Act and Paperwork Reduction Act Notice, see the instructions. Cat. No. 12187K Schedule H (Form 1040) 2015
DF-13

Schedule H (Form 1040) 2015 Page 2
Part II Federal Unemployment (FUTA) Tax
Yes No
10 Did you pay unemployment contributions to only one state? (If you paid contributions to a credit reduction
state, see instructions and check “No.”) . . . . . . . . . . . . . . . . . . . . . . . 10
11 Did you pay all state unemployment contributions for 2015 by April 18, 2016? Fiscal year filers see instructions 11
12 Were all wages that are taxable for FUTA tax also taxable for your state’s unemployment tax? . . . . . 12
DRAFT AS OF
July 17, 2015
DO NOT FILE
Next: If you checked the “Yes” box on all the lines above, complete Section A.
If you checked the “No” box on any of the lines above, skip Section A and complete Section B.
Section A
13 Name of the state where you paid unemployment contributions
14 Contributions paid to your state unemployment fund . . . . . . 14
15 Total cash wages subject to FUTA tax . . . . . . . . . . . . . . . . . . . . 15
16 FUTA tax. Multiply line 15 by .6% (.006). Enter the result here, skip Section B, and go to line 25 16
Section B
17 Complete all columns below that apply (if you need more space, see instructions):
(a)
Name of state
(b)
Taxable wages (as
defined in state act)
(c)
State experience rate
period
From
INTERNAL USE ONLY
To
(d)
State
experience
rate
(e)
Multiply col. (b)
by .054
(f)
Multiply col. (b)
by col. (d)
(g)
Subtract col. (f)
from col. (e). If
zero or less,
enter -0-.
(h)
Contributions
paid to state
unemployment
fund
18 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 Add columns (g) and (h) of line 18 . . . . . . . . . . . . 19
20 Total cash wages subject to FUTA tax (see the line 15 instructions) . . . . . . . . . . 20
21 Multiply line 20 by 6.0% (.060) . . . . . . . . . . . . . . . . . . . . . . 21
22 Multiply line 20 by 5.4% (.054) . . . . . . . . . . . . . 22
23 Enter the smaller of line 19 or line 22 . . . . . . . . . . . . . . . . . . . .
(Employers in a credit reduction state must use the worksheet on page H-7 and check here) . 23
24 FUTA tax. Subtract line 23 from line 21. Enter the result here and go to line 25 . . . . . . 24
Part III Total Household Employment Taxes
25 Enter the amount from line 8. If you checked the “Yes” box on line C of page 1, enter -0- . . . 25
26 Add line 16 (or line 24) and line 25 . . . . . . . . . . . . . . . . . . . . . 26
27 Are you required to file Form 1040?
Yes. Stop. Include the amount from line 26 above on Form 1040, line 60a. Do not complete Part IV below.
No. You may have to complete Part IV. See instructions for details.
Part IV Address and Signature— Complete this part only if required. See the line 27 instructions.
Address (number and street) or P.O. box if mail is not delivered to street address
Apt., room, or suite no.
City, town or post office, state, and ZIP code
Under penalties of perjury, I declare that I have examined this schedule, including accompanying statements, and to the best of my knowledge and belief, it is true,
correct, and complete. No part of any payment made to a state unemployment fund claimed as a credit was, or is to be, deducted from the payments to employees.
Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Employer’s signature
Date
Print/Type preparer’s name Preparer's signature Date
Paid
Preparer
Use Only
Firm’s name
Firm's address
PTIN
Check if
self-employed
Firm's EIN
Phone no.
Schedule H (Form 1040) 2015
DF-14

SCHEDULE SE
(Form 1040)
Department of the Treasury
Internal Revenue Service (99)
Self-Employment Tax
Information about Schedule SE and its separate instructions is at www.irs.gov/schedulese.
Attach to Form 1040 or Form 1040NR.
Name of person with self-employment income (as shown on Form 1040 or Form 1040NR)
Social security number of person
with self-employment income
OMB No. 1545-0074
2015
Attachment
Sequence No. 17
DRAFT AS OF
June 9, 2015
DO NOT FILE
Before you begin: To determine if you must file Schedule SE, see the instructions.
May I Use Short Schedule SE or Must I Use Long Schedule SE?
Note. Use this flowchart only if you must file Schedule SE. If unsure, see Who Must File Schedule SE in the instructions.
No
Did you receive wages or tips in 2015?
Are you a minister, member of a religious order, or Christian
Science practitioner who received IRS approval not to be taxed
on earnings from these sources, but you owe self-employment
tax on other earnings?
No
Are you using one of the optional methods to figure your net
earnings (see instructions)?
Yes
Yes
Yes
Was the total of your wages and tips subject to social security
or railroad retirement (tier 1) tax plus your net earnings from
self-employment more than $118,500?
No
Did you receive tips subject to social security or Medicare tax
that you did not report to your employer?
Yes
Yes
No
Did you receive church employee income (see instructions)
reported on Form W-2 of $108.28 or more?
Yes
No
No
Did you report any wages on Form 8919, Uncollected Social
Security and Medicare Tax on Wages?
Yes
No
You may use Short Schedule SE below
You must use Long Schedule SE on page 2
Section A—Short Schedule SE. Caution. Read above to see if you can use Short Schedule SE.
1a
b
Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form
1065), box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . 1a
If you received social security retirement or disability benefits, enter the amount of Conservation Reserve
Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code Z 1b ( )
2 Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065),
box 14, code A (other than farming); and Schedule K-1 (Form 1065-B), box 9, code J1.
Ministers and members of religious orders, see instructions for types of income to report on
this line. See instructions for other income to report . . . . . . . . . . . . . . 2
3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . 3
4 Multiply line 3 by 92.35% (.9235). If less than $400, you do not owe self-employment tax; do
not file this schedule unless you have an amount on line 1b . . . . . . . . . . . 4
Note. If line 4 is less than $400 due to Conservation Reserve Program payments on line 1b,
see instructions.
5 Self-employment tax. If the amount on line 4 is:
• $118,500 or less, multiply line 4 by 15.3% (.153). Enter the result here and on Form 1040, line 57,
or Form 1040NR, line 55
• More than $118,500, multiply line 4 by 2.9% (.029). Then, add $14,694 to the result.
Enter the total here and on Form 1040, line 57, or Form 1040NR, line 55 . . . . . . . 5
6 Deduction for one-half of self-employment tax.
Multiply line 5 by 50% (.50). Enter the result here and on Form
1040, line 27, or Form 1040NR, line 27 . . . . . . . . 6
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11358Z Schedule SE (Form 1040) 2015
DF-15

Schedule SE (Form 1040) 2015 Attachment Sequence No. 17 Page 2
Name of person with self-employment income (as shown on Form 1040 or Form 1040NR)
Social security number of person
with self-employment income
Section B—Long Schedule SE
Part I Self-Employment Tax
Note. If your only income subject to self-employment tax is church employee income, see instructions. Also see instructions for the
definition of church employee income.
DRAFT AS OF
June 9, 2015
DO NOT FILE
A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you
had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . .
1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065),
box 14, code A. Note. Skip lines 1a and 1b if you use the farm optional method (see instructions) 1a
b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve
Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code Z 1b ( )
2 Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065),
box 14, code A (other than farming); and Schedule K-1 (Form 1065-B), box 9, code J1.
Ministers and members of religious orders, see instructions for types of income to report on
this line. See instructions for other income to report. Note. Skip this line if you use the nonfarm
optional method (see instructions) . . . . . . . . . . . . . . . . . . . . 2
3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . 3
4 a If line 3 is more than zero, multiply line 3 by 92.35% (.9235). Otherwise, enter amount from line 3 4a
Note. If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions.
b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . 4b
c Combine lines 4a and 4b. If less than $400, stop; you do not owe self-employment tax.
Exception. If less than $400 and you had church employee income, enter -0- and continue 4c
5 a Enter your church employee income from Form W-2. See
instructions for definition of church employee income . . . 5a
b Multiply line 5a by 92.35% (.9235). If less than $100, enter -0- . . . . . . . . . . 5b
6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Maximum amount of combined wages and self-employment earnings subject to social security
tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2015 . . . . . . 7
8 a Total social security wages and tips (total of boxes 3 and 7 on
Form(s) W-2) and railroad retirement (tier 1) compensation.
If $118,500 or more, skip lines 8b through 10, and go to line 11 8a
b Unreported tips subject to social security tax (from Form 4137, line 10) 8b
c Wages subject to social security tax (from Form 8919, line 10) 8c
d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . 8d
9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . 9
10 Multiply the smaller of line 6 or line 9 by 12.4% (.124) . . . . . . . . . . . . . 10
11 Multiply line 6 by 2.9% (.029) . . . . . . . . . . . . . . . . . . . . . 11
12 Self-employment tax. Add lines 10 and 11. Enter here and on Form 1040, line 57, or Form 1040NR, line 55 12
13 Deduction for one-half of self-employment tax.
Multiply line 12 by 50% (.50). Enter the result here and on
Form 1040, line 27, or Form 1040NR, line 27 . . . . . 13
Part II Optional Methods To Figure Net Earnings (see instructions)
Farm Optional Method. You may use this method only if (a) your gross farm income 1 was not more
than $7,320, or (b) your net farm profits 2 were less than $5,284.
14 Maximum income for optional methods . . . . . . . . . . . . . . . . . . 14
15 Enter the smaller of: two-thirds ( 2 /3) of gross farm income 1 (not less than zero) or $4,880. Also
include this amount on line 4b above . . . . . . . . . . . . . . . . . . . 15
Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits 3 were less than $5,284
and also less than 72.189% of your gross nonfarm income, 4 and (b) you had net earnings from self-employment
of at least $400 in 2 of the prior 3 years. Caution. You may use this method no more than five times.
16 Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . 16
17 Enter the smaller of: two-thirds ( 2 /3) of gross nonfarm income 4 (not less than zero) or the
amount on line 16. Also include this amount on line 4b above . . . . . . . . . . . 17
1
From Sch. F, line 9, and Sch. K-1 (Form 1065), box 14, code B.
2
From Sch. F, line 34, and Sch. K-1 (Form 1065), box 14, code A—minus the
amount you would have entered on line 1b had you not used the optional
method.
3
From Sch. C, line 31; Sch. C-EZ, line 3; Sch. K-1 (Form 1065), box 14, code
A; and Sch. K-1 (Form 1065-B), box 9, code J1.
4
From Sch. C, line 7; Sch. C-EZ, line 1; Sch. K-1 (Form 1065), box 14, code
C; and Sch. K-1 (Form 1065-B), box 9, code J2.
Schedule SE (Form 1040) 2015
DF-16

Form
Income
1041
Department of the Treasury—Internal Revenue Service
U.S. Income Tax Return for Estates and Trusts 2015
OMB No. 1545-0092
Information about Form 1041 and its separate instructions is at www.irs.gov/form1041.
A Check all that apply: For calendar year 2015 or fiscal year beginning , 2015, and ending , 20
Decedent’s estate
Simple trust
Complex trust
Name of estate or trust (If a grantor type trust, see the instructions.)
Name and title of fiduciary
C Employer identification number
D Date entity created
Qualified disability trust
ESBT (S portion only) Number, street, and room or suite no. (If a P.O. box, see the instructions.)
E Nonexempt charitable and splitinterest
trusts, check applicable
Grantor type trust
Bankruptcy estate-Ch. 7
box(es), see instructions.
Described in sec. 4947(a)(1). Check here
Bankruptcy estate-Ch. 11 City or town, state or province, country, and ZIP or foreign postal code
if not a private foundation . . .
Pooled income fund
Described in sec. 4947(a)(2)
B Number of Schedules K-1
attached (see
F Check
applicable
Initial return Final return Amended return Net operating loss carryback
instructions)
boxes:
Change in trust's name Change in fiduciary Change in fiduciary's name Change in fiduciary's address
G Check here if the estate or filing trust made a section 645 election . . . . . . Trust TIN
1 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2a Total ordinary dividends . . . . . . . . . . . . . . . . . . . . . . . . 2a
b Qualified dividends allocable to: (1) Beneficiaries
(2) Estate or trust
3 Business income or (loss). Attach Schedule C or C-EZ (Form 1040) . . . . . . . . . 3
4 Capital gain or (loss). Attach Schedule D (Form 1041) . . . . . . . . . . . . . . 4
5 Rents, royalties, partnerships, other estates and trusts, etc. Attach Schedule E (Form 1040) . 5
Deductions
Tax and Payments
Sign
Here
DRAFT AS OF
August 28, 2015
DO NOT FILE
6 Farm income or (loss). Attach Schedule F (Form 1040) . . . . . . . . . . . . . . 6
7 Ordinary gain or (loss). Attach Form 4797 . . . . . . . . . . . . . . . . . . 7
8 Other income. List type and amount 8
9 Total income. Combine lines 1, 2a, and 3 through 8 . . . . . . . . . . . . . 9
10 Interest. Check if Form 4952 is attached . . . . . . . . . . . . . . . 10
11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Fiduciary fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Charitable deduction (from Schedule A, line 7) . . . . . . . . . . . . . . . . 13
14 Attorney, accountant, and return preparer fees . . . . . . . . . . . . . . . . 14
15 a Other deductions not subject to the 2% floor (attach schedule) . . . . . . . . . . . 15a
b Net operating loss deduction (see instructions) . . . . . . . . . . . . . . . . 15b
c Allowable miscellaneous itemized deductions subject to the 2% floor . . . . . . . . . 15c
16 Add lines 10 through 15c . . . . . . . . . . . . . . . . . . . . . . 16
17 Adjusted total income or (loss). Subtract line 16 from line 9 . . . 17
18 Income distribution deduction (from Schedule B, line 15). Attach Schedules K-1 (Form 1041) 18
19 Estate tax deduction including certain generation-skipping taxes (attach computation) . . . 19
20 Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
21 Add lines 18 through 20 . . . . . . . . . . . . . . . . . . . . . . . 21
22 Taxable income. Subtract line 21 from line 17. If a loss, see instructions . . . . . . . . 22
23 Total tax (from Schedule G, line 7) . . . . . . . . . . . . . . . . . . . . 23
24 Payments: a 2015 estimated tax payments and amount applied from 2014 return . . . . 24a
b Estimated tax payments allocated to beneficiaries (from Form 1041-T) . . . . . . . . 24b
c Subtract line 24b from line 24a . . . . . . . . . . . . . . . . . . . . . 24c
d Tax paid with Form 7004 (see instructions) . . . . . . . . . . . . . . . . . 24d
e Federal income tax withheld. If any is from Form(s) 1099, check . . . . . . . . 24e
Other payments: f Form 2439 ; g Form 4136 ; Total 24h
25 Total payments. Add lines 24c through 24e, and 24h . . . . . . . . . . . . . 25
26 Estimated tax penalty (see instructions) . . . . . . . . . . . . . . . . . . . 26
27 Tax due. If line 25 is smaller than the total of lines 23 and 26, enter amount owed . . . . . 27
28 Overpayment. If line 25 is larger than the total of lines 23 and 26, enter amount overpaid . . 28
29 Amount of line 28 to be: a Credited to 2016 estimated tax ; b Refunded 29
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and
belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Paid
Preparer
Use Only
Signature of fiduciary or officer representing fiduciary Date
EIN of fiduciary if a financial institution
Print/Type preparer's name Preparer's signature Date
PTIN
Check if
self-employed
Firm's name Firm's EIN
Firm's address
Phone no.
May the IRS discuss this return
with the preparer shown below
(see instr.)? Yes No
For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11370H Form 1041 (2015)
DF-17

Form 1041 (2015) Page 2
Schedule A Charitable Deduction. Do not complete for a simple trust or a pooled income fund.
1 Amounts paid or permanently set aside for charitable purposes from gross income (see instructions) . 1
2 Tax-exempt income allocable to charitable contributions (see instructions) . . . . . . . . 2
3 Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposes 4
5 Add lines 3 and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Section 1202 exclusion allocable to capital gains paid or permanently set aside for charitable purposes (see instructions) . 6
7 Charitable deduction. Subtract line 6 from line 5. Enter here and on page 1, line 13 . . . . . 7
DRAFT AS OF
August 28, 2015
DO NOT FILE
Schedule B Income Distribution Deduction
1 Adjusted total income (see instructions) . . . . . . . . . . . . . . . . . . . . 1
2 Adjusted tax-exempt interest . . . . . . . . . . . . . . . . . . . . . . . 2
3 Total net gain from Schedule D (Form 1041), line 19, column (1) (see instructions) . . . . . . 3
4 Enter amount from Schedule A, line 4 (minus any allocable section 1202 exclusion) . . . . . 4
5 Capital gains for the tax year included on Schedule A, line 1 (see instructions) . . . . . . . 5
6 Enter any gain from page 1, line 4, as a negative number. If page 1, line 4, is a loss, enter the loss as a positive number . 6
7 Distributable net income. Combine lines 1 through 6. If zero or less, enter -0- . . . . . . . 7
8 If a complex trust, enter accounting income for the tax year as
determined under the governing instrument and applicable local law . 8
9 Income required to be distributed currently . . . . . . . . . . . . . . . . . . . 9
10 Other amounts paid, credited, or otherwise required to be distributed . . . . . . . . . . 10
11 Total distributions. Add lines 9 and 10. If greater than line 8, see instructions . . . . . . . 11
12 Enter the amount of tax-exempt income included on line 11 . . . . . . . . . . . . . 12
13 Tentative income distribution deduction. Subtract line 12 from line 11 . . . . . . . . . . 13
14 Tentative income distribution deduction. Subtract line 2 from line 7. If zero or less, enter -0- . . 14
15 Income distribution deduction. Enter the smaller of line 13 or line 14 here and on page 1, line 18 15
Schedule G Tax Computation (see instructions)
1 Tax: a Tax on taxable income (see instructions) . . . . . . . 1a
b Tax on lump-sum distributions. Attach Form 4972 . . . . 1b
c Alternative minimum tax (from Schedule I (Form 1041), line 56) 1c
d Total. Add lines 1a through 1c . . . . . . . . . . . . . . . . . . . 1d
2a Foreign tax credit. Attach Form 1116 . . . . . . . . . . . . 2a
b General business credit. Attach Form 3800 . . . . . . . . . . 2b
c Credit for prior year minimum tax. Attach Form 8801 . . . . . . 2c
d Bond credits. Attach Form 8912 . . . . . . . . . . . . . 2d
e Total credits. Add lines 2a through 2d . . . . . . . . . . . . . . . . . . . 2e
3 Subtract line 2e from line 1d. If zero or less, enter -0- . . . . . . . . . . . . . . . 3
4 Net investment income tax from Form 8960, line 21 . . . . . . . . . . . . . . . . 4
5 Recapture taxes. Check if from: Form 4255 Form 8611 . . . . . . . . . . . 5
6 Household employment taxes. Attach Schedule H (Form 1040) . . . . . . . . . . . . 6
7 Total tax. Add lines 3 through 6. Enter here and on page 1, line 23 . . . . . . . . . . 7
Other Information
1 Did the estate or trust receive tax-exempt income? If “Yes,” attach a computation of the allocation of expenses.
Enter the amount of tax-exempt interest income and exempt-interest dividends $
2 Did the estate or trust receive all or any part of the earnings (salary, wages, and other compensation) of any
individual by reason of a contract assignment or similar arrangement? . . . . . . . . . . . . . . .
3 At any time during calendar year 2015, did the estate or trust have an interest in or a signature or other authority
over a bank, securities, or other financial account in a foreign country? . . . . . . . . . . . . . .
See the instructions for exceptions and filing requirements for FinCEN Form 114. If “Yes,” enter the name of the
foreign country
4 During the tax year, did the estate or trust receive a distribution from, or was it the grantor of, or transferor to, a
foreign trust? If “Yes,” the estate or trust may have to file Form 3520. See instructions . . . . . . . . .
5 Did the estate or trust receive, or pay, any qualified residence interest on seller-provided financing? If “Yes,” see
the instructions for required attachment . . . . . . . . . . . . . . . . . . . . . . . . .
6 If this is an estate or a complex trust making the section 663(b) election, check here (see instructions) . .
7 To make a section 643(e)(3) election, attach Schedule D (Form 1041), and check here (see instructions) . .
8 If the decedent’s estate has been open for more than 2 years, attach an explanation for the delay in closing the estate, and check here
9 Are any present or future trust beneficiaries skip persons? See instructions . . . . . . . . . . . . .
Yes No
Form 1041 (2015)
DF-18

SCHEDULE D
(Form 1041)
Department of the Treasury
Internal Revenue Service
Name of estate or trust
Capital Gains and Losses
Attach to Form 1041, Form 5227, or Form 990-T.
Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9 and 10.
Information about Schedule D and its separate instructions is at www.irs.gov/form1041.
Employer identification number
OMB No. 1545-0092
2015
Note: Form 5227 filers need to complete only Parts I and II.
Part I Short-Term Capital Gains and Losses—Assets Held One Year or Less
See instructions for how to figure the amounts to enter on the
lines below.
(d)
(e)
DRAFT AS OF
August 12, 2015
DO NOT FILE
This form may be easier to complete if you round off cents to
whole dollars.
1a Totals for all short-term transactions reported on Form
1099-B for which basis was reported to the IRS and for
which you have no adjustments (see instructions).
However, if you choose to report all these transactions
on Form 8949, leave this line blank and go to line 1b .
1b Totals for all transactions reported on Form(s) 8949 with
Box A checked . . . . . . . . . . . . .
2 Totals for all transactions reported on Form(s) 8949 with
Box B checked . . . . . . . . . . . . .
3 Totals for all transactions reported on Form(s) 8949 with
Box C checked . . . . . . . . . . . . .
Proceeds
(sales price)
Cost
(or other basis)
(g)
Adjustments
to gain or loss from
Form(s) 8949, Part I,
line 2, column (g)
(h) Gain or (loss)
Subtract column (e)
from column (d) and
combine the result with
column (g)
4 Short-term capital gain or (loss) from Forms 4684, 6252, 6781, and 8824 . . . . . . . . . 4
5 Net short-term gain or (loss) from partnerships, S corporations, and other estates or trusts . . . 5
6 Short-term capital loss carryover. Enter the amount, if any, from line 9 of the 2014 Capital Loss
Carryover Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ( )
7 Net short-term capital gain or (loss). Combine lines 1a through 6 in column (h). Enter here and on
line 17, column (3) on the back . . . . . . . . . . . . . . . . . . . . .
7
Part II Long-Term Capital Gains and Losses—Assets Held More Than One Year
See instructions for how to figure the amounts to enter on the
lines below.
This form may be easier to complete if you round off cents to
whole dollars.
8a Totals for all long-term transactions reported on Form
1099-B for which basis was reported to the IRS and for
which you have no adjustments (see instructions).
However, if you choose to report all these transactions
on Form 8949, leave this line blank and go to line 8b .
8b Totals for all transactions reported on Form(s) 8949 with
Box D checked . . . . . . . . . . . . .
9 Totals for all transactions reported on Form(s) 8949 with
Box E checked . . . . . . . . . . . . .
10 Totals for all transactions reported on Form(s) 8949 with
Box F checked. . . . . . . . . . . . . .
(d)
Proceeds
(sales price)
(e)
Cost
(or other basis)
(g)
Adjustments
to gain or loss from
Form(s) 8949, Part II,
line 2, column (g)
(h) Gain or (loss)
Subtract column (e)
from column (d) and
combine the result with
column (g)
11 Long-term capital gain or (loss) from Forms 2439, 4684, 6252, 6781, and 8824 . . . . . . . 11
12 Net long-term gain or (loss) from partnerships, S corporations, and other estates or trusts . . . 12
13 Capital gain distributions . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Gain from Form 4797, Part I . . . . . . . . . . . . . . . . . . . . . . . . 14
15 Long-term capital loss carryover. Enter the amount, if any, from line 14 of the 2014 Capital Loss
Carryover Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ( )
16 Net long-term capital gain or (loss). Combine lines 8a through 15 in column (h). Enter here and on
line 18a, column (3) on the back . . . . . . . . . . . . . . . . . . . . .
16
For Paperwork Reduction Act Notice, see the Instructions for Form 1041. Cat. No. 11376V Schedule D (Form 1041) 2015
DF-19

Schedule D (Form 1041) 2015 Page 2
Part III
Summary of Parts I and II
Caution: Read the instructions before completing this part.
17 Net short-term gain or (loss) . . . . . . . . . . 17
18 Net long-term gain or (loss):
a Total for year . . . . . . . . . . . . . . . 18a
b Unrecaptured section 1250 gain (see line 18 of the wrksht.) . 18b
c 28% rate gain . . . . . . . . . . . . . . . 18c
19 Total net gain or (loss). Combine lines 17 and 18a . . 19
(1) Beneficiaries’
(see instr.)
(2) Estate’s
or trust’s
DRAFT AS OF
August 12, 2015
DO NOT FILE
(3) Total
Note: If line 19, column (3), is a net gain, enter the gain on Form 1041, line 4 (or Form 990-T, Part I, line 4a). If lines 18a and 19, column (2), are net
gains, go to Part V, and do not complete Part IV. If line 19, column (3), is a net loss, complete Part IV and the Capital Loss Carryover Worksheet, as
necessary.
Part IV Capital Loss Limitation
20 Enter here and enter as a (loss) on Form 1041, line 4 (or Form 990-T, Part I, line 4c, if a trust), the smaller of:
a The loss on line 19, column (3) or b $3,000 . . . . . . . . . . . . . . . . . 20 ( )
Note: If the loss on line 19, column (3), is more than $3,000, or if Form 1041, page 1, line 22 (or Form 990-T, line 34), is a loss, complete the Capital
Loss Carryover Worksheet in the instructions to figure your capital loss carryover.
Part V
Tax Computation Using Maximum Capital Gains Rates
Form 1041 filers. Complete this part only if both lines 18a and 19 in column (2) are gains, or an amount is entered in Part I or Part II and there is an
entry on Form 1041, line 2b(2), and Form 1041, line 22, is more than zero.
Caution: Skip this part and complete the Schedule D Tax Worksheet in the instructions if:
• Either line 18b, col. (2) or line 18c, col. (2) is more than zero, or
• Both Form 1041, line 2b(1), and Form 4952, line 4g are more than zero.
Form 990-T trusts. Complete this part only if both lines 18a and 19 are gains, or qualified dividends are included in income in Part I of Form 990-T,
and Form 990-T, line 34, is more than zero. Skip this part and complete the Schedule D Tax Worksheet in the instructions if either line 18b, col. (2) or
line 18c, col. (2) is more than zero.
21 Enter taxable income from Form 1041, line 22 (or Form 990-T, line 34) . . 21
22 Enter the smaller of line 18a or 19 in column (2)
but not less than zero . . . . . . . . . 22
23 Enter the estate’s or trust’s qualified dividends from
Form 1041, line 2b(2) (or enter the qualified dividends
included in income in Part I of Form 990-T) . . . . 23
24 Add lines 22 and 23 . . . . . . . . . . 24
25 If the estate or trust is filing Form 4952, enter the
amount from line 4g; otherwise, enter -0- . .
25
26 Subtract line 25 from line 24. If zero or less, enter -0- . . . . . . . 26
27 Subtract line 26 from line 21. If zero or less, enter -0- . . . . . . . 27
28 Enter the smaller of the amount on line 21 or $2,500 . . . . . . . 28
29 Enter the smaller of the amount on line 27 or line 28 . . . . . . . 29
30 Subtract line 29 from line 28. If zero or less, enter -0-. This amount is taxed at 0% . . . . . 30
31 Enter the smaller of line 21 or line 26 . . . . . . . . . . . . 31
32 Subtract line 30 from line 26 . . . . . . . . . . . . . . . 32
33 Enter the smaller of line 21 or $12,300 . . . . . . . . . . . . 33
34 Add lines 27 and 30 . . . . . . . . . . . . . . . . . . 34
35 Subtract line 34 from line 33. If zero or less, enter -0- . . . . . . . 35
36 Enter the smaller of line 32 or line 35 . . . . . . . . . . . . 36
37 Multiply line 36 by 15% . . . . . . . . . . . . . . . . . . . . . . . . 37
38 Enter the amount from line 31 . . . . . . . . . . . . . . . 38
39 Add lines 30 and 36 . . . . . . . . . . . . . . . . . . 39
40 Subtract line 39 from line 38. If zero or less, enter -0- . . . . . . . 40
41 Multiply line 40 by 20% . . . . . . . . . . . . . . . . . . . . . . . . 41
42 Figure the tax on the amount on line 27. Use the 2015 Tax Rate Schedule for Estates
and Trusts (see the Schedule G instructions in the instructions for Form 1041) . . 42
43 Add lines 37, 41, and 42 . . . . . . . . . . . . . . . . . 43
44 Figure the tax on the amount on line 21. Use the 2015 Tax Rate Schedule for Estates
and Trusts (see the Schedule G instructions in the instructions for Form 1041) . . 44
45 Tax on all taxable income. Enter the smaller of line 43 or line 44 here and on Form 1041, Schedule
G, line 1a (or Form 990-T, line 36) . . . . . . . . . . . . . . . . . . . . . 45
Schedule D (Form 1041) 2015
DF-20

Schedule K-1
(Form 1041)
Department of the Treasury
Internal Revenue Service
2015
For calendar year 2015,
or tax year beginning , 2015,
and ending , 20
661113
Final K-1 Amended K-1
OMB No. 1545-0092
Part III Beneficiary’s Share of Current Year Income,
Deductions, Credits, and Other Items
1 Interest income
11 Final year deductions
2a Ordinary dividends
DRAFT AS OF
Information About the Estate or Trust
Beneficiary’s Share of Income, Deductions,
Credits, etc.
See back of form and instructions.
Part I
A
Estate’s or trust’s employer identification number
2b
Qualified dividends
3 Net short-term capital gain
4a
Net long-term capital gain
B
C
Estate’s or trust’s name
June 15, 2015
DO NOT FILE
Fiduciary's name, address, city, state, and ZIP code
4b
4c
5
28% rate gain
Unrecaptured section 1250 gain
Other portfolio and
nonbusiness income
6 Ordinary business income
7 Net rental real estate income
12 Alternative minimum tax adjustment
13 Credits and credit recapture
8 Other rental income
9 Directly apportioned deductions
D
Check if Form 1041-T was filed and enter the date it was filed
14 Other information
E
Part II
F
Check if this is the final Form 1041 for the estate or trust
Information About the Beneficiary
Beneficiary's identifying number
10 Estate tax deduction
G
Beneficiary's name, address, city, state, and ZIP code
*See attached statement for additional information.
Note. A statement must be attached showing the
beneficiary’s share of income and directly apportioned
deductions from each business, rental real estate, and
other rental activity.
H Domestic beneficiary Foreign beneficiary
For IRS Use Only
For Paperwork Reduction Act Notice, see the Instructions for Form 1041. IRS.gov/form1041 Cat. No. 11380D Schedule K-1 (Form 1041) 2015
DF-21

Schedule K-1 (Form 1041) 2015 Page 2
This list identifies the codes used on Schedule K-1 for beneficiaries and provides summarized reporting information for
beneficiaries who file Form 1040. For detailed reporting and filing information, see the Instructions for Schedule K-1 (Form
1041) for a Beneficiary Filing Form 1040 and the instructions for your income tax return.
DRAFT AS OF
}
June 15, 2015
DO NOT FILE
Report on
1. Interest income Form 1040, line 8a
2a. Ordinary dividends Form 1040, line 9a
2b. Qualified dividends Form 1040, line 9b
3. Net short-term capital gain Schedule D, line 5
4a. Net long-term capital gain Schedule D, line 12
4b. 28% rate gain 28% Rate Gain Worksheet, line 4
(Schedule D Instructions)
4c. Unrecaptured section 1250 gain Unrecaptured Section 1250 Gain
Worksheet, line 11 (Schedule D
Instructions)
5. Other portfolio and nonbusiness
income
Schedule E, line 33, column (f)
6. Ordinary business income Schedule E, line 33, column (d)
or (f)
7. Net rental real estate income Schedule E, line 33, column (d)
or (f)
8. Other rental income Schedule E, line 33, column (d)
or (f)
9. Directly apportioned deductions
Code
A Depreciation
B Depletion
Form 8582 or Schedule E, line
33, column (c) or (e)
Form 8582 or Schedule E, line
33, column (c) or (e)
13. Credits and credit recapture
Code
Report on
A Credit for estimated taxes Form 1040, line 65
B Credit for backup withholding Form 1040, line 64
C Low-income housing credit
D Rehabilitation credit and energy credit
E Other qualifying investment credit
F Work opportunity credit
G Credit for small employer health
insurance premiums
H Biofuel producer credit
I Credit for increasing research activities
J Renewable electricity, refined coal,
and Indian coal production credit
K Empowerment zone employment credit
L Indian employment credit
M Orphan drug credit
N Credit for employer-provided child
care and facilities
O Biodiesel and renewable diesel fuels
credit
P Credit to holders of tax credit bonds
Q Credit for employer differential wage
payments
See the beneficiary’s instructions
C Amortization
Form 8582 or Schedule E, line
33, column (c) or (e)
10. Estate tax deduction Schedule A, line 28
11. Final year deductions
A Excess deductions Schedule A, line 23
B Short-term capital loss carryover Schedule D, line 5
C Long-term capital loss carryover
D Net operating loss carryover —
regular tax
Schedule D, line 12; line 5 of the
wksht. for Sch. D, line 18; and
line 16 of the wksht. for Sch. D,
line 19
Form 1040, line 21
E Net operating loss carryover — Form 6251, line 11
minimum tax
12. Alternative minimum tax (AMT) items
}
A Adjustment for minimum tax purposes Form 6251, line 15
B AMT adjustment attributable to
qualified dividends
C AMT adjustment attributable to
net short-term capital gain
D AMT adjustment attributable to
net long-term capital gain
See the beneficiary’s
E AMT adjustment attributable to
instructions and the
unrecaptured section 1250 gain Instructions for Form 6251
F AMT adjustment attributable to
28% rate gain
G Accelerated depreciation
H Depletion
I Amortization
J Exclusion items 2016 Form 8801
R Recapture of credits
14. Other information
A Tax-exempt interest
B Foreign taxes
C Qualified production activities income
Form 1040, line 8b
Form 1040, line 48 or
Sch. A, line 8
Form 8903, line 7, col. (b) (also
see the beneficiary's instructions)
D Form W-2 wages Form 8903, line 17
E Net investment income
Form 4952, line 4a
F Gross farm and fishing income Schedule E, line 42
G Foreign trading gross receipts
(IRC 942(a))
H Adjustment for section 1411 net
investment income or deductions
I Other information
See the Instructions for
Form 8873
Form 8960, line 7 (also see the
beneficiary's instructions)
See the beneficiary’s instructions
Note. If you are a beneficiary who does not file a Form 1040,
see instructions for the type of income tax return you are filing.
DF-22

Form 1065
Department of the Treasury
Internal Revenue Service
A Principal business activity
U.S. Return of Partnership Income
For calendar year 2015, or tax year beginning , 2015, ending , 20 .
Information about Form 1065 and its separate instructions is at www.irs.gov/form1065.
Name of partnership
OMB No. 1545-0123
2015
D Employer identification number
B Principal product or service
C Business code number
Type
or
Print
Number, street, and room or suite no. If a P.O. box, see the instructions.
DRAFT AS OF
July 31, 2015
DO NOT FILE
City or town, state or province, country, and ZIP or foreign postal code
E Date business started
F Total assets (see the
instructions)
G Check applicable boxes: (1) Initial return (2) Final return (3) Name change (4) Address change (5) Amended return
(6) Technical termination - also check (1) or (2)
H Check accounting method: (1) Cash (2) Accrual (3) Other (specify)
I Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year
J Check if Schedules C and M-3 are attached . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Caution. Include only trade or business income and expenses on lines 1a through 22 below. See the instructions for more information.
Income
Deductions (see the instructions for limitations)
Sign
Here
1a Gross receipts or sales . . . . . . . . . . . . . 1a
b Returns and allowances . . . . . . . . . . . . 1b
c Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . 1c
2 Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . 2
3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . 3
4 Ordinary income (loss) from other partnerships, estates, and trusts (attach statement) . . 4
5 Net farm profit (loss) (attach Schedule F (Form 1040)) . . . . . . . . . . . . 5
6 Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . . . . . 6
7 Other income (loss) (attach statement) . . . . . . . . . . . . . . . . . 7
8 Total income (loss). Combine lines 3 through 7 . . . . . . . . . . . . . . 8
9 Salaries and wages (other than to partners) (less employment credits) . . . . . . . 9
10 Guaranteed payments to partners . . . . . . . . . . . . . . . . . . . 10
11 Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . 11
12 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . 14
15 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16a Depreciation (if required, attach Form 4562) . . . . . . 16a
b Less depreciation reported on Form 1125-A and elsewhere on return 16b 16c
17 Depletion (Do not deduct oil and gas depletion.) . . . . . . . . . . . . . 17
18 Retirement plans, etc. . . . . . . . . . . . . . . . . . . . . . . . 18
19 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . 19
20 Other deductions (attach statement) . . . . . . . . . . . . . . . . . . 20
21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 . 21
22 Ordinary business income (loss). Subtract line 21 from line 8 . . . . . . . . . 22
Paid
Preparer
Use Only
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my
knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than general partner or limited liability company member manager)
is based on all information of which preparer has any knowledge.
May the IRS discuss this return with the
preparer shown below (see
instructions)?
Yes No
Signature of general partner or limited liability company member manager
Print/Type preparer’s name Preparer’s signature Date
Firm’s name
Firm’s address
Date
$
Check if
self-employed
Firm's EIN
Phone no.
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11390Z Form 1065 (2015)
PTIN
DF-23

Form 1065 (2015) Page 2
Schedule B Other Information
1 What type of entity is filing this return? Check the applicable box: Yes No
a Domestic general partnership b Domestic limited partnership
c Domestic limited liability company d Domestic limited liability partnership
e Foreign partnership f Other
2 At any time during the tax year, was any partner in the partnership a disregarded entity, a partnership (including
an entity treated as a partnership), a trust, an S corporation, an estate (other than an estate of a deceased partner),
or a nominee or similar person? . . . . . . . . . . . . . . . . . . . . . . . . . . .
DRAFT AS OF
July 31, 2015
DO NOT FILE
3 At the end of the tax year:
a Did any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or taxexempt
organization, or any foreign government own, directly or indirectly, an interest of 50% or more in the profit,
loss, or capital of the partnership? For rules of constructive ownership, see instructions. If “Yes,” attach Schedule
B-1, Information on Partners Owning 50% or More of the Partnership . . . . . . . . . . . . . . .
b Did any individual or estate own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital of
the partnership? For rules of constructive ownership, see instructions. If “Yes,” attach Schedule B-1, Information
on Partners Owning 50% or More of the Partnership . . . . . . . . . . . . . . . . . . . .
4 At the end of the tax year, did the partnership:
a Own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of
stock entitled to vote of any foreign or domestic corporation? For rules of constructive ownership, see
instructions. If “Yes,” complete (i) through (iv) below . . . . . . . . . . . . . . . . . . . . .
(i) Name of Corporation
(ii) Employer Identification
Number (if any)
(iii) Country of
Incorporation
(iv) Percentage
Owned in Voting Stock
b Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in the profit, loss,
or capital in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial
interest of a trust? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v) below . .
(i) Name of Entity
(ii) Employer
Identification
Number (if any)
(iii) Type of
Entity
(iv) Country of
Organization
(v) Maximum
Percentage Owned in
Profit, Loss, or Capital
5 Did the partnership file Form 8893, Election of Partnership Level Tax Treatment, or an election statement under
section 6231(a)(1)(B)(ii) for partnership-level tax treatment, that is in effect for this tax year? See Form 8893 for
more details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 Does the partnership satisfy all four of the following conditions?
a The partnership’s total receipts for the tax year were less than $250,000.
b The partnership’s total assets at the end of the tax year were less than $1 million.
c Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including
extensions) for the partnership return.
d The partnership is not filing and is not required to file Schedule M-3 . . . . . . . . . . . . . . .
If “Yes,” the partnership is not required to complete Schedules L, M-1, and M-2; Item F on page 1 of Form 1065;
or Item L on Schedule K-1.
7 Is this partnership a publicly traded partnership as defined in section 469(k)(2)? . . . . . . . . . . . .
8 During the tax year, did the partnership have any debt that was cancelled, was forgiven, or had the terms
modified so as to reduce the principal amount of the debt? . . . . . . . . . . . . . . . . . .
9 Has this partnership filed, or is it required to file, Form 8918, Material Advisor Disclosure Statement, to provide
information on any reportable transaction? . . . . . . . . . . . . . . . . . . . . . . . .
10 At any time during calendar year 2015, did the partnership have an interest in or a signature or other authority over a financial
account in a foreign country (such as a bank account, securities account, or other financial account)? See the instructions for
exceptions and filing requirements for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). If “Yes,”
enter the name of the foreign country.
Yes
No
Form 1065 (2015)
DF-24

Form 1065 (2015) Page 3
Schedule B
Other Information (continued)
11 At any time during the tax year, did the partnership receive a distribution from, or was it the grantor of, or
transferor to, a foreign trust? If “Yes,” the partnership may have to file Form 3520, Annual Return To Report
Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. See instructions . . . . . . . . .
12a Is the partnership making, or had it previously made (and not revoked), a section 754 election? . . . . . .
See instructions for details regarding a section 754 election.
b Did the partnership make for this tax year an optional basis adjustment under section 743(b) or 734(b)? If “Yes,”
attach a statement showing the computation and allocation of the basis adjustment. See instructions . . . .
DRAFT AS OF
July 31, 2015
DO NOT FILE
c Is the partnership required to adjust the basis of partnership assets under section 743(b) or 734(b) because of a
substantial built-in loss (as defined under section 743(d)) or substantial basis reduction (as defined under section
734(d))? If “Yes,” attach a statement showing the computation and allocation of the basis adjustment. See instructions
13 Check this box if, during the current or prior tax year, the partnership distributed any property received in a
like-kind exchange or contributed such property to another entity (other than disregarded entities wholly
owned by the partnership throughout the tax year) . . . . . . . . . . . . . . . . . . .
14 At any time during the tax year, did the partnership distribute to any partner a tenancy-in-common or other
undivided interest in partnership property? . . . . . . . . . . . . . . . . . . . . . . . .
15 If the partnership is required to file Form 8858, Information Return of U.S. Persons With Respect To Foreign
Disregarded Entities, enter the number of Forms 8858 attached. See instructions
16 Does the partnership have any foreign partners? If “Yes,” enter the number of Forms 8805, Foreign Partner’s
Information Statement of Section 1446 Withholding Tax, filed for this partnership.
17 Enter the number of Forms 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, attached
to this return.
18 a Did you make any payments in 2015 that would require you to file Form(s) 1099? See instructions . . . . .
b If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . . . . . . . .
19 Enter the number of Form(s) 5471, Information Return of U.S. Persons With Respect To Certain Foreign
Corporations, attached to this return.
20 Enter the number of partners that are foreign governments under section 892.
Designation of Tax Matters Partner (see instructions)
Enter below the general partner or member-manager designated as the tax matters partner (TMP) for the tax year of this return:
Yes
No
Name of
designated
TMP
Identifying
number of TMP
If the TMP is an
entity, name
of TMP representative
Phone number
of TMP
Address of
designated
TMP
Form 1065 (2015)
DF-25

Form 1065 (2015) Page 4
Schedule K Partners’ Distributive Share Items Total amount
1 Ordinary business income (loss) (page 1, line 22) . . . . . . . . . . . . . 1
2 Net rental real estate income (loss) (attach Form 8825) . . . . . . . . . . . 2
3a Other gross rental income (loss) . . . . . . . . 3a
b Expenses from other rental activities (attach statement) 3b
c Other net rental income (loss). Subtract line 3b from line 3a . . . . . . . . . 3c
4 Guaranteed payments . . . . . . . . . . . . . . . . . . . . . 4
5 Interest income . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Dividends: a Ordinary dividends . . . . . . . . . . . . . . . . . 6a
b Qualified dividends . . . . . . 6b
Income (Loss)
Deductions
Self-
Employment
Credits
Foreign Transactions
Alternative
Minimum Tax
(AMT) Items
Other Information
DRAFT AS OF
July 31, 2015
DO NOT FILE
7 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . 8
9 a Net long-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . 9a
b Collectibles (28%) gain (loss) . . . . . . . . . 9b
c Unrecaptured section 1250 gain (attach statement) . . 9c
10 Net section 1231 gain (loss) (attach Form 4797) . . . . . . . . . . . . . 10
11 Other income (loss) (see instructions) Type 11
12 Section 179 deduction (attach Form 4562) . . . . . . . . . . . . . . . 12
13a Contributions . . . . . . . . . . . . . . . . . . . . . . . . 13a
b Investment interest expense . . . . . . . . . . . . . . . . . . . 13b
c Section 59(e)(2) expenditures: (1) Type (2) Amount 13c(2)
d Other deductions (see instructions) Type 13d
14a Net earnings (loss) from self-employment . . . . . . . . . . . . . . . 14a
b Gross farming or fishing income . . . . . . . . . . . . . . . . . . 14b
c Gross nonfarm income . . . . . . . . . . . . . . . . . . . . . 14c
15a Low-income housing credit (section 42(j)(5)) . . . . . . . . . . . . . . 15a
b Low-income housing credit (other) . . . . . . . . . . . . . . . . . 15b
c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) 15c
d Other rental real estate credits (see instructions) Type 15d
e Other rental credits (see instructions) Type 15e
f Other credits (see instructions) Type 15f
16a Name of country or U.S. possession
b Gross income from all sources . . . . . . . . . . . . . . . . . . . 16b
c Gross income sourced at partner level . . . . . . . . . . . . . . . . 16c
Foreign gross income sourced at partnership level
d Passive category e General category f Other 16f
Deductions allocated and apportioned at partner level
g Interest expense h Other . . . . . . . . . . 16h
Deductions allocated and apportioned at partnership level to foreign source income
i Passive category j General category k Other 16k
l Total foreign taxes (check one): Paid Accrued . . . . . . . . 16l
m Reduction in taxes available for credit (attach statement) . . . . . . . . . . 16m
n Other foreign tax information (attach statement) . . . . . . . . . . . . .
17a Post-1986 depreciation adjustment . . . . . . . . . . . . . . . . . 17a
b Adjusted gain or loss . . . . . . . . . . . . . . . . . . . . . . 17b
c Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . 17c
d Oil, gas, and geothermal properties—gross income . . . . . . . . . . . . 17d
e Oil, gas, and geothermal properties—deductions . . . . . . . . . . . . . 17e
f Other AMT items (attach statement) . . . . . . . . . . . . . . . . . 17f
18a Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . 18a
b Other tax-exempt income . . . . . . . . . . . . . . . . . . . . 18b
c Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . 18c
19a Distributions of cash and marketable securities . . . . . . . . . . . . . 19a
b Distributions of other property . . . . . . . . . . . . . . . . . . . 19b
20a Investment income . . . . . . . . . . . . . . . . . . . . . . . 20a
b Investment expenses . . . . . . . . . . . . . . . . . . . . . . 20b
c Other items and amounts (attach statement) . . . . . . . . . . . . . .
Form 1065 (2015)
DF-26

Form 1065 (2015) Page 5
Analysis of Net Income (Loss)
1 Net income (loss). Combine Schedule K, lines 1 through 11. From the result, subtract the sum of
Schedule K, lines 12 through 13d, and 16l . . . . . . . . . . . . . . . . . . 1
2 Analysis by
partner type:
(i) Corporate
(ii) Individual
(active)
(iii) Individual
(passive)
(iv) Partnership
(v) Exempt
Organization
DRAFT AS OF
July 31, 2015
DO NOT FILE
(vi)
Nominee/Other
a General partners
b Limited partners
Schedule L Balance Sheets per Books Beginning of tax year End of tax year
Assets (a) (b) (c) (d)
1 Cash . . . . . . . . . . . . .
2a Trade notes and accounts receivable . . .
b Less allowance for bad debts . . . . .
3 Inventories . . . . . . . . . . .
4 U.S. government obligations . . . . .
5 Tax-exempt securities . . . . . . .
6 Other current assets (attach statement) . .
7a Loans to partners (or persons related to partners)
b Mortgage and real estate loans . . . .
8 Other investments (attach statement) . . .
9a Buildings and other depreciable assets . .
b Less accumulated depreciation . . . .
10a Depletable assets . . . . . . . . .
b Less accumulated depletion . . . . .
11 Land (net of any amortization) . . . . .
12a Intangible assets (amortizable only) . . .
b Less accumulated amortization . . . .
13 Other assets (attach statement) . . . .
14 Total assets . . . . . . . . . . .
Liabilities and Capital
15 Accounts payable . . . . . . . . .
16 Mortgages, notes, bonds payable in less than 1 year
17 Other current liabilities (attach statement) .
18 All nonrecourse loans . . . . . . . .
19a Loans from partners (or persons related to partners)
b Mortgages, notes, bonds payable in 1 year or more
20 Other liabilities (attach statement) . . . .
21 Partners’ capital accounts . . . . . .
22 Total liabilities and capital . . . . . .
Schedule M-1
Reconciliation of Income (Loss) per Books With Income (Loss) per Return
Note. The partnership may be required to file Schedule M-3 (see instructions).
1 Net income (loss) per books . . . .
2 Income included on Schedule K, lines 1, 2, 3c,
5, 6a, 7, 8, 9a, 10, and 11, not recorded on
books this year (itemize):
3 Guaranteed payments (other than
health insurance) . . . . . . .
4 Expenses recorded on books this year
not included on Schedule K, lines 1
through 13d, and 16l (itemize):
a Depreciation $
b Travel and entertainment $
5 Add lines 1 through 4 . . . . . .
Schedule M-2
1 Balance at beginning of year . . .
2 Capital contributed: a Cash . . .
b Property . .
3 Net income (loss) per books . . . .
4 Other increases (itemize):
5 Add lines 1 through 4 . . . . . .
Analysis of Partners’ Capital Accounts
DF-27
6 Income recorded on books this year not included
on Schedule K, lines 1 through 11 (itemize):
a Tax-exempt interest $
7 Deductions included on Schedule K, lines
1 through 13d, and 16l, not charged
against book income this year (itemize):
a Depreciation $
8 Add lines 6 and 7 . . . . . . . .
9 Income (loss) (Analysis of Net Income
(Loss), line 1). Subtract line 8 from line 5 .
6 Distributions: a Cash . . . . . .
b Property . . . . .
7 Other decreases (itemize):
8 Add lines 6 and 7 . . . . . . . .
9 Balance at end of year. Subtract line 8 from line 5
Form 1065 (2015)

Schedule K-1
(Form 1065) 2015
Department of the Treasury
Internal Revenue Service
For calendar year 2015, or tax
year beginning , 2015
ending , 20
Partner’s Share of Income, Deductions,
Credits, etc.
See back of form and separate instructions.
A
Part I
Final K-1 Amended K-1
DRAFT AS OF
Information About the Partnership
Partnership’s employer identification number
Part III
651113
OMB No. 1545-0123
Partner’s Share of Current Year Income,
Deductions, Credits, and Other Items
1 Ordinary business income (loss)
2 Net rental real estate income (loss)
3 Other net rental income (loss)
4 Guaranteed payments
5 Interest income
15 Credits
16 Foreign transactions
B
Partnership’s name,
June
address, city, state, and ZIP code
16, 2015
6a
6b
Ordinary dividends
Qualified dividends
C
D
E
IRS Center where partnership filed return
DO NOT FILE
Part II
Check if this is a publicly traded partnership (PTP)
Information About the Partner
Partner’s identifying number
7 Royalties
8 Net short-term capital gain (loss)
9a
Net long-term capital gain (loss)
9b Collectibles (28%) gain (loss)
17 Alternative minimum tax (AMT) items
F
Partner’s name, address, city, state, and ZIP code
9c
Unrecaptured section 1250 gain
10 Net section 1231 gain (loss)
18 Tax-exempt income and
nondeductible expenses
G
General partner or LLC
member-manager
Limited partner or other LLC
member
11 Other income (loss)
H Domestic partner Foreign partner
I1
I2
What type of entity is this partner?
If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here
. . . . . . . . . . . . . . . . . . .
12 Section 179 deduction
19 Distributions
J
Partner’s share of profit, loss, and capital (see instructions):
Beginning
Ending
13 Other deductions
Profit % %
20 Other information
Loss % %
Capital % %
K
Partner’s share of liabilities at year end:
Nonrecourse . . . . . . $
14 Self-employment earnings (loss)
Qualified nonrecourse financing . $
Recourse . . . . . . . $
L
M
Partner’s capital account analysis:
Beginning capital account . . . $
Capital contributed during the year $
Current year increase (decrease) . $
Withdrawals & distributions . . $ ( )
Ending capital account . . . . $
Tax basis GAAP Section 704(b) book
Other (explain)
Did the partner contribute property with a built-in gain or loss?
Yes
No
If “Yes,” attach statement (see instructions)
*See attached statement for additional information.
For IRS Use Only
For Paperwork Reduction Act Notice, see Instructions for Form 1065. Cat. No. 11394R Schedule K-1 (Form 1065) 2015
DF-28

Schedule K-1 (Form 1065) 2015 Page 2
This list identifies the codes used on Schedule K-1 for all partners and provides summarized reporting information for partners who file Form 1040.
For detailed reporting and filing information, see the separate Partner’s Instructions for Schedule K-1 and the instructions for your income tax return.
1. Ordinary business income (loss). Determine whether the income (loss) is
Code
}
Report on
passive or nonpassive and enter on your return as follows.
L Empowerment zone
Report on
employment credit
Passive loss
See the Partner’s Instructions
M Credit for increasing research
Passive income
Schedule E, line 28, column (g)
activities
Nonpassive loss
Schedule E, line 28, column (h)
N
See the Partner’s Instructions
Credit for employer social
Nonpassive income
Schedule E, line 28, column (j)
security and Medicare taxes
2. Net rental real estate income (loss) See the Partner’s Instructions
O Backup withholding
3. Other net rental income (loss)
P Other credits
DRAFT AS OF
June 16, 2015
DO NOT FILE
Net income
Schedule E, line 28, column (g)
Net loss
See the Partner’s Instructions
4. Guaranteed payments Schedule E, line 28, column (j)
5. Interest income Form 1040, line 8a
6a. Ordinary dividends Form 1040, line 9a
6b. Qualified dividends Form 1040, line 9b
7. Royalties Schedule E, line 4
8. Net short-term capital gain (loss) Schedule D, line 5
9a. Net long-term capital gain (loss) Schedule D, line 12
9b. Collectibles (28%) gain (loss) 28% Rate Gain Worksheet, line 4
(Schedule D instructions)
9c. Unrecaptured section 1250 gain See the Partner’s Instructions
10. Net section 1231 gain (loss) See the Partner’s Instructions
11. Other income (loss)
Code
A Other portfolio income (loss) See the Partner’s Instructions
B Involuntary conversions
See the Partner’s Instructions
C Sec. 1256 contracts & straddles Form 6781, line 1
D Mining exploration costs recapture See Pub. 535
E Cancellation of debt Form 1040, line 21 or Form 982
F Other income (loss)
See the Partner’s Instructions
12. Section 179 deduction See the Partner’s Instructions
13. Other deductions
A Cash contributions (50%)
B Cash contributions (30%)
C Noncash contributions (50%)
D Noncash contributions (30%) }See the Partner’s
E Capital gain property to a 50% Instructions
organization (30%)
F Capital gain property (20%)
G Contributions (100%)
H Investment interest expense Form 4952, line 1
I Deductions—royalty income Schedule E, line 19
J Section 59(e)(2) expenditures See the Partner’s Instructions
K Deductions—portfolio (2% floor) Schedule A, line 23
L Deductions—portfolio (other) Schedule A, line 28
M Amounts paid for medical insurance Schedule A, line 1 or Form 1040, line 29
N Educational assistance benefits See the Partner’s Instructions
O Dependent care benefits Form 2441, line 12
P Preproductive period expenses See the Partner’s Instructions
Q Commercial revitalization deduction
from rental real estate activities See Form 8582 instructions
R Pensions and IRAs
See the Partner’s Instructions
S Reforestation expense deduction See the Partner’s Instructions
T Domestic production activities
information
See Form 8903 instructions
U Qualified production activities income Form 8903, line 7b
V Employer’s Form W-2 wages Form 8903, line 17
W Other deductions
See the Partner’s Instructions
14. Self-employment earnings (loss)
Note: If you have a section 179 deduction or any partner-level deductions, see the
Partner’s Instructions before completing Schedule SE.
A Net earnings (loss) from
self-employment
Schedule SE, Section A or B
B Gross farming or fishing income See the Partner’s Instructions
C Gross non-farm income
}
See the Partner’s Instructions
15. Credits
A Low-income housing credit
(section 42(j)(5)) from pre-2008
buildings
B Low-income housing credit
(other) from pre-2008 buildings
C Low-income housing credit
(section 42(j)(5)) from
post-2007 buildings
See the Partner’s Instructions
D Low-income housing credit
(other) from post-2007
buildings
E Qualified rehabilitation
expenditures (rental real estate)
F Other rental real estate credits
G Other rental credits
H Undistributed capital gains credit Form 1040, line 73; check box a
I Biofuel producer credit
J Work opportunity credit
See the Partner's Instructions
K Disabled access credit
}
DF-29
16. Foreign transactions
A Name of country or U.S.
possession
B Gross income from all sources }Form 1116, Part I
C Gross income sourced at
partner level
Foreign gross income sourced at partnership level
D Passive category
E General category
Form 1116, Part I
F Other
}
Deductions allocated and apportioned at partner level
G Interest expense Form 1116, Part I
H Other Form 1116, Part I
Deductions allocated and apportioned at partnership level to foreign source
income
I Passive category
J General category
Form 1116, Part I
K Other
}
Other information
L Total foreign taxes paid Form 1116, Part II
M Total foreign taxes accrued Form 1116, Part II
N Reduction in taxes available for credit Form 1116, line 12
O Foreign trading gross receipts Form 8873
P Extraterritorial income exclusion Form 8873
Q Other foreign transactions See the Partner’s Instructions
17. Alternative minimum tax (AMT) items
}
A Post-1986 depreciation adjustment
B Adjusted gain or loss
See the Partner’s
C Depletion (other than oil & gas) Instructions and
D Oil, gas, & geothermal—gross income the Instructions for
E Oil, gas, & geothermal—deductions Form 6251
F Other AMT items
18. Tax-exempt income and nondeductible expenses
A Tax-exempt interest income Form 1040, line 8b
B Other tax-exempt income
See the Partner’s Instructions
C Nondeductible expenses
See the Partner’s Instructions
19. Distributions
A Cash and marketable securities
B Distribution subject to section 737
C Other property
}
See the Partner’s Instructions
20. Other information
A Investment income
Form 4952, line 4a
B Investment expenses Form 4952, line 5
C Fuel tax credit information Form 4136
D Qualified rehabilitation expenditures
(other than rental real estate) See the Partner’s Instructions
E Basis of energy property See the Partner’s Instructions
F Recapture of low-income housing
credit (section 42(j)(5)) Form 8611, line 8
G Recapture of low-income housing
credit (other) Form 8611, line 8
H Recapture of investment credit See Form 4255
I Recapture of other credits See the Partner’s Instructions
J Look-back interest—completed
long-term contracts See Form 8697
K Look-back interest—income forecast
method See Form 8866
L Dispositions of property with
section 179 deductions
M Recapture of section 179 deduction
N Interest expense for corporate
partners
O Section 453(l)(3) information
P Section 453A(c) information
Q Section 1260(b) information
R Interest allocable to production
expenditures
S CCF nonqualified withdrawals
T Depletion information—oil and gas
U Reserved
V Unrelated business taxable income
W Precontribution gain (loss)
X Section 108(i) information
Y Net investment income
Z Other information
}See the Partner’s
Instructions

DF-30
Form 1094-B
Department of the Treasury
Internal Revenue Service
Transmittal of Health Coverage Information Returns
Information about Form 1094-B and its separate instructions is at www.irs.gov/form1094b.
1 Filer's name 2 Employer identification number (EIN)
OMB No. 1545-2252
2015
1115
3 Name of person to contact 4 Contact telephone number
5 Street address (including room or suite no.) 6 City or town
For Official Use Only
7 State or province 8 Country and ZIP or foreign postal code
9 Total number of Forms 1095-B submitted with this transmittal . . . . . . . . . . . . . .
Under penalties of perjury, I declare that I have examined this return and accompanying documents, and, to the best of my knowledge and belief, they are true, correct and complete.
Signature
Title
Date
For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 61570P Form 1094-B (2015)

DF-31
Form1094-C
Department of the Treasury
Internal Revenue Service
Transmittal of Employer-Provided Health Insurance Offer and
Coverage Information Returns
Information about Form 1094-C and its separate instructions is at www.irs.gov/form1094c
Part I Applicable Large Employer Member (ALE Member)
1 Name of ALE Member (Employer) 2 Employer identification number (EIN)
CORRECTED
120116
OMB No. 1545-2251
2015
3 Street address (including room or suite no.)
4 City or town 5 State or province 6 Country and ZIP or foreign postal code
7 Name of person to contact 8 Contact telephone number
9 Name of Designated Government Entity (only if applicable) 10 Employer identification number (EIN)
11 Street address (including room or suite no.)
For Official Use Only
12 City or town 13 State or province 14 Country and ZIP or foreign postal code
15 Name of person to contact 16 Contact telephone number
17 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 Total number of Forms 1095-C submitted with this transmittal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 Is this the authoritative transmittal for this ALE Member? If “Yes,” check the box and continue. If “No,” see instructions . . . . . . . . . . . . . . . .
Part II ALE Member Information
20 Total number of Forms 1095-C filed by and/or on behalf of ALE Member . . . . . . . . . . . . . . . . . . . . . . . . . .
21 Is ALE Member a member of an Aggregated ALE Group? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No
If “No,” do not complete Part IV.
22 Certifications of Eligibility (select all that apply):
A. Qualifying Offer Method B. Qualifying Offer Method Transition Relief C. Section 4980H Transition Relief D. 98% Offer Method
Under penalties of perjury, I declare that I have examined this return and accompanying documents, and to the best of my knowledge and belief, they are true, correct, and complete.
Signature
Title
Date
For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 61571A Form 1094-C (2015)

DF-32
120216
Form 1094-C (2015) Page 2
Part III ALE Member Information—Monthly
(a) Minimum Essential Coverage
Offer Indicator
Yes No
(b) Full-Time Employee Count
for ALE Member
(c) Total Employee Count
for ALE Member
(d) Aggregated
Group Indicator
(e) Section 4980H
Transition Relief Indicator
23 All 12 Months
24 Jan
25 Feb
26 Mar
27 Apr
28 May
29 June
30 July
31 Aug
32 Sept
33 Oct
34 Nov
35 Dec
Form 1094-C (2015)

DF-33
120315
Form 1094-C (2015) Page 3
Part IV Other ALE Members of Aggregated ALE Group
Enter the names and EINs of Other ALE Members of the Aggregated ALE Group (who were members at any time during the calendar year).
Name EIN
Name EIN
36
51
37
52
38
53
39
54
40
55
41
56
42
57
43
58
44
59
45
60
46
61
47
62
48
63
49
64
50
65
Form 1094-C (2015)

Form 1095-A
Department of the Treasury
Internal Revenue Service
Health Insurance Marketplace Statement
Information about Form 1095-A and its separate instructions
is at www.irs.gov/form1095a.
VOID
CORRECTED
OMB No. 1545-2232
2015
Part I
Recipient Information
1 Marketplace identifier 2 Marketplace-assigned policy number 3 Policy issuer's name
DRAFT AS OF
August 4, 2015
4 Recipient's name 5 Recipient's SSN 6 Recipient's date of birth
7 Recipient's spouse's name 8 Recipient's spouse's SSN 9 Recipient's spouse's date of birth
10 Policy start date 11 Policy termination date 12 Street address (including apartment no.)
13 City or town 14 State or province 15 Country and ZIP or foreign postal code
Part II
Covered Individuals
16
DO NOT FILE
A. Covered individual name B. Covered individual SSN C. Covered individual
date of birth
D. Coverage start date E. Coverage termination date
17
18
19
20
Part III
Coverage Information
Month
A. Monthly enrollment premiums B. Monthly second lowest cost silver
plan (SLCSP) premium
C. Monthly advance payment of
premium tax credit
21 January
22 February
23 March
24 April
25 May
26 June
27 July
28 August
29 September
30 October
31 November
32 December
33 Annual Totals
For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 60703Q Form 1095-A (2015)
DF-34

Form 1095-A (2015) Page 2
Instructions for Recipient
You received this Form 1095-A because you or a family member
enrolled in health insurance coverage through the Health
Insurance Marketplace. This Form 1095-A provides information
you need to complete Form 8962, Premium Tax Credit (PTC).
You must complete Form 8962 and file it with your tax return
if any amount other than zero is shown in Part III, Column C
of this Form 1095-A (meaning that you received premium
assistance through advance credit payments) or if you want
to take the premium tax credit. The filing requirement applies
whether or not you're otherwise required to file a tax return. The
DRAFT AS OF
August 4, 2015
DO NOT FILE
Marketplace has also reported the information on this form to
the IRS. If you or your family members enrolled at the
Marketplace in more than one qualified health plan policy, you
will receive a Form 1095-A for each policy. Check the
information on this form carefully. Please contact your
Marketplace if you have questions concerning its accuracy. If
you or your family members were enrolled in a Marketplace
catastrophic health plan or separate dental policy, you aren't
entitled to take a premium tax credit for this coverage when you
file your return, even if you received a Form 1095-A for this
coverage.
VOID box. If the "VOID" box is checked at the top of the form,
you previously received a Form 1095-A for the policy described
in Part I. That Form 1095-A was sent in error. You shouldn't
have received a Form 1095-A for this policy. Don't use the
information on this or the previously received Form 1095-A to
figure your premium tax credit on Form 8962.
CORRECTED box. If the "CORRECTED" box is checked at the
top of the form, use the information on this Form 1095-A to
figure the premium tax credit and reconcile any advance credit
payments on Form 8962. Don't use the information on the
original Form 1095-A you received for this policy.
Part I. Recipient Information, lines 1–15. Part I reports
information about you, the insurance company that issued your
policy, and the Marketplace where you enrolled in the coverage.
Line 1. This line identifies the state where you enrolled in
coverage through the Marketplace.
Line 2. This line is the policy number assigned by the
Marketplace to identify the policy in which you enrolled. If you
are completing Part 4 of Form 8962, enter this number on line
30, 31, 32, or 33, box a.
Line 3. This is the name of the insurance company that issued
your policy.
Line 4. You are the recipient because you are the person the
Marketplace identified at enrollment who is expected to file a
tax return and who, if qualified, would take the premium tax
credit for the year of coverage.
Line 5. This is your social security number. For your protection,
this form may show only the last four digits. However, the
Marketplace has reported your complete social security number
to the IRS.
Line 6. A date of birth will be entered if there is no social
security number on line 5.
Lines 7, 8, and 9. Information about your spouse will be entered
only if advance credit payments were made for your coverage.
The date of birth will be entered on line 9 only if line 8 is blank.
Lines 10 and 11. These are the starting and ending dates of the
policy.
Lines 12 through 15. Your address is entered on these lines.
Part II. Covered Individuals, lines 16–20. Part II reports
information about each individual who is covered under your
policy. This information includes the name, social security
number, date of birth, and the starting and ending dates of
coverage for each covered individual. For each line, a date of
birth is reported in column C only if an SSN isn't entered in
column B.
If advance credit payments are made, only the individuals for
whom you attested the intention to claim a personal exemption
deduction (yourself, spouse, and dependents) to the
Marketplace at enrollment will be listed on Form 1095-A. If you
attested to the Marketplace at enrollment that one or more of
the individuals who enrolled in the plan aren't individuals for
whom you intend to claim a personal exemption deduction on
your tax return, those individuals won't be listed on your
Form 1095-A. For example, if you indicated to the Marketplace
at enrollment that an individual enrolling in the policy is your
adult child for whom you won't claim a personal exemption
deduction, that child will receive a separate Form 1095-A and
won't be listed in Part II on your Form 1095-A.
If advance credit payments weren't made and you didn't
identify at enrollment the individuals for whom you intended to
claim a personal exemption deduction, Form 1095-A will list all
enrolled individuals in Part II on your Form 1095-A.
Part II also tells the IRS the months that the individuals
identified are covered by health insurance and therefore have
satisfied the individual shared responsibility provision.
If there are more than 5 individuals covered by a policy, you
will receive one or more additional Forms 1095-A that continue
Part II.
Part III. Coverage Information, lines 21–33. Part III reports
information about your insurance coverage that you will need to
complete Form 8962 to reconcile advance credit payments or to
take the premium tax credit when you file your return.
Column A. This column is the monthly premiums for the plan in
which you or family members were enrolled, including premiums
that you paid and premiums that were paid through advance
payments of the premium tax credit. If you or a family member
enrolled in a separate dental plan with pediatric benefits, this
column includes the portion of the dental plan premiums for the
pediatric benefits. If your plan covered benefits that aren't
essential health benefits, such as adult dental or vision benefits,
the amount in this column will be reduced by the premiums for
the non-essential benefits. If the policy was terminated by your
insurance company due to nonpayment of premiums for one or
more months, then a -0- will appear in this column for these
months regardless of whether advance credit payments were
made for these months.
Column B. This column is the monthly premium for the second
lowest cost silver plan (SLCSP) that the Marketplace has
determined applies to members of your family enrolled in the
coverage. The applicable SLCSP premium is used to compute
your monthly advance credit payments and the premium tax
credit you take on your return. See the Instructions for
Form 8962, Part II, on how to use the information in this column
or how to complete Form 8962 if there is no information
entered. If the policy was terminated by your insurance
company due to nonpayment of premiums for one or more
months, then a -0- will appear in this column for the months,
regardless of whether advance credit payments were made for
these months.
Column C. This column is the monthly amount of advance
credit payments that were made to your insurance company on
your behalf to pay for all or part of the premiums for your
coverage. If this is the only column in Part III that is filled in with
an amount other than zero for a month, it means your policy
was terminated by your insurance company due to nonpayment
of premiums, and you aren't entitled to take the premium tax
credit for that month when you file your tax return. You still must
reconcile the entire advance payment that was paid on your
behalf for that month using Form 8962. No information will be
entered in this column if no advance credit payments were
made.
Lines 21–33. The Marketplace will report the amounts in
columns A, B, and C on lines 21–32 for each month and enter
the totals on line 33. Use this information to complete
Form 8962, line 11 or lines 12–23.
DF-35

2015
Health Insurance Marketplace Statement
DRAFT AS OF
August 4, 2015
DF-36

August 4, 2015
DRAFT AS OF
TIP
DF-37

DF-38
Form 1095-B
Department of the Treasury
Internal Revenue Service
Health Coverage
Information about Form 1095-B and its separate instructions is at www.irs.gov/form1095b.
VOID
CORRECTED
OMB No. 1545-2252
Part I Responsible Individual
1 Name of responsible individual 2 Social security number (SSN) 3 Date of birth (If SSN is not available)
2015
560115
4 Street address (including apartment no.) 5 City or town 6 State or province 7 Country and ZIP or foreign postal code
8 Enter letter identifying Origin of the Policy (see instructions for codes): . . . . . .
9 Small Business Health Options Program (SHOP) Marketplace identifier, if applicable
Part II Employer Sponsored Coverage (see instructions)
10 Employer name 11 Employer identification number (EIN)
12 Street address (including room or suite no.) 13 City or town 14 State or province 15 Country and ZIP or foreign postal code
Part III Issuer or Other Coverage Provider (see instructions)
16 Name 17 Employer identification number (EIN) 18 Contact telephone number
19 Street address (including room or suite no.) 20 City or town 21 State or province 22 Country and ZIP or foreign postal code
Part IV Covered Individuals (Enter the information for each covered individual(s).)
(a) Name of covered individual(s) (b) SSN (c) DOB (If SSN is not
available)
(d) Covered
all 12 months
(e) Months of coverage
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
23
24
25
26
27
28
For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 60704B Form 1095-B (2015)

560215
Form 1095-B (2015) Page 2
Instructions for Recipient
This Form 1095-B provides information needed to report on your income tax
return that you, your spouse (if you file a joint return), and individuals you
claim as dependents had qualifying health coverage (referred to as “minimum
essential coverage”) for some or all months during the year. Individuals who
don't have minimum essential coverage and don't qualify for an exemption
from this requirement may be liable for the individual shared responsibility
payment.
Minimum essential coverage includes government-sponsored programs,
eligible employer-sponsored plans, individual market plans, and other
coverage the Department of Health and Human Services designates as
minimum essential coverage. For more information on the requirement to
have minimum essential coverage and what is minimum essential coverage,
see www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Individual-
Shared-Responsibility-Provision.
TIP
Providers of minimum essential coverage are required to furnish
only one Form 1095-B for all individuals whose coverage is
reported on that form. As the recipient of this Form 1095-B, you
should provide a copy to other individuals covered under the policy if they
request it for their records.
Part I. Responsible Individual, lines 1–9. Part I reports information about
you and the coverage.
Lines 2 and 3. Line 2 reports your social security number (SSN) or other
taxpayer identification number (TIN), if applicable. For your protection, this
form may show only the last four digits. However, the coverage provider is
required to report your complete SSN or other TIN, if applicable to the IRS.
Your date of birth will be entered on line 3 only if line 2 is blank.
!
CAUTION
If you don't provide your SSN or other TIN and the SSNs or other TINs
of all covered individuals to the sponsor of the coverage, the IRS may
not be able to match the Form 1095-B with the individuals to
determine that they have complied with the individual shared responsibility
provision.
Line 8. This is the code for the type of coverage in which you or other
covered individuals were enrolled. Only one letter will be entered on this line.
A. Small Business Health Options Program (SHOP)
B. Employer-sponsored coverage
C. Government-sponsored program
D. Individual market insurance
E . Multiemployer plan
F . Other designated minimum essential coverage
TIP
If you or another family member received health insurance
coverage through a Health Insurance Marketplace (also known as
an Exchange), that coverage will be reported on a Form 1095-A
rather than a Form 1095-B.
Line 9. This line will be blank for 2015.
Part II. Employer-Sponsored Coverage, lines 10–15. This part will be
completed by the insurance company if an insurance company provides your
employer-sponsored health coverage. It provides information about the
employer sponsoring the coverage. This part may show only the last four
digits of the employer's EIN. If your coverage isn't insured employer
coverage, this part will be blank.
DF-39
Part III. Issuer or Other Coverage Provider, lines 16–22. This part reports
information about the coverage provider (insurance company, employer
providing self-insured coverage, government agency sponsoring coverage
under a government program such as Medicaid or Medicare, or other
coverage sponsor). Line 18 reports a telephone number for the coverage
provider that you can call if you have questions about the information
reported on the form.
Part IV. Covered Individuals, lines 23–28. This part reports the name, SSN
or other TIN, and coverage information for each covered individual. A date of
birth will be entered in column (c) only if SSN or other TIN isn't entered in
column (b). Column (d) will be checked if the individual was covered for at
least one day in every month of the year. For individuals who were covered
for some but not all months, information will be entered in column (e)
indicating the months for which these individuals were covered. If there are
more than six covered individuals, see Part IV, Continuation Sheet(s), for
information about the additional covered individuals.

2015
TIP
DF-40

DF-41

CAUTION
!
DF-42

TIP
DF-43

CAUTION
!
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Form 1095-C
Department of the Treasury
Internal Revenue Service
Employer-Provided Health Insurance Offer and Coverage
Information about Form 1095-C and its separate instructions is at www.irs.gov/form1095c
Part I Employee
1 Name of employee 2 Social security number (SSN)
VOID
CORRECTED
600116
OMB No. 1545-2251
2015
Applicable Large Employer Member (Employer)
7 Name of employer 8 Employer identification number (EIN)
3 Street address (including apartment no.)
9 Street address (including room or suite no.) 10 Contact telephone number
4 City or town 5 State or province 6 Country and ZIP or foreign postal code
11 City or town 12 State or province 13 Country and ZIP or foreign postal code
Part II Employee Offer and Coverage Plan Start Month (Enter 2-digit number):
14 Offer of
Coverage (enter
required code)
All 12 Months Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
15 Employee Share
of Lowest Cost
Monthly Premium,
for Self-Only
Minimum Value
Coverage $ $ $ $ $ $ $ $ $ $ $ $ $
16 Applicable
Section 4980H Safe
Harbor (enter code,
if applicable)
Part III Covered Individuals
If Employer provided self-insured coverage, check the box and enter the information for each covered individual.
(a) Name of covered individual(s) (b) SSN
(c) DOB (If SSN is
not available)
(d) Covered
all 12 months
(e) Months of Coverage
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
17
18
19
20
21
22
For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 60705M Form 1095-C (2015)

600215
Form 1095-C (2015) Page 2
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Instructions for Recipient
You are receiving this Form 1095-C because your employer is an Applicable Large Employer
subject to the employer shared responsibility provision in the Affordable Care Act. This Form
1095-C includes information about the health insurance coverage offered to you by your
employer. Form 1095-C, Part II, includes information about the coverage, if any, your employer
offered to you and your spouse and dependent(s). If you purchased health insurance coverage
through the Health Insurance Marketplace and wish to claim the premium tax credit, this
information will assist you in determining whether you are eligible. For more information about
the premium tax credit, see Pub. 974, Premium Tax Credit (PTC). You may receive multiple
Forms 1095-C if you had multiple employers during the year that were Applicable Large
Employers (for example, you left employment with one Applicable Large Employer and began a
new position of employment with another Applicable Large Employer). In that situation, each
Form 1095-C would have information only about the health insurance coverage offered to you
by the employer identified on the form. If your employer is not an Applicable Large Employer it is
not required to furnish you a Form 1095-C providing information about the health coverage it
offered.
In addition, if you, or any other individual who is offered health coverage because of their
relationship to you (referred to here as family members), enrolled in your employer's health plan
and that plan is a type of plan referred to as a "self-insured" plan, Form 1095-C, Part III provides
information to assist you in completing your income tax return by showing you or those family
members had qualifying health coverage (referred to as "minimum essential coverage") for some
or all months during the year.
If your employer provided you or a family member health coverage through an insured health
plan or in another manner, the issuer of the insurance or the sponsor of the plan providing the
coverage will furnish you information about the coverage separately on Form 1095-B, Health
Coverage. Similarly, if you or a family member obtained minimum essential coverage from
another source, such as a government-sponsored program, an individual market plan, or
miscellaneous coverage designated by the Department of Health and Human Services, the
provider of that coverage will furnish you information about that coverage on Form 1095-B. If
you or a family member enrolled in a qualified health plan through a Health Insurance
Marketplace, the Health Insurance Marketplace will report information about that coverage on
Form 1095-A, Health Insurance Marketplace Statement.
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Employers are required to furnish Form 1095-C only to the employee. As the
recipient of this Form 1095-C, you should provide a copy to any family members
covered under a self-insured employer-sponsored plan listed in Part III if they
request it for their records.
Part I. Employee
Lines 1–6. Part I, lines 1–6, reports information about you, the employee.
Line 2. This is your social security number (SSN). For your protection, this form may show only
the last four digits of your SSN. However, the issuer is required to report your complete SSN to
the IRS.
!
CAUTION
If you do not provide your SSN and the SSNs of all covered individuals to the plan
administrator, the IRS may not be able to match the Form 1095-C to determine that
you and the other covered individuals have complied with the individual shared
responsibility provision. For covered individuals other than the employee listed in
Part I, a Taxpayer Identification Number (TIN) may be provided instead of an SSN.
Part I. Applicable Large Employer Member (Employer)
Lines 7–13. Part I, lines 7–13, reports information about your employer.
Line 10. This line includes a telephone number for the person whom you may call if you have
questions about the information reported on the form or to report errors in the information on the
form and ask that they be corrected.
Part II. Employer Offer and Coverage, Lines 14–16
Line 14. The codes listed below for line 14 describe the coverage that your employer offered to
you and your spouse and dependent(s), if any. (If you received an offer of coverage through a
multiemployer plan due to your membership in a union, that offer may not be shown on line 14.)
The information on line 14 relates to eligibility for coverage subsidized by the premium tax credit
for you, your spouse, and dependent(s). For more information about the premium tax credit, see
Pub. 974.
1A. Minimum essential coverage providing minimum value offered to you with an employee
contribution for self-only coverage equal to or less than 9.5% of the 48 contiguous states single
federal poverty line and minimum essential coverage offered to your spouse and dependent(s)
(referred to here as a Qualifying Offer). This code may be used to report for specific months for
which a Qualifying Offer was made, even if you did not receive a Qualifying Offer for all 12
months of the calendar year.
1B. Minimum essential coverage providing minimum value offered to you and minimum essential
coverage NOT offered to your spouse or dependent(s).
1C. Minimum essential coverage providing minimum value offered to you and minimum essential
coverage offered to your dependent(s) but NOT your spouse.
1D. Minimum essential coverage providing minimum value offered to you and minimum essential
coverage offered to your spouse but NOT your dependent(s).
1E. Minimum essential coverage providing minimum value offered to you and minimum essential
coverage offered to your dependent(s) and spouse.
1F. Minimum essential coverage NOT providing minimum value offered to you, or you and your
spouse or dependent(s), or you, your spouse, and dependent(s).
1G. You were NOT a full-time employee for any month of the calendar year but were enrolled in
self-insured employer-sponsored coverage for one or more months of the calendar year. This
code will be entered in the All 12 Months box on line 14.
1H. No offer of coverage (you were NOT offered any health coverage or you were offered
coverage that is NOT minimum essential coverage).
1I. Your employer claimed "Qualifying Offer Transition Relief" for 2015 and for at least one
month of the year you (and your spouse or dependent(s)) did not receive a Qualifying Offer. Note
that your employer has also provided a contact number at which you may request further
information about the health coverage, if any, you were offered (see line 10).
Line 15. This line reports the employee share of the lowest-cost monthly premium for self-only
minimum essential coverage providing minimum value that your employer offered you. The
amount reported on line 15 may not be the amount you paid for coverage if, for example, you
chose to enroll in more expensive coverage such as family coverage. Line 15 will show an
amount only if code 1B, 1C, 1D, or 1E is entered on line 14. If you were offered coverage but not
required to contribute any amount towards the premium, this line will report a “0.00” for the
amount.
Line 16. This code provides the IRS information to administer the employer shared responsibility
provisions. Other than a code 2C which reflects your enrollment in your employer's coverage,
none of this information affects your eligibility for the premium tax credit. For more information
about the employer shared responsibility provisions, see IRS.gov.
Part III. Covered Individuals, Lines 17–22
Part III reports the name, SSN (or TIN for covered individuals other than the employee listed in
Part I), and coverage information about each individual (including any full-time employee and
non-full-time employee, and any employee's family members) covered under the employer's
health plan, if the plan is "self-insured." A date of birth will be entered in column (c) only if an
SSN (or TIN for covered individuals other than the employee listed in Part I) is not entered in
column (b). Column (d) will be checked if the individual was covered for at least one day in every
month of the year. For individuals who were covered for some but not all months, information
will be entered in column (e) indicating the months for which these individuals were covered. If
there are more than 6 covered individuals, see the additional covered individuals on Part III,
Continuation Sheet(s).

2015
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PAYER'S name, street address, city or town, state or province, country, ZIP
or foreign postal code, and telephone no.
CORRECTED (if checked)
Applicable check box on Form 8949
OMB No. 1545-0715
2015
Form 1099-B
1a Description of property (Example 100 sh. XYZ Co.)
Proceeds From
Broker and
Barter Exchange
Transactions
1b Date acquired
1c Date sold or disposed
PAYER'S federal identification number
RECIPIENT'S name
Street address (including apt. no.)
RECIPIENT'S identification number
City or town, state or province, country, and ZIP or foreign postal code
Account number (see instructions)
CUSIP number
14 State name 15 State identification no. 16 State tax withheld
$
$
$
$
$
1d Proceeds
1f Code, if any
2 Type of gain or loss:
Short-term
Long-term
4 Federal income tax withheld
6 Reported to IRS:
Gross proceeds
Net proceeds
8 Profit or (loss) realized in
2015 on closed contracts
10 Unrealized profit or (loss) on
open contracts—12/31/2015
$
$
$
1e Cost or other basis
1g Adjustments
12 13 Bartering
$
Form 1099-B (Keep for your records) www.irs.gov/form1099b
$
3 If checked, basis reported
to IRS
5 If checked, noncovered
security
7 If checked, loss is not allowed
based on amount in 1d
9 Unrealized profit or (loss) on
open contracts—12/31/2014
11 Aggregate profit or (loss)
on contracts
$
Copy B
For Recipient
This is important tax
information and is
being furnished to
the Internal Revenue
Service. If you are
required to file a
return, a negligence
penalty or other
sanction may be
imposed on you if
this income is
taxable and the IRS
determines that it
has not been
reported.
Department of the Treasury - Internal Revenue Service
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FILER'S name, street address, city or town, state or province, country, ZIP
or foreign postal code, and telephone no.
Check to indicate if FILER is a (an):
Payment settlement entity (PSE)
Electronic Payment Facilitator
(EPF)/Other third party
PAYEE’S name
Street address (including apt. no.)
Check to indicate transactions
reported are:
Payment card
Third party network
City or town, state or province, country, and ZIP or foreign postal code
PSE'S name and telephone number
Account number (see instructions)
CORRECTED (if checked)
FILER’S federal identification no.
PAYEE’S taxpayer identification no.
1a Gross amount of payment
card/third party network
transactions
$
1b Card Not Present
transactions
$
3 Number of payment
transactions
5a January
$
5c March
$
5e May
$
5g July
$
5i September
$
5k November
Form 1099-K (Keep for your records) www.irs.gov/form1099k
$
OMB No. 1545-2205
2015
Form 1099-K
2 Merchant category code
4 Federal income tax
withheld
$
5b February
$
5d April
$
5f June
$
5h August
$
5j October
$
5l December
$
Payment Card and
Third Party
Network
Transactions
Copy B
For Payee
This is important tax
information and is
being furnished to
the Internal Revenue
Service. If you are
required to file a
return, a negligence
penalty or other
sanction may be
imposed on you if
taxable income
results from this
transaction and the
IRS determines that it
has not been
reported.
6 State 7 State identification no. 8 State income tax withheld
$
$
Department of the Treasury - Internal Revenue Service
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Form 1120
Department of the Treasury
Internal Revenue Service
A Check if:
1a Consolidated return
(attach Form 851) .
b Life/nonlife consolidated
return . . .
2 Personal holding co.
(attach Sch. PH) . .
3 Personal service corp.
(see instructions) . .
4 Schedule M-3 attached
Income
Deductions (See instructions for limitations on deductions.)
Tax, Refundable Credits, and
Payments
Sign
Here
U.S. Corporation Income Tax Return
For calendar year 2015 or tax year beginning , 2015, ending , 20
TYPE
OR
PRINT
OMB No. 1545-0123
Information about Form 1120 and its separate instructions is at www.irs.gov/form1120.
2015
Name
B Employer identification number
Number, street, and room or suite no. If a P.O. box, see instructions.
DRAFT AS OF
August 18, 2015
DO NOT FILE
City or town, state, or province, country, and ZIP or foreign postal code
C Date incorporated
D Total assets (see instructions)
$
E Check if: (1) Initial return (2) Final return (3) Name change (4) Address change
1a Gross receipts or sales . . . . . . . . . . . . . . . . . 1a
b Returns and allowances . . . . . . . . . . . . . . . . . 1b
c Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . . . 1c
2 Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . . . . 2
3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . . 3
4 Dividends (Schedule C, line 19) . . . . . . . . . . . . . . . . . . . . . . 4
5 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Gross rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Gross royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Capital gain net income (attach Schedule D (Form 1120)) . . . . . . . . . . . . . . . 8
9 Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . . . . . . . . 9
10 Other income (see instructions—attach statement) . . . . . . . . . . . . . . . . . 10
11 Total income. Add lines 3 through 10 . . . . . . . . . . . . . . . . . . . . 11
12 Compensation of officers (see instructions—attach Form 1125-E) . . . . . . . . . . . . 12
13 Salaries and wages (less employment credits) . . . . . . . . . . . . . . . . . . 13
14 Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . 14
15 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16 Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17 Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . 19
20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) . . 20
21 Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23 Pension, profit-sharing, etc., plans . . . . . . . . . . . . . . . . . . . . . 23
24 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . 24
25 Domestic production activities deduction (attach Form 8903) . . . . . . . . . . . . . . 25
26 Other deductions (attach statement) . . . . . . . . . . . . . . . . . . . . . 26
27 Total deductions. Add lines 12 through 26 . . . . . . . . . . . . . . . . . . . 27
28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. 28
29a Net operating loss deduction (see instructions) . . . . . . . . . . 29a
b Special deductions (Schedule C, line 20) . . . . . . . . . . . . 29b
c Add lines 29a and 29b . . . . . . . . . . . . . . . . . . . . . . . . . 29c
30 Taxable income. Subtract line 29c from line 28 (see instructions) . . . . . . . . . . . . 30
31 Total tax (Schedule J, Part I, line 11) . . . . . . . . . . . . . . . . . . . . . 31
32 Total payments and refundable credits (Schedule J, Part II, line 21) . . . . . . . . . . . . 32
33 Estimated tax penalty (see instructions). Check if Form 2220 is attached . . . . . . . . 33
34 Amount owed. If line 32 is smaller than the total of lines 31 and 33, enter amount owed . . . . . 34
35 Overpayment. If line 32 is larger than the total of lines 31 and 33, enter amount overpaid . . . . . 35
36 Enter amount from line 35 you want: Credited to 2016 estimated tax Refunded
36
Paid
Preparer
Use Only
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct,
and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
May the IRS discuss this return
with the preparer shown below
(see instructions)? Yes No
Signature of officer
Date
Title
Print/Type preparer’s name Preparer's signature Date
Firm’s name Firm's EIN
Firm's address
Phone no.
PTIN
Check if
self-employed
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11450Q Form 1120 (2015)
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Form 1120 (2015) Page 2
Schedule C
Dividends and Special Deductions (see instructions)
1 Dividends from less-than-20%-owned domestic corporations (other than debt-financed
stock) . . . . . . . . . . . . . . . . . . . . . . . .
2 Dividends from 20%-or-more-owned domestic corporations (other than debt-financed
stock) . . . . . . . . . . . . . . . . . . . . . . . .
(a) Dividends
received
DRAFT AS OF
August 18, 2015
DO NOT FILE
3 Dividends on debt-financed stock of domestic and foreign corporations . . . . .
4 Dividends on certain preferred stock of less-than-20%-owned public utilities . . .
5 Dividends on certain preferred stock of 20%-or-more-owned public utilities . . . .
6 Dividends from less-than-20%-owned foreign corporations and certain FSCs . . .
7 Dividends from 20%-or-more-owned foreign corporations and certain FSCs . . .
8 Dividends from wholly owned foreign subsidiaries . . . . . . . . . . .
9 Total. Add lines 1 through 8. See instructions for limitation . . . . . . . .
10 Dividends from domestic corporations received by a small business investment
company operating under the Small Business Investment Act of 1958 . . . . .
(b) %
(c) Special deductions
(a) × (b)
11 Dividends from affiliated group members . . . . . . . . . . . . . .
12 Dividends from certain FSCs . . . . . . . . . . . . . . . . .
13 Dividends from foreign corporations not included on lines 3, 6, 7, 8, 11, or 12 . . .
14 Income from controlled foreign corporations under subpart F (attach Form(s) 5471) .
15 Foreign dividend gross-up . . . . . . . . . . . . . . . . . .
16 IC-DISC and former DISC dividends not included on lines 1, 2, or 3 . . . . . .
17 Other dividends . . . . . . . . . . . . . . . . . . . . .
18 Deduction for dividends paid on certain preferred stock of public utilities . . . .
19 Total dividends. Add lines 1 through 17. Enter here and on page 1, line 4 . . .
20 Total special deductions. Add lines 9, 10, 11, 12, and 18. Enter here and on page 1, line 29b . . . . . . .
Form 1120 (2015)
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Form 1120 (2015) Page 3
Schedule J Tax Computation and Payment (see instructions)
Part I–Tax Computation
1 Check if the corporation is a member of a controlled group (attach Schedule O (Form 1120)) . . . .
2 Income tax. Check if a qualified personal service corporation (see instructions) . . . . . . . 2
3 Alternative minimum tax (attach Form 4626) . . . . . . . . . . . . . . . . . . . . 3
4 Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DRAFT AS OF
August 18, 2015
DO NOT FILE
5 a Foreign tax credit (attach Form 1118) . . . . . . . . . . . . . . 5a
b Credit from Form 8834 (see instructions) . . . . . . . . . . . . . 5b
c General business credit (attach Form 3800) . . . . . . . . . . . . 5c
d Credit for prior year minimum tax (attach Form 8827) . . . . . . . . . 5d
e Bond credits from Form 8912 . . . . . . . . . . . . . . . . 5e
6 Total credits. Add lines 5a through 5e . . . . . . . . . . . . . . . . . . . . . 6
7 Subtract line 6 from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Personal holding company tax (attach Schedule PH (Form 1120)) . . . . . . . . . . . . . . 8
9 a Recapture of investment credit (attach Form 4255) . . . . . . . . . . 9a
b Recapture of low-income housing credit (attach Form 8611) . . . . . . . 9b
c
d
Interest due under the look-back method—completed long-term contracts (attach
Form 8697) . . . . . . . . . . . . . . . . . . . . . . 9c
Interest due under the look-back method—income forecast method (attach Form
8866) . . . . . . . . . . . . . . . . . . . . . . . 9d
e Alternative tax on qualifying shipping activities (attach Form 8902) . . . . . 9e
f Other (see instructions—attach statement) . . . . . . . . . . . . 9f
10 Total. Add lines 9a through 9f . . . . . . . . . . . . . . . . . . . . . . . . 10
11 Total tax. Add lines 7, 8, and 10. Enter here and on page 1, line 31 . . . . . . . . . . . . . 11
Part II–Payments and Refundable Credits
12 2014 overpayment credited to 2015 . . . . . . . . . . . . . . . . . . . . . . 12
13 2015 estimated tax payments . . . . . . . . . . . . . . . . . . . . . . . . 13
14 2015 refund applied for on Form 4466 . . . . . . . . . . . . . . . . . . . . . . 14 ( )
15 Combine lines 12, 13, and 14 . . . . . . . . . . . . . . . . . . . . . . . . 15
16 Tax deposited with Form 7004 . . . . . . . . . . . . . . . . . . . . . . . . 16
17 Withholding (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 17
18 Total payments. Add lines 15, 16, and 17 . . . . . . . . . . . . . . . . . . . . 18
19 Refundable credits from:
a Form 2439 . . . . . . . . . . . . . . . . . . . . . . 19a
b Form 4136 . . . . . . . . . . . . . . . . . . . . . . 19b
c Form 8827, line 8c . . . . . . . . . . . . . . . . . . . 19c
d Other (attach statement—see instructions). . . . . . . . . . . . . 19d
20 Total credits. Add lines 19a through 19d . . . . . . . . . . . . . . . . . . . . . 20
21 Total payments and credits. Add lines 18 and 20. Enter here and on page 1, line 32 . . . . . . . . 21
Schedule K Other Information (see instructions)
1 Check accounting method: a Cash b Accrual c Other (specify) Yes No
2 See the instructions and enter the:
a Business activity code no.
b Business activity
c Product or service
3 Is the corporation a subsidiary in an affiliated group or a parent-subsidiary controlled group? . . . . . . . . . .
If “Yes,” enter name and EIN of the parent corporation
4 At the end of the tax year:
a
b
Did any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or tax-exempt
organization own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the
corporation’s stock entitled to vote? If "Yes," complete Part I of Schedule G (Form 1120) (attach Schedule G) . . . . . .
Did any individual or estate own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all
classes of the corporation’s stock entitled to vote? If "Yes," complete Part II of Schedule G (Form 1120) (attach Schedule G) .
Form 1120 (2015)
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Form 1120 (2015) Page 4
Schedule K
Other Information continued (see instructions)
5 At the end of the tax year, did the corporation:
a
Own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of stock entitled to vote of
any foreign or domestic corporation not included on Form 851, Affiliations Schedule? For rules of constructive ownership, see instructions.
If “Yes,” complete (i) through (iv) below.
DRAFT AS OF
(i) Name of Corporation
(ii) Employer
Identification Number
(if any)
(iii) Country of
Incorporation
Yes
(iv) Percentage
Owned in Voting
Stock
No
b
August 18, 2015
DO NOT FILE
Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in any foreign or domestic partnership
(including an entity treated as a partnership) or in the beneficial interest of a trust? For rules of constructive ownership, see instructions.
If “Yes,” complete (i) through (iv) below.
(i) Name of Entity
(ii) Employer
Identification Number
(if any)
(iii) Country of
Organization
(iv) Maximum
Percentage Owned in
Profit, Loss, or Capital
6 During this tax year, did the corporation pay dividends (other than stock dividends and distributions in exchange for stock) in
excess of the corporation’s current and accumulated earnings and profits? (See sections 301 and 316.) . . . . . . .
If "Yes," file Form 5452, Corporate Report of Nondividend Distributions.
If this is a consolidated return, answer here for the parent corporation and on Form 851 for each subsidiary.
7 At any time during the tax year, did one foreign person own, directly or indirectly, at least 25% of (a) the total voting power of all
classes of the corporation’s stock entitled to vote or (b) the total value of all classes of the corporation’s stock? . . . .
For rules of attribution, see section 318. If “Yes,” enter:
(i) Percentage owned
and (ii) Owner’s country
(c) The corporation may have to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign
Corporation Engaged in a U.S. Trade or Business. Enter the number of Forms 5472 attached
8 Check this box if the corporation issued publicly offered debt instruments with original issue discount . . . . . .
If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments.
9 Enter the amount of tax-exempt interest received or accrued during the tax year $
10 Enter the number of shareholders at the end of the tax year (if 100 or fewer)
11 If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here . . . . .
If the corporation is filing a consolidated return, the statement required by Regulations section 1.1502-21(b)(3) must be attached
or the election will not be valid.
12 Enter the available NOL carryover from prior tax years (do not reduce it by any deduction on line 29a.) $
13 Are the corporation’s total receipts (page 1, line 1a, plus lines 4 through 10) for the tax year and its total assets at the end of the
tax year less than $250,000? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If “Yes,” the corporation is not required to complete Schedules L, M-1, and M-2. Instead, enter the total amount of cash distributions
and the book value of property distributions (other than cash) made during the tax year $
14 Is the corporation required to file Schedule UTP (Form 1120), Uncertain Tax Position Statement (see instructions)? . . . .
If “Yes,” complete and attach Schedule UTP.
15a Did the corporation make any payments in 2015 that would require it to file Form(s) 1099? . . . . . . . . . . .
b If “Yes,” did or will the corporation file required Forms 1099? . . . . . . . . . . . . . . . . . . . .
16 During this tax year, did the corporation have an 80% or more change in ownership, including a change due to redemption of its
own stock? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 During or subsequent to this tax year, but before the filing of this return, did the corporation dispose of more than 65% (by value)
of its assets in a taxable, non-taxable, or tax deferred transaction? . . . . . . . . . . . . . . . . . .
18 Did the corporation receive assets in a section 351 transfer in which any of the transferred assets had a fair market basis or fair
market value of more than $1 million? . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 1120 (2015)
DF-71

Form 1120 (2015) Page 5
Schedule L Balance Sheets per Books Beginning of tax year End of tax year
Assets (a) (b) (c) (d)
1 Cash . . . . . . . . . . . .
2a Trade notes and accounts receivable . . .
b Less allowance for bad debts . . . . .
3 Inventories . . . . . . . . . . .
( ) ( )
DRAFT AS OF
August 18, 2015
DO NOT FILE
4 U.S. government obligations . . . . .
5 Tax-exempt securities (see instructions) . .
6 Other current assets (attach statement) . .
7 Loans to shareholders . . . . . . .
8 Mortgage and real estate loans . . . . .
9 Other investments (attach statement) . . .
10a Buildings and other depreciable assets . .
b Less accumulated depreciation . . . . .
11a Depletable assets . . . . . . . . .
b Less accumulated depletion . . . . . .
12 Land (net of any amortization) . . . . .
13a Intangible assets (amortizable only) . . .
b Less accumulated amortization . . . . .
14 Other assets (attach statement) . . . . .
15 Total assets . . . . . . . . . .
Liabilities and Shareholders’ Equity
16 Accounts payable . . . . . . . . .
17 Mortgages, notes, bonds payable in less than 1 year
18 Other current liabilities (attach statement) . .
19 Loans from shareholders . . . . . . .
20 Mortgages, notes, bonds payable in 1 year or more
21 Other liabilities (attach statement) . . . .
22 Capital stock: a Preferred stock . . . .
b Common stock . . . .
23 Additional paid-in capital . . . . . . .
24 Retained earnings—Appropriated (attach statement)
25 Retained earnings—Unappropriated . . .
26 Adjustments to shareholders’ equity (attach statement)
27 Less cost of treasury stock . . . . . .
28 Total liabilities and shareholders’ equity . .
Schedule M-1
( ) ( )
( ) ( )
( ) ( )
Reconciliation of Income (Loss) per Books With Income per Return
Note: The corporation may be required to file Schedule M-3 (see instructions).
1 Net income (loss) per books . . . . . .
2 Federal income tax per books . . . . .
3 Excess of capital losses over capital gains .
4 Income subject to tax not recorded on books
this year (itemize):
5 Expenses recorded on books this year not
deducted on this return (itemize):
a Depreciation . . . . $
b Charitable contributions . $
c Travel and entertainment . $
6 Add lines 1 through 5 . . . . . . . .
( ) ( )
7 Income recorded on books this year
not included on this return (itemize):
Tax-exempt interest $
8 Deductions on this return not charged
against book income this year (itemize):
a Depreciation . . $
b Charitable contributions $
9 Add lines 7 and 8 . . . . . .
10 Income (page 1, line 28)—line 6 less line 9
Schedule M-2 Analysis of Unappropriated Retained Earnings per Books (Line 25, Schedule L)
1 Balance at beginning of year . . . . .
2 Net income (loss) per books . . . . . .
3 Other increases (itemize):
4 Add lines 1, 2, and 3 . . . . . . . .
DF-72
5 Distributions: a Cash . . . .
b Stock . . . .
c Property . . .
6 Other decreases (itemize):
7 Add lines 5 and 6 . . . . . .
8 Balance at end of year (line 4 less line 7)
Form 1120 (2015)

Form 1120S
U.S. Income Tax Return for an S Corporation
Do not file this form unless the corporation has filed or is
attaching Form 2553 to elect to be an S corporation.
Information about Form 1120S and its separate instructions is at www.irs.gov/form1120s.
Department of the Treasury
Internal Revenue Service
For calendar year 2015 or tax year beginning , 2015, ending , 20
A S election effective date
TYPE
OMB No. 1545-0123
2015
DRAFT AS OF
August 10, 2015
DO NOT FILE
B Business activity code
number (see instructions)
OR
PRINT
Name
Number, street, and room or suite no. If a P.O. box, see instructions.
City or town, state or province, country, and ZIP or foreign postal code
D Employer identification number
E Date incorporated
F Total assets (see instructions)
C Check if Sch. M-3 attached
$
G Is the corporation electing to be an S corporation beginning with this tax year? Yes No If “Yes,” attach Form 2553 if not already filed
H Check if: (1) Final return (2) Name change (3) Address change (4) Amended return (5) S election termination or revocation
I Enter the number of shareholders who were shareholders during any part of the tax year . . . . . . . . .
Caution: Include only trade or business income and expenses on lines 1a through 21. See the instructions for more information.
Income
Deductions (see instructions for limitations)
Tax and Payments
Sign
Here
1 a Gross receipts or sales . . . . . . . . . . . . . . . 1a
b Returns and allowances . . . . . . . . . . . . . . 1b
c Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . . 1c
2 Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . . 2
3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . 3
4 Net gain (loss) from Form 4797, line 17 (attach Form 4797) . . . . . . . . . . . . 4
5 Other income (loss) (see instructions—attach statement) . . . . . . . . . . . . . 5
6 Total income (loss). Add lines 3 through 5 . . . . . . . . . . . . . . . . 6
7 Compensation of officers (see instructions—attach Form 1125-E) . . . . . . . . . . 7
8 Salaries and wages (less employment credits) . . . . . . . . . . . . . . . . 8
9 Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . 9
10 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11 Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Depreciation not claimed on Form 1125-A or elsewhere on return (attach Form 4562) . . . . 14
15 Depletion (Do not deduct oil and gas depletion.) . . . . . . . . . . . . . . . 15
16 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17 Pension, profit-sharing, etc., plans . . . . . . . . . . . . . . . . . . . . 17
18 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . 18
19 Other deductions (attach statement) . . . . . . . . . . . . . . . . . . . 19
20 Total deductions. Add lines 7 through 19 . . . . . . . . . . . . . . . . 20
21 Ordinary business income (loss). Subtract line 20 from line 6 . . . . . . . . . . . 21
22 a Excess net passive income or LIFO recapture tax (see instructions) . . 22a
b Tax from Schedule D (Form 1120S) . . . . . . . . . . . 22b
c Add lines 22a and 22b (see instructions for additional taxes) . . . . . . . . . . . . 22c
23 a 2015 estimated tax payments and 2014 overpayment credited to 2015 23a
b Tax deposited with Form 7004 . . . . . . . . . . . . 23b
c Credit for federal tax paid on fuels (attach Form 4136) . . . . . 23c
d Add lines 23a through 23c . . . . . . . . . . . . . . . . . . . . . . 23d
24 Estimated tax penalty (see instructions). Check if Form 2220 is attached . . . . . . 24
25 Amount owed. If line 23d is smaller than the total of lines 22c and 24, enter amount owed . . 25
26 Overpayment. If line 23d is larger than the total of lines 22c and 24, enter amount overpaid . . 26
27 Enter amount from line 26 Credited to 2016 estimated tax Refunded 27
Paid
Preparer
Use Only
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true,
correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
May the IRS discuss this return
Signature of officer
Print/Type preparer's name Preparer's signature Date
Firm's name
Firm's address
Date
Title
with the preparer shown below
(see instructions)?
PTIN
Check if
self-employed
Firm's EIN
Phone no.
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11510H Form 1120S (2015)
Yes
No
DF-73

Form 1120S (2015) Page 2
Schedule B Other Information (see instructions)
1 Check accounting method: a Cash b Accrual Yes No
c Other (specify)
2 See the instructions and enter the:
a Business activity
b Product or service
3 At any time during the tax year, was any shareholder of the corporation a disregarded entity, a trust, an estate, or a
nominee or similar person? If "Yes," attach Schedule B-1, Information on Certain Shareholders of an S Corporation . .
4 At the end of the tax year, did the corporation:
a
DRAFT AS OF
August 10, 2015
Own directly 20% or more, or own, directly or indirectly, 50% or more of the total stock issued and outstanding of any
foreign or domestic corporation? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v)
below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Name of Corporation
(ii) Employer Identification Number
(if any)
(iii) Country of
Incorporation
(iv) Percentage of Stock
Owned
(v) If Percentage in (iv) is 100%, Enter the
Date (if any) a Qualified Subchapter S
Subsidiary Election Was Made
b
DO NOT FILE
Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in the profit, loss, or
capital in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial interest of a
trust? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v) below . . . . . . .
(i) Name of Entity
(ii) Employer Identification Number
(if any)
(iii) Type of Entity
(iv) Country of
Organization
(v) Maximum Percentage Owned in Profit,
Loss, or Capital
5a At the end of the tax year, did the corporation have any outstanding shares of restricted stock? . . . . . . . .
If “Yes,” complete lines (i) and (ii) below.
(i) Total shares of restricted stock. . . . . . . . . .
(ii) Total shares of non-restricted stock . . . . . . . .
b At the end of the tax year, did the corporation have any outstanding stock options, warrants, or similar instruments? .
If “Yes,” complete lines (i) and (ii) below.
(i) Total shares of stock outstanding at the end of the tax year
(ii) Total shares of stock outstanding if all instruments were executed
6 Has this corporation filed, or is it required to file, Form 8918, Material Advisor Disclosure Statement, to provide
information on any reportable transaction? . . . . . . . . . . . . . . . . . . . . . . . .
7 Check this box if the corporation issued publicly offered debt instruments with original issue discount . . . .
If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount
Instruments.
8 If the corporation: (a) was a C corporation before it elected to be an S corporation or the corporation acquired an
asset with a basis determined by reference to the basis of the asset (or the basis of any other property) in
the hands of a C corporation and (b) has net unrealized built-in gain in excess of the net recognized built-in gain
from prior years, enter the net unrealized built-in gain reduced by net recognized built-in gain from prior years (see
instructions) . . . . . . . . . . . . . . . $
9 Enter the accumulated earnings and profits of the corporation at the end of the tax year. $
10 Does the corporation satisfy both of the following conditions?
a The corporation’s total receipts (see instructions) for the tax year were less than $250,000 . . . . . . . . . .
b The corporation’s total assets at the end of the tax year were less than $250,000 . . . . . . . . . . . .
If “Yes,” the corporation is not required to complete Schedules L and M-1.
11 During the tax year, did the corporation have any non-shareholder debt that was canceled, was forgiven, or had the
terms modified so as to reduce the principal amount of the debt? . . . . . . . . . . . . . . . . .
If “Yes,” enter the amount of principal reduction $
12 During the tax year, was a qualified subchapter S subsidiary election terminated or revoked? If “Yes,” see instructions .
13 a Did the corporation make any payments in 2015 that would require it to file Form(s) 1099? . . . . . . . . . .
b If “Yes,” did the corporation file or will it file required Forms 1099? . . . . . . . . . . . . . . . . .
Form 1120S (2015)
DF-74

Form 1120S (2015) Page 3
Schedule K Shareholders’ Pro Rata Share Items Total amount
Income (Loss)
Deductions
Credits
Foreign Transactions
Alternative
Minimum Tax
(AMT) Items
Items Affecting
Shareholder
Basis
1 Ordinary business income (loss) (page 1, line 21) . . . . . . . . . . . . . . 1
2 Net rental real estate income (loss) (attach Form 8825) . . . . . . . . . . . . 2
3a Other gross rental income (loss) . . . . . . . . . . 3a
b Expenses from other rental activities (attach statement) . . 3b
c Other net rental income (loss). Subtract line 3b from line 3a . . . . . . . . . . 3c
4 Interest income . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Dividends: a Ordinary dividends . . . . . . . . . . . . . . . . . . . 5a
b Qualified dividends . . . . . . . . . . 5b
DRAFT AS OF
August 10, 2015
DO NOT FILE
6 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Net short-term capital gain (loss) (attach Schedule D (Form 1120S)) . . . . . . . . 7
8 a Net long-term capital gain (loss) (attach Schedule D (Form 1120S)) . . . . . . . . 8a
b Collectibles (28%) gain (loss) . . . . . . . . . . . 8b
c Unrecaptured section 1250 gain (attach statement) . . . . 8c
9 Net section 1231 gain (loss) (attach Form 4797) . . . . . . . . . . . . . . 9
10 Other income (loss) (see instructions) . . Type 10
11 Section 179 deduction (attach Form 4562) . . . . . . . . . . . . . . . . 11
12 a Charitable contributions . . . . . . . . . . . . . . . . . . . . . 12a
b Investment interest expense . . . . . . . . . . . . . . . . . . . . 12b
c Section 59(e)(2) expenditures (1) Type (2) Amount 12c(2)
d Other deductions (see instructions) . . . Type 12d
13a Low-income housing credit (section 42(j)(5)) . . . . . . . . . . . . . . . 13a
b Low-income housing credit (other) . . . . . . . . . . . . . . . . . . 13b
c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) . . 13c
d Other rental real estate credits (see instructions) Type 13d
e Other rental credits (see instructions) . . . Type 13e
f Biofuel producer credit (attach Form 6478) . . . . . . . . . . . . . . . 13f
g Other credits (see instructions) . . . . . Type 13g
14a Name of country or U.S. possession
b Gross income from all sources . . . . . . . . . . . . . . . . . . . 14b
c Gross income sourced at shareholder level . . . . . . . . . . . . . . . 14c
Foreign gross income sourced at corporate level
d Passive category . . . . . . . . . . . . . . . . . . . . . . . 14d
e General category . . . . . . . . . . . . . . . . . . . . . . . 14e
f Other (attach statement) . . . . . . . . . . . . . . . . . . . . . 14f
Deductions allocated and apportioned at shareholder level
g Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 14g
h Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 14h
Deductions allocated and apportioned at corporate level to foreign source income
i Passive category . . . . . . . . . . . . . . . . . . . . . . . 14i
j General category . . . . . . . . . . . . . . . . . . . . . . . 14j
k Other (attach statement) . . . . . . . . . . . . . . . . . . . . . 14k
Other information
l Total foreign taxes (check one): Paid Accrued . . . . . . . . . . 14l
m Reduction in taxes available for credit (attach statement) . . . . . . . . . . . 14m
n Other foreign tax information (attach statement)
15 a Post-1986 depreciation adjustment . . . . . . . . . . . . . . . . . . 15a
b Adjusted gain or loss . . . . . . . . . . . . . . . . . . . . . . 15b
c Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . 15c
d Oil, gas, and geothermal properties—gross income . . . . . . . . . . . . . 15d
e Oil, gas, and geothermal properties—deductions . . . . . . . . . . . . . . 15e
f Other AMT items (attach statement) . . . . . . . . . . . . . . . . . . 15f
16 a Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . 16a
b Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . 16b
c Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . 16c
d Distributions (attach statement if required) (see instructions) . . . . . . . . . . 16d
e Repayment of loans from shareholders . . . . . . . . . . . . . . . . . 16e
Form 1120S (2015)
DF-75

Form 1120S (2015) Page 4
Schedule K Shareholders’ Pro Rata Share Items (continued) Total amount
Other
Information
Reconciliation
17a Investment income . . . . . . . . . . . . . . . . . . . . . . . 17a
b Investment expenses . . . . . . . . . . . . . . . . . . . . . . 17b
c Dividend distributions paid from accumulated earnings and profits . . . . . . . . 17c
d Other items and amounts (attach statement)
DRAFT AS OF
August 10, 2015
DO NOT FILE
18 Income/loss reconciliation. Combine the amounts on lines 1 through 10 in the far right
column. From the result, subtract the sum of the amounts on lines 11 through 12d and 14l 18
Schedule L Balance Sheets per Books Beginning of tax year End of tax year
1 Cash . . . . . . . . . . . . .
2a Trade notes and accounts receivable . . .
b Less allowance for bad debts . . . . . .
3 Inventories . . . . . . . . . . .
4 U.S. government obligations . . . . . .
5 Tax-exempt securities (see instructions) . .
6 Other current assets (attach statement) . . .
7 Loans to shareholders . . . . . . . .
8 Mortgage and real estate loans . . . . .
9 Other investments (attach statement) . . .
10a Buildings and other depreciable assets . . .
b Less accumulated depreciation . . . . .
11a Depletable assets . . . . . . . . .
b Less accumulated depletion . . . . . .
12 Land (net of any amortization) . . . . . .
13a Intangible assets (amortizable only) . . . .
b Less accumulated amortization . . . . .
14 Other assets (attach statement) . . . . .
15 Total assets . . . . . . . . . . .
Liabilities and Shareholders’ Equity
16 Accounts payable . . . . . . . . .
17 Mortgages, notes, bonds payable in less than 1 year
18 Other current liabilities (attach statement) . .
19 Loans from shareholders . . . . . . .
20 Mortgages, notes, bonds payable in 1 year or more
21 Other liabilities (attach statement) . . . .
22 Capital stock . . . . . . . . . . .
23 Additional paid-in capital . . . . . . .
24 Retained earnings . . . . . . . . .
25 Adjustments to shareholders’ equity (attach statement)
26 Less cost of treasury stock . . . . . .
27 Total liabilities and shareholders’ equity . .
Assets (a) (b) (c) (d)
( ) ( )
( ) ( )
( ) ( )
( ) ( )
( ) ( )
Form 1120S (2015)
DF-76

Form 1120S (2015) Page 5
Schedule M-1
Reconciliation of Income (Loss) per Books With Income (Loss) per Return
Note: The corporation may be required to file Schedule M-3 (see instructions)
1 Net income (loss) per books . . . . . .
2 Income included on Schedule K, lines 1, 2, 3c, 4,
5a, 6, 7, 8a, 9, and 10, not recorded on books this
year (itemize)
DRAFT AS OF
August 10, 2015
DO NOT FILE
3 Expenses recorded on books this year not
included on Schedule K, lines 1 through 12 and
14l (itemize):
a Depreciation $
b Travel and entertainment $
4 Add lines 1 through 3 . . . . . . . .
Schedule M-2
5 Income recorded on books this year not included
on Schedule K, lines 1 through 10 (itemize):
a Tax-exempt interest $
6 Deductions included on Schedule K,
lines 1 through 12 and 14l, not charged
against book income this year (itemize):
a Depreciation $
7 Add lines 5 and 6 . . . . .
8 Income (loss) (Schedule K, line 18). Line 4 less line 7
Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders’
Undistributed Taxable Income Previously Taxed (see instructions)
1 Balance at beginning of tax year . . . . .
2 Ordinary income from page 1, line 21 . . .
3 Other additions . . . . . . . . . .
4 Loss from page 1, line 21 . . . . . . .
5 Other reductions . . . . . . . . . .
6 Combine lines 1 through 5 . . . . . . .
7 Distributions other than dividend distributions
8 Balance at end of tax year. Subtract line 7 from line 6
(a) Accumulated
adjustments account
(b) Other adjustments
account
( )
( ) ( )
(c) Shareholders’ undistributed
taxable income previously taxed
Form 1120S (2015)
DF-77

Schedule K-1
(Form 1120S)
Department of the Treasury
Internal Revenue Service
2015
For calendar year 2015, or tax
year beginning , 2015
ending , 20
Shareholder’s Share of Income, Deductions,
Credits, etc.
See back of form and separate instructions.
A
Part I
DRAFT AS OF
Information About the Corporation
Corporation’s employer identification number
671113
Final K-1 Amended K-1 OMB No. 1545-0123
Shareholder’s Share of Current Year Income,
Deductions, Credits, and Other Items
Part III
1 Ordinary business income (loss)
2 Net rental real estate income (loss)
3 Other net rental income (loss)
4 Interest income
5a Ordinary dividends
13 Credits
B
June 11, 2015
Corporation’s name, address, city, state, and ZIP code
5b Qualified dividends
6 Royalties
14 Foreign transactions
C
DO NOT FILE
IRS Center where corporation filed return
Part II
Information About the Shareholder
7 Net short-term capital gain (loss)
8a Net long-term capital gain (loss)
8b Collectibles (28%) gain (loss)
D Shareholder’s identifying number
8c Unrecaptured section 1250 gain
E
Shareholder’s name, address, city, state, and ZIP code
9 Net section 1231 gain (loss)
10 Other income (loss)
15 Alternative minimum tax (AMT) items
F
Shareholder’s percentage of stock
ownership for tax year . . . . . . . %
11 Section 179 deduction
16 Items affecting shareholder basis
12 Other deductions
For IRS Use Only
17 Other information
* See attached statement for additional information.
For Paperwork Reduction Act Notice, see Instructions for Form 1120S. IRS.gov/form1120s Cat. No. 11520D Schedule K-1 (Form 1120S) 2015
DF-78

Schedule K-1 (Form 1120S) 2015 Page 2
This list identifies the codes used on Schedule K-1 for all shareholders and provides summarized reporting information for shareholders who file Form 1040.
For detailed reporting and filing information, see the separate Shareholder’s Instructions for Schedule K-1 and the instructions for your income tax return.
Code
Report on
1. Ordinary business income (loss). Determine whether the income (loss) is
N Credit for employer social
}
passive or nonpassive and enter on your return as follows:
security and Medicare taxes
Report on
O Backup withholding
See the Shareholder’s Instructions
P Other credits
Passive loss
See the Shareholder’s Instructions
Passive income
Schedule E, line 28, column (g)
Nonpassive loss
Schedule E, line 28, column (h)
Nonpassive income
Schedule E, line 28, column (j)
2. Net rental real estate income (loss) See the Shareholder’s Instructions
3. Other net rental income (loss)
Net income
Schedule E, line 28, column (g)
Net loss
See the Shareholder’s Instructions
DRAFT AS OF
June 11, 2015
DO NOT FILE
4. Interest income Form 1040, line 8a
5a. Ordinary dividends Form 1040, line 9a
5b. Qualified dividends Form 1040, line 9b
6. Royalties Schedule E, line 4
7. Net short-term capital gain (loss) Schedule D, line 5
8a. Net long-term capital gain (loss) Schedule D, line 12
8b. Collectibles (28%) gain (loss) 28% Rate Gain Worksheet, line 4
(Schedule D instructions)
8c. Unrecaptured section 1250 gain See the Shareholder’s Instructions
9. Net section 1231 gain (loss) See the Shareholder’s Instructions
10. Other income (loss)
Code
A Other portfolio income (loss) See the Shareholder’s Instructions
B Involuntary conversions See the Shareholder’s Instructions
C Sec. 1256 contracts & straddles Form 6781, line 1
D Mining exploration costs recapture See Pub. 535
E Other income (loss) See the Shareholder’s Instructions
11. Section 179 deduction See the Shareholder’s Instructions
12. Other deductions
A Cash contributions (50%)
B Cash contributions (30%)
C Noncash contributions (50%)
D Noncash contributions (30%)
See the Shareholder’s
E Capital gain property to a 50% Instructions
organization (30%)
F Capital gain property (20%)
G Contributions (100%)
H Investment interest expense Form 4952, line 1
I Deductions—royalty income Schedule E, line 19
J Section 59(e)(2) expenditures See the Shareholder’s Instructions
K Deductions—portfolio (2% floor) Schedule A, line 23
L Deductions—portfolio (other) Schedule A, line 28
M Preproductive period expenses See the Shareholder’s Instructions
N Commercial revitalization deduction
from rental real estate activities See Form 8582 instructions
O Reforestation expense deduction See the Shareholder’s Instructions
P Domestic production activities
information
See Form 8903 instructions
Q Qualified production activities income Form 8903, line 7b
R Employer’s Form W-2 wages Form 8903, line 17
S Other deductions See the Shareholder’s Instructions
13. Credits
A Low-income housing credit (section
42(j)(5)) from pre-2008 buildings
B Low-income housing credit (other) from
pre-2008 buildings
C Low-income housing credit (section
See the Shareholder’s
42(j)(5)) from post-2007 buildings
Instructions
D Low-income housing credit (other)
from post-2007 buildings
E Qualified rehabilitation expenditures
(rental real estate)
F Other rental real estate credits
G Other rental credits
H Undistributed capital gains credit Form 1040, line 73, box a
I Biofuel producer credit
}
J Work opportunity credit
K Disabled access credit
See the Shareholder’s
L Empowerment zone employment
Instructions
credit
activities
M Credit for increasing research
}
}
14. Foreign transactions
A Name of country or U.S.
}
possession
B Gross income from all sources Form 1116, Part I
C Gross income sourced at
shareholder level
Foreign gross income sourced at corporate level
D Passive category
E General category
Form 1116, Part I
}
F Other
Deductions allocated and apportioned at shareholder level
G Interest expense Form 1116, Part I
H Other Form 1116, Part I
Deductions allocated and apportioned at corporate level to foreign source
income
I Passive category
J General category
Form 1116, Part I
}
K Other
Other information
L Total foreign taxes paid Form 1116, Part II
M Total foreign taxes accrued Form 1116, Part II
N
Reduction in taxes available for
credit Form 1116, line 12
O Foreign trading gross receipts Form 8873
P Extraterritorial income exclusion Form 8873
Q Other foreign transactions See the Shareholder’s Instructions
15. Alternative minimum tax (AMT) items
A Post-1986 depreciation adjustment
}
See the
B Adjusted gain or loss
Shareholder’s
C Depletion (other than oil & gas)
Instructions and
D Oil, gas, & geothermal—gross income
the Instructions for
E Oil, gas, & geothermal—deductions
Form 6251
F Other AMT items
16. Items affecting shareholder basis
A Tax-exempt interest income Form 1040, line 8b
B Other tax-exempt income
}
C Nondeductible expenses
See the Shareholder’s
D Distributions
Instructions
E Repayment of loans from
shareholders
17. Other information
A Investment income Form 4952, line 4a
B Investment expenses Form 4952, line 5
C Qualified rehabilitation expenditures
(other than rental real estate) See the Shareholder’s Instructions
D Basis of energy property See the Shareholder’s Instructions
E Recapture of low-income housing
credit (section 42(j)(5)) Form 8611, line 8
F Recapture of low-income housing
credit (other) Form 8611, line 8
G Recapture of investment credit See Form 4255
H Recapture of other credits See the Shareholder’s Instructions
I Look-back interest—completed
long-term contracts See Form 8697
J Look-back interest—income forecast
method See Form 8866
K Dispositions of property with
section 179 deductions
L Recapture of section 179
deduction
M Section 453(l)(3) information
N Section 453A(c) information
O Section 1260(b) information
See the Shareholder’s
P Interest allocable to production
Instructions
expenditures
Q CCF nonqualified withdrawals
R Depletion information—oil and gas
S Reserved
T Section 108(i) information
U Net investment income
V Other information
}
DF-79

Form 2106
Department of the Treasury
Internal Revenue Service (99)
Your name
Employee Business Expenses
OMB No. 1545-0074
2015
Attach to Form 1040 or Form 1040NR.
Attachment
Information about Form 2106 and its separate instructions is available at www.irs.gov/form2106. Sequence No. 129
Occupation in which you incurred expenses Social security number
Part I
DRAFT AS OF
July 22, 2015
DO NOT FILE
Employee Business Expenses and Reimbursements
Step 1 Enter Your Expenses
1 Vehicle expense from line 22 or line 29. (Rural mail carriers: See
instructions.) . . . . . . . . . . . . . . . . . . 1
2 Parking fees, tolls, and transportation, including train, bus, etc., that
did not involve overnight travel or commuting to and from work . 2
3 Travel expense while away from home overnight, including lodging,
airplane, car rental, etc. Do not include meals and entertainment . 3
4 Business expenses not included on lines 1 through 3. Do not include
meals and entertainment . . . . . . . . . . . . . . 4
5 Meals and entertainment expenses (see instructions) . . . . . 5
6 Total expenses. In Column A, add lines 1 through 4 and enter the
result. In Column B, enter the amount from line 5 . . . . . . 6
Column A
Other Than Meals
and Entertainment
Column B
Meals and
Entertainment
Note. If you were not reimbursed for any expenses in Step 1, skip line 7 and enter the amount from line 6 on line 8.
Step 2 Enter Reimbursements Received From Your Employer for Expenses Listed in Step 1
7 Enter reimbursements received from your employer that were not
reported to you in box 1 of Form W-2. Include any reimbursements
reported under code “L” in box 12 of your Form W-2 (see
instructions). . . . . . . . . . . . . . . . . . . 7
Step 3 Figure Expenses To Deduct on Schedule A (Form 1040 or Form 1040NR)
8 Subtract line 7 from line 6. If zero or less, enter -0-. However, if line 7
is greater than line 6 in Column A, report the excess as income on
Form 1040, line 7 (or on Form 1040NR, line 8) . . . . . . . 8
Note. If both columns of line 8 are zero, you cannot deduct
employee business expenses. Stop here and attach Form 2106 to
your return.
9 In Column A, enter the amount from line 8. In Column B, multiply line
8 by 50% (.50). (Employees subject to Department of Transportation
(DOT) hours of service limits: Multiply meal expenses incurred while
away from home on business by 80% (.80) instead of 50%. For
details, see instructions.) . . . . . . . . . . . . . . 9
10 Add the amounts on line 9 of both columns and enter the total here. Also, enter the total on
Schedule A (Form 1040), line 21 (or on Schedule A (Form 1040NR), line 7). (Armed Forces
reservists, qualified performing artists, fee-basis state or local government officials, and individuals
with disabilities: See the instructions for special rules on where to enter the total.) . . . . .
10
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11700N Form 2106 (2015)
DF-80

Form 2106 (2015) Page 2
Part II Vehicle Expenses
Section A—General Information (You must complete this section if you
are claiming vehicle expenses.)
(a) Vehicle 1 (b) Vehicle 2
11 Enter the date the vehicle was placed in service . . . . . . . . . 11 / / / /
12 Total miles the vehicle was driven during 2015 . . . . . . . . . 12 miles miles
13 Business miles included on line 12 . . . . . . . . . . . . . 13 miles miles
14 Percent of business use. Divide line 13 by line 12 . . . . . . . . . 14 % %
15 Average daily roundtrip commuting distance . . . . . . . . . . 15 miles miles
16 Commuting miles included on line 12 . . . . . . . . . . . . 16 miles miles
17 Other miles. Add lines 13 and 16 and subtract the total from line 12 . . 17 miles miles
DRAFT AS OF
July 22, 2015
DO NOT FILE
18 Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . Yes No
19 Do you (or your spouse) have another vehicle available for personal use? . . . . . . . . . . . Yes No
20 Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . Yes No
21 If “Yes,” is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . Yes No
Section B—Standard Mileage Rate (See the instructions for Part II to find out whether to complete this section or Section C.)
22 Multiply line 13 by 57.5¢ (.575). Enter the result here and on line 1 . . . . . . . . . . 22
Section C—Actual Expenses (a) Vehicle 1 (b) Vehicle 2
23 Gasoline, oil, repairs, vehicle
insurance, etc. . . . . . . 23
24a Vehicle rentals . . . . . . 24a
b Inclusion amount (see instructions) . 24b
c Subtract line 24b from line 24a . 24c
25 Value of employer-provided vehicle
(applies only if 100% of annual
lease value was included on Form
W-2—see instructions) . . . .
25
26 Add lines 23, 24c, and 25. . . 26
27 Multiply line 26 by the percentage
on line 14 . . . . . . . . 27
28 Depreciation (see instructions) . 28
29 Add lines 27 and 28. Enter total
here and on line 1 . . . . . 29
Section D—Depreciation of Vehicles (Use this section only if you owned the vehicle and are completing Section C for the vehicle.)
(a) Vehicle 1 (b) Vehicle 2
30 Enter cost or other basis (see
instructions) . . . . . . . 30
31 Enter section 179 deduction (see
instructions) . . . . . . . 31
32 Multiply line 30 by line 14 (see
instructions if you claimed the
section 179 deduction or special
allowance). . . . . . . . 32
33 Enter depreciation method and
percentage (see instructions) . 33
34 Multiply line 32 by the percentage
on line 33 (see instructions) . . 34
35 Add lines 31 and 34 . . . . 35
36 Enter the applicable limit explained
in the line 36 instructions . . . 36
37 Multiply line 36 by the percentage
on line 14 . . . . . . . . 37
38 Enter the smaller of line 35 or line
37. If you skipped lines 36 and 37,
enter the amount from line 35.
Also enter this amount on line 28
above . . . . . . . . .
38
Form 2106 (2015)
DF-81

Form 4562
Department of the Treasury
Internal Revenue Service (99)
Depreciation and Amortization
(Including Information on Listed Property)
Attach to your tax return.
Information about Form 4562 and its separate instructions is at www.irs.gov/form4562.
OMB No. 1545-0172
2015
Attachment
Sequence No. 179
Name(s) shown on return Business or activity to which this form relates Identifying number
Part I Election To Expense Certain Property Under Section 179
Note: If you have any listed property, complete Part V before you complete Part I.
1 Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 1
2 Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . 2
3 Threshold cost of section 179 property before reduction in limitation (see instructions) . . . . . . 3
DRAFT AS OF
August 21, 2015
DO NOT FILE
4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . 4
5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing
separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 (a) Description of property (b) Cost (business use only) (c) Elected cost
7 Listed property. Enter the amount from line 29 . . . . . . . . . 7
8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . 8
9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . 9
10 Carryover of disallowed deduction from line 13 of your 2014 Form 4562 . . . . . . . . . . . 10
11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) 11
12 Section 179 expense deduction. Add lines 9 and 10, but do not enter more than line 11 . . . . . 12
13 Carryover of disallowed deduction to 2016. Add lines 9 and 10, less line 12 13
Note: Do not use Part II or Part III below for listed property. Instead, use Part V.
Part II Special Depreciation Allowance and Other Depreciation (Do not include listed property.) (See instructions.)
14 Special depreciation allowance for qualified property (other than listed property) placed in service
during the tax year (see instructions) . . . . . . . . . . . . . . . . . . . . . . 14
15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . 15
16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . 16
Part III MACRS Depreciation (Do not include listed property.) (See instructions.)
Section A
17 MACRS deductions for assets placed in service in tax years beginning before 2015 . . . . . . . 17
18 If you are electing to group any assets placed in service during the tax year into one or more general
asset accounts, check here . . . . . . . . . . . . . . . . . . . . . .
Section B—Assets Placed in Service During 2015 Tax Year Using the General Depreciation System
(a) Classification of property
19a 3-year property
b 5-year property
c 7-year property
d 10-year property
e 15-year property
f 20-year property
g 25-year property
h Residential rental
property
i Nonresidential real
property
(b) Month and year
placed in
service
(c) Basis for depreciation
(business/investment use
only—see instructions)
(d) Recovery
period
(e) Convention (f) Method (g) Depreciation deduction
Section C—Assets Placed in Service During 2015 Tax Year Using the Alternative Depreciation System
20a Class life
b 12-year
c 40-year
Part IV Summary (See instructions.)
21 Listed property. Enter amount from line 28 . . . . . . . . . . . . . . . . . . . . 21
22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter
here and on the appropriate lines of your return. Partnerships and S corporations—see instructions . 22
23 For assets shown above and placed in service during the current year, enter the
portion of the basis attributable to section 263A costs . . . . . . . 23
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2015)
DF-82

Form 4562 (2015) Page 2
Part V
Listed Property (Include automobiles, certain other vehicles, certain aircraft, certain computers, and property
used for entertainment, recreation, or amusement.)
Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a,
24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable.
Section A—Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.)
24a Do you have evidence to support the business/investment use claimed? Yes No 24b If “Yes,” is the evidence written? Yes No
(a)
Type of property (list
vehicles first)
DRAFT AS OF
August 21, 2015
DO NOT FILE
(c)
(b)
Business/
Date placed
investment use
in service
percentage
(d)
Cost or other basis
(e)
Basis for depreciation
(business/investment
use only)
(f)
Recovery
period
(g)
Method/
Convention
25 Special depreciation allowance for qualified listed property placed in service during
the tax year and used more than 50% in a qualified business use (see instructions) . 25
26 Property used more than 50% in a qualified business use:
%
%
%
27 Property used 50% or less in a qualified business use:
(h)
Depreciation
deduction
% S/L –
% S/L –
% S/L –
28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 . 28
29 Add amounts in column (i), line 26. Enter here and on line 7, page 1 . . . . . . . . . . . . 29
(i)
Elected section 179
cost
Section B—Information on Use of Vehicles
Complete this section for vehicles used by a sole proprietor, partner, or other “more than 5% owner,” or related person. If you provided vehicles
to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles.
30 Total business/investment miles driven during
the year (do not include commuting miles) .
31 Total commuting miles driven during the year
32 Total other personal (noncommuting)
miles driven . . . . . . . . .
33 Total miles driven during the year. Add
lines 30 through 32 . . . . . . .
34 Was the vehicle available for personal
use during off-duty hours? . . . . .
35 Was the vehicle used primarily by a more
than 5% owner or related person? . .
(a)
Vehicle 1
(b)
Vehicle 2
(c)
Vehicle 3
(d)
Vehicle 4
(e)
Vehicle 5
(f)
Vehicle 6
Yes No Yes No Yes No Yes No Yes No Yes No
36 Is another vehicle available for personal use?
Section C—Questions for Employers Who Provide Vehicles for Use by Their Employees
Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who are not
more than 5% owners or related persons (see instructions).
37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by Yes No
your employees? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your
employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners . .
39 Do you treat all use of vehicles by employees as personal use? . . . . . . . . . . . . . . . .
40 Do you provide more than five vehicles to your employees, obtain information from your employees about the
use of the vehicles, and retain the information received? . . . . . . . . . . . . . . . . . . .
41 Do you meet the requirements concerning qualified automobile demonstration use? (See instructions.) . . .
Note: If your answer to 37, 38, 39, 40, or 41 is “Yes,” do not complete Section B for the covered vehicles.
Part VI Amortization
(a)
Description of costs
(b)
Date amortization
begins
(c)
Amortizable amount
42 Amortization of costs that begins during your 2015 tax year (see instructions):
(d)
Code section
(e)
Amortization
period or
percentage
(f)
Amortization for this year
43 Amortization of costs that began before your 2015 tax year . . . . . . . . . . . . . 43
44 Total. Add amounts in column (f). See the instructions for where to report . . . . . . . . 44
Form 4562 (2015)
DF-83

Form 4797
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
Sales of Business Property
(Also Involuntary Conversions and Recapture Amounts
Under Sections 179 and 280F(b)(2))
Attach to your tax return.
Information about Form 4797 and its separate instructions is at www.irs.gov/form4797.
Identifying number
OMB No. 1545-0184
2014
Attachment
Sequence No. 27
1 Enter the gross proceeds from sales or exchanges reported to you for 2014 on Form(s) 1099-B or 1099-S (or
substitute statement) that you are including on line 2, 10, or 20 (see instructions) . . . . . . . . 1
Part I Sales or Exchanges of Property Used in a Trade or Business and Involuntary Conversions From Other
Than Casualty or Theft—Most Property Held More Than 1 Year (see instructions)
2 (a) Description
of property
(b) Date acquired
(mo., day, yr.)
(c) Date sold
(mo., day, yr.)
(d) Gross
sales price
(e) Depreciation
allowed or
allowable since
acquisition
(f) Cost or other
basis, plus
improvements and
expense of sale
(g) Gain or (loss)
Subtract (f) from the
sum of (d) and (e)
3 Gain, if any, from Form 4684, line 39 . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Section 1231 gain from installment sales from Form 6252, line 26 or 37 . . . . . . . . . . . . . . 4
5 Section 1231 gain or (loss) from like-kind exchanges from Form 8824 . . . . . . . . . . . . . . 5
6 Gain, if any, from line 32, from other than casualty or theft. . . . . . . . . . . . . . . . . . 6
7 Combine lines 2 through 6. Enter the gain or (loss) here and on the appropriate line as follows: . . . . . . . 7
Partnerships (except electing large partnerships) and S corporations. Report the gain or (loss) following the
instructions for Form 1065, Schedule K, line 10, or Form 1120S, Schedule K, line 9. Skip lines 8, 9, 11, and 12 below.
Individuals, partners, S corporation shareholders, and all others. If line 7 is zero or a loss, enter the amount from
line 7 on line 11 below and skip lines 8 and 9. If line 7 is a gain and you did not have any prior year section 1231
losses, or they were recaptured in an earlier year, enter the gain from line 7 as a long-term capital gain on the
Schedule D filed with your return and skip lines 8, 9, 11, and 12 below.
8 Nonrecaptured net section 1231 losses from prior years (see instructions) . . . . . . . . . . . . . 8
9 Subtract line 8 from line 7. If zero or less, enter -0-. If line 9 is zero, enter the gain from line 7 on line 12 below. If line
9 is more than zero, enter the amount from line 8 on line 12 below and enter the gain from line 9 as a long-term
capital gain on the Schedule D filed with your return (see instructions) . . . . . . . . . . . . . . 9
Part II Ordinary Gains and Losses (see instructions)
10 Ordinary gains and losses not included on lines 11 through 16 (include property held 1 year or less):
11 Loss, if any, from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ( )
12 Gain, if any, from line 7 or amount from line 8, if applicable . . . . . . . . . . . . . . . . . 12
13 Gain, if any, from line 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Net gain or (loss) from Form 4684, lines 31 and 38a . . . . . . . . . . . . . . . . . . . 14
15 Ordinary gain from installment sales from Form 6252, line 25 or 36 . . . . . . . . . . . . . . . 15
16 Ordinary gain or (loss) from like-kind exchanges from Form 8824. . . . . . . . . . . . . . . . 16
17 Combine lines 10 through 16 . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 For all except individual returns, enter the amount from line 17 on the appropriate line of your return and skip lines a
and b below. For individual returns, complete lines a and b below:
a If the loss on line 11 includes a loss from Form 4684, line 35, column (b)(ii), enter that part of the loss here. Enter the part
of the loss from income-producing property on Schedule A (Form 1040), line 28, and the part of the loss from property
used as an employee on Schedule A (Form 1040), line 23. Identify as from “Form 4797, line 18a.” See instructions . . 18a
b Redetermine the gain or (loss) on line 17 excluding the loss, if any, on line 18a. Enter here and on Form 1040, line 14 18b
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 13086I Form 4797 (2014)
DF-84

Form 4797 (2014) Page 2
Part III Gain From Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255
(see instructions)
19 (a) Description of section 1245, 1250, 1252, 1254, or 1255 property:
A
B
C
D
(b) Date acquired
(mo., day, yr.)
(c) Date sold (mo.,
day, yr.)
These columns relate to the properties on lines 19A through 19D.
20 Gross sales price (Note: See line 1 before completing.) . 20
21 Cost or other basis plus expense of sale . . . . . 21
22 Depreciation (or depletion) allowed or allowable. . . 22
23 Adjusted basis. Subtract line 22 from line 21. . . . 23
Property A Property B Property C Property D
24 Total gain. Subtract line 23 from line 20 . . . . . 24
25 If section 1245 property:
a Depreciation allowed or allowable from line 22 . . . 25a
b Enter the smaller of line 24 or 25a . . . . . . 25b
26 If section 1250 property: If straight line depreciation was used,
enter -0- on line 26g, except for a corporation subject to section 291.
a Additional depreciation after 1975 (see instructions) . 26a
b Applicable percentage multiplied by the smaller of line
24 or line 26a (see instructions) . . . . . . . 26b
c Subtract line 26a from line 24. If residential rental property
or line 24 is not more than line 26a, skip lines 26d and 26e
26c
d Additional depreciation after 1969 and before 1976. . 26d
e Enter the smaller of line 26c or 26d . . . . . . 26e
f Section 291 amount (corporations only) . . . . . 26f
g Add lines 26b, 26e, and 26f. . . . . . . . . 26g
27 If section 1252 property: Skip this section if you did not
dispose of farmland or if this form is being completed for a
partnership (other than an electing large partnership).
a Soil, water, and land clearing expenses . . . . . 27a
b Line 27a multiplied by applicable percentage (see instructions) 27b
c Enter the smaller of line 24 or 27b . . . . . . 27c
28 If section 1254 property:
a Intangible drilling and development costs, expenditures
for development of mines and other natural deposits,
mining exploration costs, and depletion (see
instructions) . . . . . . . . . . . . . 28a
b Enter the smaller of line 24 or 28a . . . . . . 28b
29 If section 1255 property:
a Applicable percentage of payments excluded from
income under section 126 (see instructions) . . . . 29a
b Enter the smaller of line 24 or 29a (see instructions) . 29b
Summary of Part III Gains. Complete property columns A through D through line 29b before going to line 30.
30 Total gains for all properties. Add property columns A through D, line 24 . . . . . . . . . . . . . 30
31 Add property columns A through D, lines 25b, 26g, 27c, 28b, and 29b. Enter here and on line 13 . . . . . . 31
32 Subtract line 31 from line 30. Enter the portion from casualty or theft on Form 4684, line 33. Enter the portion from
other than casualty or theft on Form 4797, line 6 . . . . . . . . . . . . . . . . . . . . 32
Part IV Recapture Amounts Under Sections 179 and 280F(b)(2) When Business Use Drops to 50% or Less
(see instructions)
33 Section 179 expense deduction or depreciation allowable in prior years. . . . . . . . 33
34 Recomputed depreciation (see instructions) . . . . . . . . . . . . . . . . 34
35 Recapture amount. Subtract line 34 from line 33. See the instructions for where to report . . 35
DF-85
(a) Section
179
(b) Section
280F(b)(2)
Form 4797 (2014)

Form 5695
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
Residential Energy Credit
OMB No. 1545-0074
Information about Form 5695 and its separate instructions is at www.irs.gov/form5695. 2015
Attach to Form 1040 or Form 1040NR.
Attachment
Sequence No. 158
Your social security number
Part I Residential Energy Efficient Property Credit (See instructions before completing this part.)
Note: Skip lines 1 through 11 if you only have a credit carryforward from 2014.
DRAFT AS OF
July 15, 2015
DO NOT FILE
1 Qualified solar electric property costs . . . . . . . . . . . . . . . . . . . . 1
2 Qualified solar water heating property costs . . . . . . . . . . . . . . . . . . 2
3 Qualified small wind energy property costs . . . . . . . . . . . . . . . . . . . 3
4 Qualified geothermal heat pump property costs . . . . . . . . . . . . . . . . . 4
5 Add lines 1 through 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Multiply line 5 by 30% (.30) . . . . . . . . . . . . . . . . . . . . . . . . 6
7 a Qualified fuel cell property. Was qualified fuel cell property installed on or in connection with your
main home located in the United States? (See instructions) . . . . . . . . . . . .
7a Yes No
b
Caution: If you checked the “No” box, you cannot take a credit for qualified fuel cell property.
Skip lines 7b through 11.
Print the complete address of the main home where you installed the fuel cell property.
Number and street
Unit No.
City, State, and ZIP code
8 Qualified fuel cell property costs . . . . . . . . . . . . . 8
9 Multiply line 8 by 30% (.30) . . . . . . . . . . . . . . . 9
10 Kilowatt capacity of property on line 8 above . x $1,000 10
11 Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . . 11
12 Credit carryforward from 2014. Enter the amount, if any, from your 2014 Form 5695, line 16 . . 12
13 Add lines 6, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Limitation based on tax liability. Enter the amount from the Residential Energy Efficient Property
Credit Limit Worksheet (see instructions) . . . . . . . . . . . . . . . . . . . 14
15 Residential energy efficient property credit. Enter the smaller of line 13 or line 14. Also include
this amount on Form 1040, line 53, or Form 1040NR, line 50 . . . . . . . . . . . . . 15
16 Credit carryforward to 2016. If line 15 is less than line 13, subtract
line 15 from line 13 . . . . . . . . . . . . . . . . . 16
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 13540P Form 5695 (2015)
DF-86

Form 6198
(Rev. November 2009)
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
At-Risk Limitations
Attach to your tax return.
See separate instructions.
OMB No. 1545-0712
Attachment
Sequence No. 31
Identifying number
Description of activity (see page 2 of the instructions)
Part I Current Year Profit (Loss) From the Activity, Including Prior Year Nondeductible Amounts.
See page 2 of the instructions.
1 Ordinary income (loss) from the activity (see page 2 of the instructions) . . . . . . . . 1
2 Gain (loss) from the sale or other disposition of assets used in the activity (or of your interest in
the activity) that you are reporting on: . . . . . . . . . . . . . . . . . . .
a Schedule D . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2a
b Form 4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b
c Other form or schedule . . . . . . . . . . . . . . . . . . . . . . . . 2c
3 Other income and gains from the activity, from Schedule K-1 of Form 1065, Form 1065-B, or
Form 1120S, that were not included on lines 1 through 2c . . . . . . . . . . . . . 3
4 Other deductions and losses from the activity, including investment interest expense allowed
from Form 4952, that were not included on lines 1 through 2c . . . . . . . . . . . 4 ( )
5 Current year profit (loss) from the activity. Combine lines 1 through 4. See page 3 of the
instructions before completing the rest of this form . . . . . . . . . . . . . . . 5
Part II Simplified Computation of Amount At Risk. See page 3 of the instructions before completing this part.
6 Adjusted basis (as defined in section 1011) in the activity (or in your interest in the activity) on the
first day of the tax year. Do not enter less than zero . . . . . . . . . . . . . . . 6
7 Increases for the tax year (see page 3 of the instructions) . . . . . . . . . . . . . 7
8 Add lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 Decreases for the tax year (see page 4 of the instructions) . . . . . . . . . . . . . 9
10a Subtract line 9 from line 8 . . . . . . . . . . . . 10a
b If line 10a is more than zero, enter that amount here and go to line 20 (or complete Part III).
Otherwise, enter -0- and see Pub. 925 for information on the recapture rules . . . . . . 10b
Part III Detailed Computation of Amount At Risk. If you completed Part III of Form 6198 for the prior year, see
page 4 of the instructions.
11 Investment in the activity (or in your interest in the activity) at the effective date. Do not enter
less than zero . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Increases at effective date . . . . . . . . . . . . . . . . . . . . . . . 12
13 Add lines 11 and 12 . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Decreases at effective date . . . . . . . . . . . . . . . . . . . . . . . 14
15 Amount at risk (check box that applies):
a At effective date. Subtract line 14 from line 13. Do not enter less than zero.
b From your prior year Form 6198, line 19b. Do not enter the amount from line 10b of
15
your prior year form.
16 Increases since (check box that applies):
a Effective date b The end of your prior year . . . . . . . . . . . . . . 16
17 Add lines 15 and 16 . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 Decreases since (check box that applies):
a Effective date b The end of your prior year . . . . . . . . . . . . . . 18
19a Subtract line 18 from line 17 . . . . . . . . . . . 19a
b If line 19a is more than zero, enter that amount here and go to line 20. Otherwise, enter -0- and
see Pub. 925 for information on the recapture rules . . . . . . . . . . . . . . . 19b
Part IV Deductible Loss
20 Amount at risk. Enter the larger of line 10b or line 19b . . . . . . . . . . . . . 20
21 Deductible loss. Enter the smaller of the line 5 loss (treated as a positive number) or line 20.
See page 8 of the instructions to find out how to report any deductible loss and any carryover . 21 ( )
Note: If the loss is from a passive activity, see the Instructions for Form 8582, Passive Activity Loss Limitations, or the Instructions for
Form 8810, Corporate Passive Activity Loss and Credit Limitations, to find out if the loss is allowed under the passive activity
rules. If only part of the loss is subject to the passive activity loss rules, report only that part on Form 8582 or Form 8810,
whichever applies.
For Paperwork Reduction Act Notice, see page 8 of the instructions. Cat. No. 50012Y Form 6198 (Rev. 11-2009)
DF-87

Form 6251
Alternative Minimum Tax—Individuals
Department of the Treasury Information about Form 6251 and its separate instructions is at www.irs.gov/form6251.
Internal Revenue Service (99)
Attach to Form 1040 or Form 1040NR.
Name(s) shown on Form 1040 or Form 1040NR
Part I
Alternative Minimum Taxable Income (See instructions for how to complete each line.)
DRAFT AS OF
August 5, 2015
DO NOT FILE
1 If filing Schedule A (Form 1040), enter the amount from Form 1040, line 41, and go to line 2. Otherwise,
enter the amount from Form 1040, line 38, and go to line 7. (If less than zero, enter as a negative amount.) 1
2 Medical and dental. If you or your spouse was 65 or older, enter the smaller of Schedule A (Form 1040),
line 4, or 2.5% (.025) of Form 1040, line 38. If zero or less, enter -0- . . . . . . . . . . . . 2
OMB No. 1545-0074
2015
Attachment
Sequence No. 32
Your social security number
3 Taxes from Schedule A (Form 1040), line 9 . . . . . . . . . . . . . . . . . . . . 3
4 Enter the home mortgage interest adjustment, if any, from line 6 of the worksheet in the instructions for this line 4
5 Miscellaneous deductions from Schedule A (Form 1040), line 27. . . . . . . . . . . . . . 5
6 If Form 1040, line 38, is $154,950 or less, enter -0-. Otherwise, see instructions . . . . . . . . . 6 ( )
7 Tax refund from Form 1040, line 10 or line 21 . . . . . . . . . . . . . . . . . . . 7 ( )
8 Investment interest expense (difference between regular tax and AMT). . . . . . . . . . . . 8
9 Depletion (difference between regular tax and AMT) . . . . . . . . . . . . . . . . . 9
10 Net operating loss deduction from Form 1040, line 21. Enter as a positive amount . . . . . . . . 10
11 Alternative tax net operating loss deduction . . . . . . . . . . . . . . . . . . . . 11 ( )
12 Interest from specified private activity bonds exempt from the regular tax . . . . . . . . . . 12
13 Qualified small business stock, see instructions . . . . . . . . . . . . . . . . . . . 13
14 Exercise of incentive stock options (excess of AMT income over regular tax income) . . . . . . . . 14
15 Estates and trusts (amount from Schedule K-1 (Form 1041), box 12, code A) . . . . . . . . . 15
16 Electing large partnerships (amount from Schedule K-1 (Form 1065-B), box 6) . . . . . . . . . 16
17 Disposition of property (difference between AMT and regular tax gain or loss) . . . . . . . . . 17
18 Depreciation on assets placed in service after 1986 (difference between regular tax and AMT) . . . . 18
19 Passive activities (difference between AMT and regular tax income or loss) . . . . . . . . . . 19
20 Loss limitations (difference between AMT and regular tax income or loss) . . . . . . . . . . . 20
21 Circulation costs (difference between regular tax and AMT) . . . . . . . . . . . . . . . 21
22 Long-term contracts (difference between AMT and regular tax income) . . . . . . . . . . . 22
23 Mining costs (difference between regular tax and AMT) . . . . . . . . . . . . . . . . 23
24 Research and experimental costs (difference between regular tax and AMT) . . . . . . . . . . 24
25 Income from certain installment sales before January 1, 1987 . . . . . . . . . . . . . . 25 ( )
26 Intangible drilling costs preference . . . . . . . . . . . . . . . . . . . . . . . 26
27 Other adjustments, including income-based related adjustments . . . . . . . . . . . . . 27
28 Alternative minimum taxable income. Combine lines 1 through 27. (If married filing separately and line
28 is more than $246,250, see instructions.) . . . . . . . . . . . . . . . . . . . . 28
Part II Alternative Minimum Tax (AMT)
29 Exemption. (If you were under age 24 at the end of 2015, see instructions.)
IF your filing status is . . . AND line 28 is not over . . . THEN enter on line 29 . . .
Single or head of household . . . . $119,200 . . . . . $53,600
}
Married filing jointly or qualifying widow(er) 158,900 . . . . . 83,400
. .
Married filing separately. . . . . . 79,450 . . . . . 41,700 29
If line 28 is over the amount shown above for your filing status, see instructions.
30 Subtract line 29 from line 28. If more than zero, go to line 31. If zero or less, enter -0- here and on lines 31, 33,
and 35, and go to line 34 . . . . . . . . . . . . . . . . . . . . . . . . . . 30
31 • If you are filing Form 2555 or 2555-EZ, see instructions for the amount to enter.
• If you reported capital gain distributions directly on Form 1040, line 13; you reported qualified dividends
on Form 1040, line 9b; or you had a gain on both lines 15 and 16 of Schedule D (Form 1040) (as refigured
for the AMT, if necessary), complete Part III on the back and enter the amount from line 64 here.
. . . 31
• All others: If line 30 is $185,400 or less ($92,700 or less if married filing separately), multiply line
30 by 26% (.26). Otherwise, multiply line 30 by 28% (.28) and subtract $3,708 ($1,854 if married
filing separately) from the result.
32 Alternative minimum tax foreign tax credit (see instructions) . . . . . . . . . . . . . . . . 32
33 Tentative minimum tax. Subtract line 32 from line 31 . . . . . . . . . . . . . . . . . . 33
34 Add Form 1040, line 44 (minus any tax from Form 4972), and Form 1040, line 46. Subtract from the result any
foreign tax credit from Form 1040, line 48. If you used Schedule J to figure your tax on Form 1040, line 44,
refigure that tax without using Schedule J before completing this line (see instructions) . . . . . . . . 34
35 AMT. Subtract line 34 from line 33. If zero or less, enter -0-. Enter here and on Form 1040, line 45 . . . . . 35
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 13600G Form 6251 (2015)
DF-88
}

Form 6251 (2015) Page 2
Part III Tax Computation Using Maximum Capital Gains Rates
Complete Part III only if you are required to do so by line 31 or by the Foreign Earned Income Tax Worksheet in the instructions.
36 Enter the amount from Form 6251, line 30. If you are filing Form 2555 or 2555-EZ, enter the amount from
line 3 of the worksheet in the instructions for line 31 . . . . . . . . . . . . . . . . . 36
37 Enter the amount from line 6 of the Qualified Dividends and Capital Gain Tax Worksheet in the instructions
for Form 1040, line 44, or the amount from line 13 of the Schedule D Tax Worksheet in the instructions for
Schedule D (Form 1040), whichever applies (as refigured for the AMT, if necessary) (see instructions). If
you are filing Form 2555 or 2555-EZ, see instructions for the amount to enter . . . . . . . . . 37
DRAFT AS OF
August 5, 2015
DO NOT FILE
38 Enter the amount from Schedule D (Form 1040), line 19 (as refigured for the AMT, if necessary) (see
instructions). If you are filing Form 2555 or 2555-EZ, see instructions for the amount to enter . . . . . 38
39 If you did not complete a Schedule D Tax Worksheet for the regular tax or the AMT, enter the amount
from line 37. Otherwise, add lines 37 and 38, and enter the smaller of that result or the amount from line
10 of the Schedule D Tax Worksheet (as refigured for the AMT, if necessary). If you are filing Form 2555 or
2555-EZ, see instructions for the amount to enter . . . . . . . . . . . . . . . . . . 39
40 Enter the smaller of line 36 or line 39 . . . . . . . . . . . . . . . . . . . . . . 40
41 Subtract line 40 from line 36 . . . . . . . . . . . . . . . . . . . . . . . . . 41
42 If line 41 is $185,400 or less ($92,700 or less if married filing separately), multiply line 41 by 26% (.26). Otherwise,
multiply line 41 by 28% (.28) and subtract $3,708 ($1,854 if married filing separately) from the result . . . 42
43 Enter:
• $74,900 if married filing jointly or qualifying widow(er),
• $37,450 if single or married filing separately, or
• $50,200 if head of household.
} .
. . . . . . 43
44 Enter the amount from line 7 of the Qualified Dividends and Capital Gain Tax Worksheet in the instructions
for Form 1040, line 44, or the amount from line 14 of the Schedule D Tax Worksheet in the instructions for
Schedule D (Form 1040), whichever applies (as figured for the regular tax). If you did not complete either
worksheet for the regular tax, enter the amount from Form 1040, line 43; if zero or less, enter -0-. If you
are filing Form 2555 or 2555-EZ, see instructions for the amount to enter . . . . . . . . . . . 44
45 Subtract line 44 from line 43. If zero or less, enter -0- . . . . . . . . . . . . . . . . . 45
46 Enter the smaller of line 36 or line 37 . . . . . . . . . . . . . . . . . . . . . . 46
47 Enter the smaller of line 45 or line 46. This amount is taxed at 0% . . . . . . . . . . . . . 47
48 Subtract line 47 from line 46 . . . . . . . . . . . . . . . . . . . . . . . . . 48
49 Enter:
}
• $413,200 if single
• $232,425 if married filing separately
. . . . . . . 49
• $464,850 if married filing jointly or qualifying widow(er)
• $439,000 if head of household
50 Enter the amount from line 45 . . . . . . . . . . . . . . . . . . . . . . . . 50
51 Enter the amount from line 7 of the Qualified Dividends and Capital Gain Tax Worksheet in the instructions
for Form 1040, line 44, or the amount from line 19 of the Schedule D Tax Worksheet, whichever applies
(as figured for the regular tax). If you did not complete either worksheet for the regular tax, enter the
amount from Form 1040, line 43; if zero or less, enter -0-. If you are filing Form 2555 or Form 2555-EZ,
see instructions for the amount to enter . . . . . . . . . . . . . . . . . . . . . 51
52 Add line 50 and line 51 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
53 Subtract line 52 from line 49. If zero or less, enter -0- . . . . . . . . . . . . . . . . . 53
54 Enter the smaller of line 48 or line 53 . . . . . . . . . . . . . . . . . . . . . . 54
55 Multiply line 54 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . 55
56 Add lines 47 and 54 . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
If lines 56 and 36 are the same, skip lines 57 through 61 and go to line 62. Otherwise, go to line 57.
57 Subtract line 56 from line 46 . . . . . . . . . . . . . . . . . . . . . . . . . 57
58 Multiply line 57 by 20% (.20) . . . . . . . . . . . . . . . . . . . . . . . 58
If line 38 is zero or blank, skip lines 59 through 61 and go to line 62. Otherwise, go to line 59.
59 Add lines 41, 56, and 57 . . . . . . . . . . . . . . . . . . . . . . . . . 59
60 Subtract line 59 from line 36 . . . . . . . . . . . . . . . . . . . . . . . . 60
61 Multiply line 60 by 25% (.25) . . . . . . . . . . . . . . . . . . . . . . . 61
62 Add lines 42, 55, 58, and 61 . . . . . . . . . . . . . . . . . . . . . . . . 62
63 If line 36 is $185,400 or less ($92,700 or less if married filing separately), multiply line 36 by 26% (.26).
Otherwise, multiply line 36 by 28% (.28) and subtract $3,708 ($1,854 if married filing separately) from the result 63
64 Enter the smaller of line 62 or line 63 here and on line 31. If you are filing Form 2555 or 2555-EZ, do not
enter this amount on line 31. Instead, enter it on line 4 of the worksheet in the instructions for line 31 . . 64
DF-89
Form 6251 (2015)

Form 6252
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
Installment Sale Income
OMB No. 1545-0228
2014
Attach to your tax return.
Use a separate form for each sale or other disposition of property on the installment method.
Attachment
Information about Form 6252 and its instructions is at www.irs.gov/form6252.
Sequence No. 79
Identifying number
1 Description of property
2 a Date acquired (mm/dd/yyyy) b Date sold (mm/dd/yyyy)
3 Was the property sold to a related party (see instructions) after May 14, 1980? If “No,” skip line 4 . . . . Yes No
4 Was the property you sold to a related party a marketable security? If “Yes,” complete Part III. If “No,”
complete Part III for the year of sale and the 2 years after the year of sale . . . . . . . . . . . . Yes No
Part I Gross Profit and Contract Price. Complete this part for the year of sale only.
5 Selling price including mortgages and other debts. Do not include interest, whether stated or unstated 5
6 Mortgages, debts, and other liabilities the buyer assumed or took the
property subject to (see instructions) . . . . . . . . . . . 6
7 Subtract line 6 from line 5 . . . . . . . . . . . . . . . 7
8 Cost or other basis of property sold . . . . . . . . . . . 8
9 Depreciation allowed or allowable . . . . . . . . . . . . 9
10 Adjusted basis. Subtract line 9 from line 8 . . . . . . . . . 10
11 Commissions and other expenses of sale . . . . . . . . . 11
12 Income recapture from Form 4797, Part III (see instructions) . . . 12
13 Add lines 10, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Subtract line 13 from line 5. If zero or less, do not complete the rest of this form (see instructions) 14
15 If the property described on line 1 above was your main home, enter the amount of your excluded
gain (see instructions). Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . 15
16 Gross profit. Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . 16
17 Subtract line 13 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . 17
18 Contract price. Add line 7 and line 17 . . . . . . . . . . . . . . . . . . . . 18
Part II Installment Sale Income. Complete this part for the year of sale and any year you receive a payment or have
certain debts you must treat as a payment on installment obligations.
19 Gross profit percentage (expressed as a decimal amount). Divide line 16 by line 18. For years after
the year of sale, see instructions . . . . . . . . . . . . . . . . . . . . . . 19
20 If this is the year of sale, enter the amount from line 17. Otherwise, enter -0- . . . . . . . . 20
21 Payments received during year (see instructions). Do not include interest, whether stated or unstated 21
22 Add lines 20 and 21 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23 Payments received in prior years (see instructions). Do not include
interest, whether stated or unstated . . . . . . . . . . . 23
24 Installment sale income. Multiply line 22 by line 19 . . . . . . . . . . . . . . . . 24
25 Enter the part of line 24 that is ordinary income under the recapture rules (see instructions) . . . 25
26 Subtract line 25 from line 24. Enter here and on Schedule D or Form 4797 (see instructions). . . 26
Part III Related Party Installment Sale Income. Do not complete if you received the final payment this tax year.
27 Name, address, and taxpayer identifying number of related party
28 Did the related party resell or dispose of the property (“second disposition”) during this tax year? . . . . . Yes No
29 If the answer to question 28 is “Yes,” complete lines 30 through 37 below unless one of the following conditions is met. Check the box that applies.
a The second disposition was more than 2 years after the first disposition (other than dispositions of
marketable securities). If this box is checked, enter the date of disposition (mm/dd/yyyy) . . . . .
b The first disposition was a sale or exchange of stock to the issuing corporation.
c The second disposition was an involuntary conversion and the threat of conversion occurred after the first disposition.
d The second disposition occurred after the death of the original seller or buyer.
e It can be established to the satisfaction of the IRS that tax avoidance was not a principal purpose for either of the
dispositions. If this box is checked, attach an explanation (see instructions).
30 Selling price of property sold by related party (see instructions) . . . . . . . . . . . . 30
31 Enter contract price from line 18 for year of first sale . . . . . . . . . . . . . . . . 31
32 Enter the smaller of line 30 or line 31 . . . . . . . . . . . . . . . . . . . . . 32
33 Total payments received by the end of your 2014 tax year (see instructions) . . . . . . . . 33
34 Subtract line 33 from line 32. If zero or less, enter -0- . . . . . . . . . . . . . . . 34
35 Multiply line 34 by the gross profit percentage on line 19 for year of first sale . . . . . . . . 35
36 Enter the part of line 35 that is ordinary income under the recapture rules (see instructions) . . . 36
37 Subtract line 36 from line 35. Enter here and on Schedule D or Form 4797 (see instructions). . . 37
For Paperwork Reduction Act Notice, see page 4. Cat. No. 13601R Form 6252 (2014)
DF-90

Form 6252 (2014) Page 2
General Instructions
Section references are to the Internal
Revenue Code unless otherwise noted.
Future Developments
For the latest information about
developments related to Form 6252 and
its instructions, such as legislation
enacted after they were published, go to
www.irs.gov/form6252.
Purpose of Form
Use Form 6252 to report income from an
installment sale on the installment
method. Generally, an installment sale is
a disposition of property where at least
one payment is received after the end of
the tax year in which the disposition
occurs. Ordinarily, an installment sale
does not include a disposition of
personal property by a person who
regularly sells or otherwise disposes of
personal property of the same type, or a
disposition of real property which is held
by the taxpayer for sale to customers in
the ordinary course of the taxpayer's
trade or business. However, gain on
some dispositions by dealers in real
property or farmers who dispose of any
property used or produced in the trade
or business of farming may be reported
on the installment method.
Do not file Form 6252 for sales that do
not result in a gain, even if you will
receive a payment in a tax year after the
year of sale. Instead, report the entire
sale on Form 4797, Sales of Business
Property, Form 8949, Sales and Other
Dispositions of Capital Assets, or the
Schedule D for your tax return,
whichever applies.
Do not file Form 6252 to report sales
during the tax year of stock or securities
traded on an established securities
market. Instead, treat all payments as
received during this tax year.
Do not file Form 6252 if you elect not to
report the sale on the installment method.
To elect out, report the full amount of the
gain on a timely filed return (including
extensions) on Form 4797, Form 8949, or
the Schedule D for your tax return,
whichever applies. If you filed your
original return on time without making the
election, you can make the election on an
amended return filed no later than 6
months after the due date of your tax
return, excluding extensions. Write “Filed
pursuant to section 301.9100-2” at the
top of the amended return.
Which Parts To Complete
Year of Sale
Complete lines 1 through 4, Part I, and Part
II. If you sold property to a related party
during the year, also complete Part III.
Later Years
Complete lines 1 through 4 and Part II
for any year in which you receive a
payment from an installment sale.
If you sold a marketable security to a
related party after May 14, 1980, and
before 1987, complete Form 6252 for
each year of the installment agreement,
even if you did not receive a payment.
Complete lines 1 through 4. Complete
Part II for any year in which you receive a
payment from the sale. Complete Part III
unless you received the final payment
during the tax year.
After 1986, the installment method is
not available for the sale of marketable
securities.
If you sold property other than a
marketable security to a related party
after May 14, 1980, complete Form 6252
for the year of sale and for 2 years after
the year of sale, even if you did not
receive a payment. Complete lines 1
through 4. Complete Part II for any year
during this 2-year period in which you
receive a payment from the sale.
Complete Part III for the 2 years after the
year of sale unless you received the final
payment during the tax year.
Special Rules
Interest
If any part of an installment payment you
received is for interest or original issue
discount, report that income on the
appropriate form or schedule. Do not
report interest received, carrying charges
received, or unstated interest on Form
6252. See Pub. 537, Installment Sales,
for details on unstated interest.
Installment Sales to Related Party
A special rule applies to a first
disposition (sale or exchange) of
property under the installment method to
a related party who then makes a
second disposition (sale, exchange, gift,
or cancellation of installment note)
before making all payments on the first
disposition. For this purpose, a related
party includes your spouse, child,
grandchild, parent, brother, sister, or a
related corporation, S corporation,
partnership, estate, or trust. See section
453(f)(1) for more details.
Under this rule, treat part or all of the
amount the related party realized (or the
fair market value (FMV) if the disposed
property is not sold or exchanged) from
the second disposition as if you received
it from the first disposition at the time of
the second disposition. Figure the gain,
if any, on lines 30 through 37. This rule
does not apply if any of the conditions
listed on line 29 are met.
Sale of Depreciable Property to
Related Person
Generally, if you sell depreciable
property to a related person (as defined
in section 453(g)(3)), you cannot report
the sale using the installment method.
For this purpose, depreciable property is
any property that (in the hands of the
person or entity to whom you transfer it)
is subject to the allowance for
depreciation. However, you can use the
installment method if you can show to
the satisfaction of the IRS that avoidance
of federal income taxes was not one of
the principal purposes of the sale (for
example, no significant tax deferral
benefits will result from the sale). If the
installment method does not apply,
report the sale on Form 4797, Form
8949, or Schedule D, whichever applies.
Treat all payments you will receive as if
they were received in the year of sale.
Use FMV for any payment that is
contingent as to amount. If the FMV
cannot be readily determined, basis is
recovered ratably.
Pledge Rule
For certain dispositions under the
installment method, if an installment
obligation is pledged as security on a
debt, the net proceeds of the secured
debt are treated as payment on the
installment obligation. However, the
amount treated as payment cannot be
more than the excess of the total
installment contract price over any
payments received under the contract
before the secured debt was obtained.
An installment obligation is pledged as
security on a debt to the extent that
payment of principal and interest on the
debt is directly secured by an interest in
the installment obligation. For sales after
December 16, 1999, payment on a debt
is treated as directly secured by an
interest in an installment obligation to the
extent an arrangement allows you to
satisfy all or part of the debt with the
installment obligation.
The pledge rule applies to any
installment sale after 1988 with a sales
price of over $150,000 except:
• Personal use property disposed of by
an individual,
• Farm property, and
• Timeshares and residential lots.
However, the pledge rule does not
apply to pledges made after December
17, 1987, if the debt is incurred to
refinance the principal amount of a debt
that was outstanding on December 17,
1987, and was secured by nondealer
installment obligations on that date and
at all times after that date until the
refinancing. This exception does not
apply to the extent that the principal
amount of the debt resulting from the
refinancing exceeds the principal
DF-91

Form 6252 (2014) Page 3
amount of the refinanced debt
immediately before the refinancing. Also,
the pledge rule does not affect
refinancing due to the calling of a debt
by the creditor if the debt is then
refinanced by a person other than this
creditor or someone related to the
creditor.
Interest on Deferred Tax
Generally, you must pay interest on the
deferred tax related to any obligation
that arises during a tax year from the
disposition of property under the
installment method if:
• The property had a sales price over
$150,000, and
• The aggregate balance of all nondealer
installment obligations arising during,
and outstanding at the close of, the tax
year is more than $5 million.
You must pay interest in subsequent
years if installment obligations that
originally required interest to be paid are
still outstanding at the close of a tax
year.
The interest rules do not apply to
dispositions of:
• Farm property,
• Personal use property by an individual,
• Real property before 1988, or
• Personal property before 1989.
See section 453(l) for more information
on the sale of timeshares and residential
lots under the installment method.
How to report the interest. The
interest is not figured on Form 6252. See
Pub. 537 for details on how to report the
interest.
Additional Information
See Pub. 537 for additional information,
including details about reductions in
selling price, the single sale of several
assets, like-kind exchanges, dispositions
of installment obligations, and
repossessions.
Specific Instructions
Part I—Gross Profit and
Contract Price
Line 5
Enter the total of any money, face
amount of the installment obligation, and
the FMV of other property or services
that you received or will receive in
exchange for the property sold. Include
on line 5 any existing mortgage or other
debt the buyer assumed or took the
property subject to. Do not include
stated interest, unstated interest, any
amount recomputed or recharacterized
as interest, or original issue discount.
If there is no stated maximum selling
price, such as in a contingent payment
sale, attach a schedule showing the
computation of gain. Enter the taxable
part of the payment on line 24 and also
on line 35 if Part III applies. See
Temporary Regulations section
15A.453-1.
Line 6
Enter only mortgages or other debts the
buyer assumed from the seller or took
the property subject to. Do not include
new mortgages the buyer gets from a
bank, the seller, or other sources.
Line 8
Enter the original cost and other
expenses you incurred in buying the
property. Add the cost of improvements,
etc., and subtract any casualty losses
and any of the following credits
previously allowed with respect to the
property.
• Nonbusiness energy property credit.
• Residential energy efficient property
credit.
• Adoption credit.
• District of Columbia first-time
homebuyer credit.
• Disabled access credit.
• New markets credit.
• Credit for employer-provided childcare
facilities and services.
• Energy efficient home credit.
• Alternative motor vehicle credit.
• Alternative fuel vehicle refueling
property credit.
• Qualified railroad track maintenance
credit.
• Enhanced oil recovery credit.
• Qualified plug-in electric drive motor
vehicle credit.
• Qualified plug-in electric vehicle credit.
• Qualified electric vehicle credit.
For additional information, see Pub.
551, Basis of Assets.
Line 9
Enter all depreciation or amortization you
deducted or were allowed to deduct
from the date of purchase until the date
of sale. Adjust the depreciation or
amortization amount by adding any of
the following deductions previously
taken with respect to the property.
• Section 179 expense.
• Commercial revitalization deduction.
• Deduction for clean-fuel vehicles and
refueling property.
• Deductions claimed under sections
190 and 193.
• Deductions claimed under section
1253(d)(2) and (3) (as in effect before
enactment of P.L. 103-66).
• Basis reduction to investment credit
property.
Subtract the following recapture
amounts and credits previously allowed
with respect to the property.
• Section 179 or 280F.
• Clean-fuel vehicles and refueling
property.
• Investment credit amount.
• Credit for employer-provided childcare
facilities and services.
• Alternative motor vehicle credit.
• Alternative fuel vehicle refueling
property credit.
• Qualified plug-in electric drive motor
vehicle credit.
• Qualified plug-in electric vehicle credit.
• Qualified electric vehicle credit.
Line 11
Enter sales commissions, advertising
expenses, attorney and legal fees, etc.,
incurred to sell the property.
Line 12
Any ordinary income recapture under
section 1245 or 1250 (including sections
179 and 291) is fully taxable in the year
of sale even if no payments were
received. To figure the recapture
amount, complete Form 4797, Part III.
The ordinary income recapture is the
amount on line 31 of Form 4797. Enter it
on line 12 of Form 6252 and also on line
13 of Form 4797. Do not enter any gain
for this property on line 32 of Form 4797.
If you used Form 4797 only to figure the
recapture amount on line 12 of Form
6252, enter “N/A” on line 32 of Form
4797. Partnerships and S corporations
and their partners and shareholders, see
the Instructions for Form 4797.
Line 14
Do not file Form 6252 if line 14 is zero or
less. Instead, report the entire sale on
Form 4797, Form 8949, or the Schedule
D for your tax return.
Line 15
If the property described on line 1 was
your main home, you may be able to
exclude part or all of your gain. See Pub.
523, Selling Your Home, for details.
Part II—Installment Sale
Income
Line 19
Enter the gross profit percentage
(expressed as a decimal amount)
determined for the year of sale even if
you did not file Form 6252 for that year.
DF-92

Form 6252 (2014) Page 4
Line 21
Enter all money and the FMV of any
property or services you received in
2014. Include as payments any amount
withheld to pay off a mortgage or other
debt or to pay broker and legal fees.
Generally, do not include as a payment
the buyer’s note, a mortgage, or other
debt assumed by the buyer. However, a
note or other debt that is payable on
demand or readily tradable in an
established securities market is
considered a payment. For sales
occurring before October 22, 2004, a
note or other debt is considered a
payment only if it was issued by a
corporation or governmental entity. If
you did not receive any payments in
2014, enter zero. If in prior years an
amount was entered on the equivalent of
line 34 of the 2014 form, do not include it
on this line. Instead, enter it on line 23.
See Pledge Rule, earlier, for details
about proceeds of debt secured by
installment obligations that must be
treated as payments on installment
obligations.
Line 23
Enter all money and the FMV of property
or services you received before 2014
from the sale. Include allocable
installment income and any other
deemed payments from prior years.
Deemed payments include amounts
deemed received because of:
• A second disposition by a related
party, or
• The pledge rule of section 453A(d).
Line 25
Enter here and on Form 4797, line 15,
any ordinary income recapture on
section 1252, 1254, or 1255 property for
the year of sale or all remaining
recapture from a prior year sale. Do not
enter ordinary income from a section 179
expense deduction. If this is the year of
sale, complete Form 4797, Part III. The
amount from line 27c, 28b, or 29b of
Form 4797 is the ordinary income
recapture. Do not enter any gain for this
property on line 31 or 32 of Form 4797. If
you used Form 4797 only to figure the
recapture on line 25 or 36 of Form 6252,
enter “N/A” on lines 31 and 32 of Form
4797.
Also report on this line any ordinary
income recapture remaining from prior
years on section 1245 or 1250 property
sold before June 7, 1984.
Do not enter on line 25 more than the
amount shown on line 24. Any excess
must be reported in future years on Form
6252 up to the taxable part of the
installment sale until all of the recapture
has been reported.
Line 26
For trade or business property held more
than 1 year, enter this amount on Form
4797, line 4. If the property was held 1
year or less or you have an ordinary gain
from the sale of a noncapital asset (even
if the holding period is more than 1 year),
enter this amount on Form 4797, line 10,
and write “From Form 6252.” If the
property was section 1250 property
(generally, real property that you
depreciated) held more than 1 year,
figure the total amount of unrecaptured
section 1250 gain included on line 26
using the Unrecaptured Section 1250
Gain Worksheet in the Instructions for
Schedule D (Form 1040).
For capital assets, enter this amount
on Schedule D as a short- or long-term
gain on the lines identified as from Form
6252.
Part III—Related Party
Installment Sale Income
Line 29
If one of the conditions is met, check the
appropriate box and skip lines 30
through 37. If you checked box 29e,
attach an explanation. Generally, the
nontax avoidance exception will apply to
the second disposition if:
• The disposition was involuntary (for
example, a creditor of the related party
foreclosed on the property or the related
party declared bankruptcy), or
• The disposition was an installment sale
under which the terms of payment were
substantially equal to or longer than
those for the first sale. However, the
resale terms must not permit significant
deferral of recognition of gain from the
first sale (for example, amounts from the
resale are being collected sooner).
Line 30
If the related party sold all or part of the
property from the original sale in 2014,
enter the amount realized from the part
resold. If part was sold in an earlier year
and part was sold this year, enter the
cumulative amount realized from the
resale.
Amount realized. The amount realized
from a sale or exchange is the total of all
money received plus the FMV of all
property or services received. The
amount realized also includes any
liabilities that were assumed by the
buyer and any liabilities to which the
property transferred is subject, such as
real estate taxes or a mortgage. For
details, see Pub. 544, Sales and Other
Dispositions of Assets.
Line 33
If you completed Part II, enter the sum of
lines 22 and 23. Otherwise, enter all money
and the FMV of property you received
before 2014 from the sale. Include allocable
installment income and any other deemed
payments from prior years. Do not include
interest, whether stated or unstated.
Line 36
See the instructions for line 25. Do not
enter on line 36 more than the amount
shown on line 35. Any excess must be
reported in future years on Form 6252 up
to the taxable part of the installment sale
until all of the recapture has been
reported.
Line 37
See the instructions for line 26.
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of
the United States. You are required to
give us the information. We need it to
ensure that you are complying with these
laws and to allow us to figure and collect
the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions must
be retained as long as their contents
may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and file
this form will vary depending on
individual circumstances. The estimated
burden for individual taxpayers filing this
form is approved under OMB control
number 1545-0074 and is included in the
estimates shown in the instructions for
their individual income tax return. The
estimated burden for all other taxpayers
who file this form is shown below.
Recordkeeping . . . . 1 hr., 18 min.
Learning about the law
or the form . . . . . . . 24 min.
Preparing the form . . . . . 1 hr.
Copying, assembling, and
sending the form to the IRS . 20 min.
If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear from
you. See the instructions for the tax
return with which this form is filed.
DF-93

Form 8082
(Rev. December 2011)
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
Notice of Inconsistent Treatment or Administrative
Adjustment Request (AAR)
(For use by partners, S corporation shareholders, estate and domestic trust beneficiaries, foreign
trust owners and beneficiaries, REMIC residual interest holders, and TMPs.)
See separate instructions.
Identifying number
OMB No. 1545-0790
Attachment
Sequence No. 84
Part I General Information
1 Check boxes that apply: (a) Notice of inconsistent treatment (b) Administrative adjustment request (AAR)
2 Identify type of pass-through entity:
(a) Partnership (b) S corporation (c) Estate (d) Trust (e) REMIC
3 Employer identification number of pass-through entity 5 Internal Revenue Service Center where pass-through entity filed its return
4 Name, address, and ZIP code of pass-through entity 6 Tax year of pass-through entity
/ / to / /
7 Your tax year
/ / to / /
Part II Inconsistent or Administrative Adjustment Request (AAR) Items
(a) Description of inconsistent or
administrative adjustment request (AAR) items
(see instructions)
(b) Inconsistency is in,
or AAR is to correct
(check boxes that apply)
Amount of
item
Treatment
of item
(c) Amount as shown on
Schedule K-1, Schedule Q, or
similar statement, a foreign
trust statement, or your return,
whichever applies (see
instructions)
(d) Amount you are reporting
(e) Difference between
(c) and (d)
8
9
10
11
Part III
Explanations—Enter the Part II item number before each explanation. If more space is needed,
continue your explanations on the back.
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 49975G Form 8082 (Rev. 12-2011)
DF-94

Nondeductible IRAs
OMB No. 1545-0074
Form 8606
Information about Form 8606 and its separate instructions is at www.irs.gov/form8606.
2015
Department of the Treasury
Attach to Form 1040, Form 1040A, or Form 1040NR.
Attachment
Internal Revenue Service (99)
Sequence No. 48
Name. If married, file a separate form for each spouse required to file Form 8606. See instructions.
Your social security number
Fill in Your Address Only
If You Are Filing This
Form by Itself and Not
With Your Tax Return
Part I
Home address (number and street, or P.O. box if mail is not delivered to your home)
DRAFT AS OF
July 23, 2015
DO NOT FILE
City, town or post office, state, and ZIP code. If you have a foreign address, also complete the spaces below.
Apt. no.
Foreign country name Foreign province/state/county Foreign postal code
Nondeductible Contributions to Traditional IRAs and Distributions From Traditional, SEP, and SIMPLE IRAs
Complete this part only if one or more of the following apply.
• You made nondeductible contributions to a traditional IRA for 2015.
• You took distributions from a traditional, SEP, or SIMPLE IRA in 2015 and you made nondeductible contributions to a
traditional IRA in 2015 or an earlier year. For this purpose, a distribution does not include a rollover, one-time
distribution to fund an HSA, conversion, recharacterization, or return of certain contributions.
• You converted part, but not all, of your traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2015 (excluding any portion
you recharacterized) and you made nondeductible contributions to a traditional IRA in 2015 or an earlier year.
1 Enter your nondeductible contributions to traditional IRAs for 2015, including those made for 2015
from January 1, 2016, through April 18, 2016 (see instructions) . . . . . . . . . . . . 1
2 Enter your total basis in traditional IRAs (see instructions) . . . . . . . . . . . . . . 2
3 Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
In 2015, did you take a distribution
from traditional, SEP, or SIMPLE IRAs,
No Enter the amount from line 3 on line 14.
Do not complete the rest of Part I.
or make a Roth IRA conversion?
Yes Go to line 4.
4 Enter those contributions included on line 1 that were made from January 1, 2016, through April 18, 2016 4
5 Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Enter the value of all your traditional, SEP, and SIMPLE IRAs as of
December 31, 2015, plus any outstanding rollovers (see instructions) . . 6
7 Enter your distributions from traditional, SEP, and SIMPLE IRAs in
2015. Do not include rollovers, a one-time distribution to fund an HSA,
conversions to a Roth IRA, certain returned contributions, or
recharacterizations of traditional IRA contributions (see instructions) . 7
8 Enter the net amount you converted from traditional, SEP, and SIMPLE
IRAs to Roth IRAs in 2015. Do not include amounts converted that you
later recharacterized (see instructions). Also enter this amount on line 16 . 8
9 Add lines 6, 7, and 8 . . . . . . . . 9
10 Divide line 5 by line 9. Enter the result as a decimal rounded to at least
3 places. If the result is 1.000 or more, enter “1.000” . . . . . . 10 × .
11 Multiply line 8 by line 10. This is the nontaxable portion of the amount
you converted to Roth IRAs. Also enter this amount on line 17 . . . 11
12 Multiply line 7 by line 10. This is the nontaxable portion of your
distributions that you did not convert to a Roth IRA . . . . . . . 12
13 Add lines 11 and 12. This is the nontaxable portion of all your distributions . . . . . . . . 13
14 Subtract line 13 from line 3. This is your total basis in traditional IRAs for 2015 and earlier years 14
15 Taxable amount. Subtract line 12 from line 7. If more than zero, also include this amount on Form
1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b . . . . . . . . . . . . 15
Note. You may be subject to an additional 10% tax on the amount on line 15 if you were under
age 59½ at the time of the distribution (see instructions).
For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 63966F Form 8606 (2015)
DF-95

Form 8606 (2015) Page 2
Part II
2015 Conversions From Traditional, SEP, or SIMPLE IRAs to Roth IRAs
Complete this part if you converted part or all of your traditional, SEP, and SIMPLE IRAs to a Roth IRA in 2015 (excluding
any portion you recharacterized).
16 If you completed Part I, enter the amount from line 8. Otherwise, enter the net amount you
converted from traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2015. Do not include amounts
you later recharacterized back to traditional, SEP, or SIMPLE IRAs in 2015 or 2016 (see instructions) 16
17 If you completed Part I, enter the amount from line 11. Otherwise, enter your basis in the amount
on line 16 (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 17
18 Taxable amount. Subtract line 17 from line 16. If more than zero, also include this amount on
Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b . . . . . . . . . . 18
Part III
DRAFT AS OF
July 23, 2015
DO NOT FILE
Distributions From Roth IRAs
Complete this part only if you took a distribution from a Roth IRA in 2015. For this purpose, a distribution does not
include a rollover, one-time distribution to fund an HSA, recharacterization, or return of certain contributions (see
instructions).
19 Enter your total nonqualified distributions from Roth IRAs in 2015, including any qualified first-time
homebuyer distributions (see instructions) . . . . . . . . . . . . . . . . . . . 19
20 Qualified first-time homebuyer expenses (see instructions). Do not enter more than $10,000 . . 20
21 Subtract line 20 from line 19. If zero or less, enter -0- . . . . . . . . . . . . . . . . 21
22 Enter your basis in Roth IRA contributions (see instructions). If line 21 is zero, stop here . . . . 22
23 Subtract line 22 from line 21. If zero or less, enter -0- and skip lines 24 and 25. If more than zero,
you may be subject to an additional tax (see instructions) . . . . . . . . . . . . . . 23
24 Enter your basis in conversions from traditional, SEP, and SIMPLE IRAs and rollovers from
qualified retirement plans to a Roth IRA (see instructions) . . . . . . . . . . . . . . 24
25 Taxable amount. Subtract line 24 from line 23. If more than zero, also include this amount on
Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b . . . . . . . . . . 25
Sign Here Only If You
Are Filing This Form
by Itself and Not With
Your Tax Return
Paid
Preparer
Use Only
Under penalties of perjury, I declare that I have examined this form, including accompanying attachments, and to the best of my knowledge and
belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Your signature
Print/Type preparer’s name Preparer’s signature Date Check if
self-employed
Firm's name
Firm's address
Date
Firm's EIN
Phone no.
PTIN
Form 8606 (2015)
DF-96

SCHEDULE 8812
(Form 1040A or 1040)
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Child Tax Credit
Attach to Form 1040, Form 1040A, or Form 1040NR.
Information about Schedule 8812 and its separate instructions is at
www.irs.gov/schedule8812.
1040
1040A
1040NR
8812
OMB No. 1545-0074
2015
Attachment
Sequence No. 47
Your social security number
Part I
!
CAUTION
Filers
DRAFT
Who Have Certain Child Dependent(s) with an
AS
ITIN (Individual Taxpayer
OF
Identification Number)
Complete this part only for each dependent who has an ITIN and for whom you are claiming the child tax credit.
If your dependent is not a qualifying child for the credit, you cannot include that dependent in the calculation of this credit.
July 13, 2015
DO NOT FILE
Answer the following questions for each dependent listed on Form 1040, line 6c; Form 1040A, line 6c; or Form 1040NR, line 7c, who has an ITIN
(Individual Taxpayer Identification Number) and that you indicated is a qualifying child for the child tax credit by checking column (4) for that
dependent.
A
B
For the first dependent identified with an ITIN and listed as a qualifying child for the child tax credit, did this child meet the substantial
presence test? See separate instructions.
Yes
No
For the second dependent identified with an ITIN and listed as a qualifying child for the child tax credit, did this child meet the substantial
presence test? See separate instructions.
Yes
No
C
D
For the third dependent identified with an ITIN and listed as a qualifying child for the child tax credit, did this child meet the substantial
presence test? See separate instructions.
Yes
No
For the fourth dependent identified with an ITIN and listed as a qualifying child for the child tax credit, did this child meet the substantial
presence test? See separate instructions.
Yes
No
Note: If you have more than four dependents identified with an ITIN and listed as a qualifying child for the child tax credit, see separate instructions
and check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part II Additional Child Tax Credit Filers
1 1040 filers: Enter the amount from line 6 of your Child Tax Credit Worksheet (see the
Instructions for Form 1040, line 52).
1040A filers: Enter the amount from line 6 of your Child Tax Credit Worksheet (see the
Instructions for Form 1040A, line 35).
1040NR filers: Enter the amount from line 6 of your Child Tax Credit Worksheet (see the
Instructions for Form 1040NR, line 49).
If you used Pub. 972, enter the amount from line 8 of the Child Tax Credit Worksheet in the publication.
}
1
2 Enter the amount from Form 1040, line 52; Form 1040A, line 35; or Form 1040NR, line 49 . . . . . 2
3 Subtract line 2 from line 1. If zero, stop; you cannot take this credit . . . . . . . . . . . . . 3
4a Earned income (see separate instructions) . . . . . . . . . . . 4a
b Nontaxable combat pay (see separate
instructions) . . . . . . . . . . . 4b
5 Is the amount on line 4a more than $3,000?
No. Leave line 5 blank and enter -0- on line 6.
Yes. Subtract $3,000 from the amount on line 4a. Enter the result . . . 5
6 Multiply the amount on line 5 by 15% (.15) and enter the result . . . . . . . . . . . . . . 6
Next. Do you have three or more qualifying children?
No. If line 6 is zero, stop; you cannot take this credit. Otherwise, skip Part III and enter the smaller of
line 3 or line 6 on line 13.
Yes. If line 6 is equal to or more than line 3, skip Part III and enter the amount from line 3 on line 13.
Otherwise, go to line 7.
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 59761M Schedule 8812 (Form 1040A or 1040) 2015
DF-97

Schedule 8812 (Form 1040A or 1040) 2015 Page 2
Part III Certain Filers Who Have Three or More Qualifying Children
7 Withheld social security, Medicare, and Additional Medicare taxes from
Form(s) W-2, boxes 4 and 6. If married filing jointly, include your spouse’s
amounts with yours. If your employer withheld or you paid Additional
Medicare Tax or tier 1 RRTA taxes, see separate instructions . . . . . . 7
8 1040 filers: Enter the total of the amounts from Form 1040, lines
27 and 58, plus any taxes that you identified using code
“UT” and entered on line 62.
1040A filers: Enter -0-.
8
1040NR filers: Enter the total of the amounts from Form 1040NR,
lines 27 and 56, plus any taxes that you identified using
DRAFT AS OF
July 13, 2015
DO NOT FILE
}
code “UT” and entered on line 60.
9 Add lines 7 and 8 . . . . . . . . . . . . . . . . . . . 9
10 1040 filers: Enter the total of the amounts from Form 1040, lines
66a and 71.
1040A filers: Enter the total of the amount from Form 1040A, line
42a, plus any excess social security and tier 1 RRTA 10
taxes withheld that you entered to the left of line 46
(see separate instructions).
}
1040NR filers: Enter the amount from Form 1040NR, line 67.
11 Subtract line 10 from line 9. If zero or less, enter -0- . . . . . . . . . . . . . . . . . 11
12 Enter the larger of line 6 or line 11 . . . . . . . . . . . . . . . . . . . . . . 12
Next, enter the smaller of line 3 or line 12 on line 13.
Part IV Additional Child Tax Credit
13 This is your additional child tax credit . . . . . . . . . . . . . . . . . . . . . 13
1040
1040A
1040NR
Enter this amount on
Form 1040, line 67,
Form 1040A, line 43, or
Form 1040NR, line 64.
Schedule 8812 (Form 1040A or 1040) 2015
DF-98

Form 8815
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Exclusion of Interest From Series EE and I
U.S. Savings Bonds Issued After 1989
(For Filers With Qualified Higher Education Expenses)
Information about Form 8815 and its instructions is at www.irs.gov/form8815.
Attach to Form 1040 or Form 1040A.
OMB No. 1545-0074
2015
Attachment
Sequence No. 167
Your social security number
DRAFT AS OF
July 24, 2015
DO NOT FILE
1 (a)
Name of person (you, your spouse, or your dependent) who
was enrolled at or attended an eligible educational institution
(b)
Name and address of eligible educational institution
If you need more space, attach a statement.
2 Enter the total qualified higher education expenses you paid in 2015 for the person(s) listed in
column (a) of line 1. See the instructions to find out which expenses qualify . . . . . . . . 2
3 Enter the total of any nontaxable educational benefits (such as nontaxable scholarship or
fellowship grants) received for 2015 for the person(s) listed in column (a) of line 1 (see instructions) 3
4 Subtract line 3 from line 2. If zero or less, stop. You cannot take the exclusion . . . . . . 4
5 Enter the total proceeds (principal and interest) from all series EE and I U.S. savings bonds issued
after 1989 that you cashed during 2015 . . . . . . . . . . . . . . . . . . . 5
6 Enter the interest included on line 5 (see instructions) . . . . . . . . . . . . . . . 6
7 If line 4 is equal to or more than line 5, enter “1.000.” If line 4 is less than line 5, divide line 4 by line
5. Enter the result as a decimal (rounded to at least three places) . . . . . . . . . . . 7 × .
8 Multiply line 6 by line 7 . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 Enter your modified adjusted gross income (see instructions) . . . . 9
Note: If line 9 is $92,200 or more if single or head of household, or
$145,750 or more if married filing jointly or qualifying widow(er) with
dependent child, stop. You cannot take the exclusion.
10 Enter: $77,200 if single or head of household; $115,750 if married filing
jointly or qualifying widow(er) with dependent child . . . . . . . 10
11 Subtract line 10 from line 9. If zero or less, skip line 12, enter -0- on line
13, and go to line 14 . . . . . . . . . . . . . . . . . 11
12 Divide line 11 by: $15,000 if single or head of household; $30,000 if married filing jointly or
qualifying widow(er) with dependent child. Enter the result as a decimal (rounded to at least three
places) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 × .
13 Multiply line 8 by line 12 . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Excludable savings bond interest. Subtract line 13 from line 8. Enter the result here and on
Schedule B (Form 1040A or 1040), line 3 . . . . . . . . . . . . . . . . . .
14
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 10822S Form 8815 (2015)
DF-99

Form8829
Department of the Treasury
Internal Revenue Service (99)
Name(s) of proprietor(s)
Expenses for Business Use of Your Home
OMB No. 1545-0074
File only with Schedule C (Form 1040). Use a separate Form 8829 for each
home you used for business during the year.
2015
Attachment
Information about Form 8829 and its separate instructions is at www.irs.gov/form8829. Sequence No. 176
Your social security number
Part I Part of Your Home Used for Business
1 Area used regularly and exclusively for business, regularly for daycare, or for storage of
inventory or product samples (see instructions) . . . . . . . . . . . . . . . . 1
2 Total area of home . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Divide line 1 by line 2. Enter the result as a percentage . . . . . . . . . . . . . 3 %
DRAFT AS OF
July 14, 2015
DO NOT FILE
For daycare facilities not used exclusively for business, go to line 4. All others, go to line 7.
4 Multiply days used for daycare during year by hours used per day 4 hr.
5 Total hours available for use during the year (365 days x 24 hours) (see instructions) 5 hr.
6 Divide line 4 by line 5. Enter the result as a decimal amount . . . 6 .
7 Business percentage. For daycare facilities not used exclusively for business, multiply line 6 by
line 3 (enter the result as a percentage). All others, enter the amount from line 3 . . . . .
7 %
Part II Figure Your Allowable Deduction
8 Enter the amount from Schedule C, line 29, plus any gain derived from the business use of your home,
minus any loss from the trade or business not derived from the business use of your home (see instructions) 8
See instructions for columns (a) and (b) before
completing lines 9–21. (a) Direct expenses (b) Indirect expenses
9 Casualty losses (see instructions). . . . . 9
10 Deductible mortgage interest (see instructions) 10
11 Real estate taxes (see instructions) . . . . 11
12 Add lines 9, 10, and 11 . . . . . . . . 12
13 Multiply line 12, column (b) by line 7 . . . . 13
14 Add line 12, column (a) and line 13 . . . . 14
15 Subtract line 14 from line 8. If zero or less, enter -0- 15
16 Excess mortgage interest (see instructions) . 16
17 Insurance . . . . . . . . . . . . 17
18 Rent . . . . . . . . . . . . . . 18
19 Repairs and maintenance . . . . . . . 19
20 Utilities . . . . . . . . . . . . . 20
21 Other expenses (see instructions). . . . . 21
22 Add lines 16 through 21 . . . . . . . . 22
23 Multiply line 22, column (b) by line 7 . . . . . . . . . . . 23
24 Carryover of prior year operating expenses (see instructions) . . 24
25 Add line 22, column (a), line 23, and line 24 . . . . . . . . . . . . . . . . . 25
26 Allowable operating expenses. Enter the smaller of line 15 or line 25 . . . . . . . . . 26
27 Limit on excess casualty losses and depreciation. Subtract line 26 from line 15 . . . . . 27
28 Excess casualty losses (see instructions) . . . . . . . . . 28
29 Depreciation of your home from line 41 below . . . . . . . 29
30 Carryover of prior year excess casualty losses and depreciation (see
instructions) . . . . . . . . . . . . . . . . . . . 30
31 Add lines 28 through 30 . . . . . . . . . . . . . . . . . . . . . . . . 31
32 Allowable excess casualty losses and depreciation. Enter the smaller of line 27 or line 31 . . 32
33 Add lines 14, 26, and 32. . . . . . . . . . . . . . . . . . . . . . . . 33
34 Casualty loss portion, if any, from lines 14 and 32. Carry amount to Form 4684 (see instructions) 34
35 Allowable expenses for business use of your home. Subtract line 34 from line 33. Enter here
and on Schedule C, line 30. If your home was used for more than one business, see instructions
35
Part III Depreciation of Your Home
36 Enter the smaller of your home’s adjusted basis or its fair market value (see instructions) . . 36
37 Value of land included on line 36 . . . . . . . . . . . . . . . . . . . . . 37
38 Basis of building. Subtract line 37 from line 36 . . . . . . . . . . . . . . . . 38
39 Business basis of building. Multiply line 38 by line 7. . . . . . . . . . . . . . . 39
40 Depreciation percentage (see instructions). . . . . . . . . . . . . . . . . . 40 %
41 Depreciation allowable (see instructions). Multiply line 39 by line 40. Enter here and on line 29 above 41
Part IV Carryover of Unallowed Expenses to 2016
42 Operating expenses. Subtract line 26 from line 25. If less than zero, enter -0- . . . . . . 42
43 Excess casualty losses and depreciation. Subtract line 32 from line 31. If less than zero, enter -0- 43
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 13232M Form 8829 (2015)
DF-100

Form 8863
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on return
Education Credits
(American Opportunity and Lifetime Learning Credits)
Attach to Form 1040 or Form 1040A.
Information about Form 8863 and its separate instructions is at www.irs.gov/form8863.
OMB No. 1545-0074
2015
Attachment
Sequence No. 50
Your social security number
!
CAUTION
DRAFT AS OF
July 31, 2015
DO NOT FILE
Complete a separate Part III on page 2 for each student for whom you are claiming either credit
before you complete Parts I and II.
Part I Refundable American Opportunity Credit
1 After completing Part III for each student, enter the total of all amounts from all Parts III, line 30 . 1
2 Enter: $180,000 if married filing jointly; $90,000 if single, head of
household, or qualifying widow(er) . . . . . . . . . . . . . 2
3 Enter the amount from Form 1040, line 38, or Form 1040A, line 22. If you
are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from
Puerto Rico, see Pub. 970 for the amount to enter . . . . . . . . 3
4 Subtract line 3 from line 2. If zero or less, stop; you cannot take any
education credit . . . . . . . . . . . . . . . . . . . 4
5 Enter: $20,000 if married filing jointly; $10,000 if single, head of household,
or qualifying widow(er) . . . . . . . . . . . . . . . . . 5
6 If line 4 is:
• Equal to or more than line 5, enter 1.000 on line 6 . . . . . . . . . . . .
• Less than line 5, divide line 4 by line 5. Enter the result as a decimal (rounded to
at least three places) . . . . . . . . . . . . . . . . . . . . .
} . . . . 6 .
7 Multiply line 1 by line 6. Caution: If you were under age 24 at the end of the year and meet
the conditions described in the instructions, you cannot take the refundable American opportunity
credit; skip line 8, enter the amount from line 7 on line 9, and check this box . . . . 7
8 Refundable American opportunity credit. Multiply line 7 by 40% (.40). Enter the amount here and
on Form 1040, line 68, or Form 1040A, line 44. Then go to line 9 below. . . . . . . . . . 8
Part II Nonrefundable Education Credits
9 Subtract line 8 from line 7. Enter here and on line 2 of the Credit Limit Worksheet (see instructions) 9
10 After completing Part III for each student, enter the total of all amounts from all Parts III, line 31. If
zero, skip lines 11 through 17, enter -0- on line 18, and go to line 19 . . . . . . . . . . 10
11 Enter the smaller of line 10 or $10,000 . . . . . . . . . . . . . . . . . . . . 11
12 Multiply line 11 by 20% (.20) . . . . . . . . . . . . . . . . . . . . . . . 12
13 Enter: $130,000 if married filing jointly; $65,000 if single, head of
household, or qualifying widow(er) . . . . . . . . . . . . . 13
14 Enter the amount from Form 1040, line 38, or Form 1040A, line 22. If you
are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from
Puerto Rico, see Pub. 970 for the amount to enter . . . . . . . . 14
15 Subtract line 14 from line 13. If zero or less, skip lines 16 and 17, enter -0-
on line 18, and go to line 19 . . . . . . . . . . . . . . . 15
16 Enter: $20,000 if married filing jointly; $10,000 if single, head of household,
or qualifying widow(er) . . . . . . . . . . . . . . . . . 16
17 If line 15 is:
• Equal to or more than line 16, enter 1.000 on line 17 and go to line 18
• Less than line 16, divide line 15 by line 16. Enter the result as a decimal (rounded to at least three
places) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 .
18 Multiply line 12 by line 17. Enter here and on line 1 of the Credit Limit Worksheet (see instructions) 18
19 Nonrefundable education credits. Enter the amount from line 7 of the Credit Limit Worksheet (see
instructions) here and on Form 1040, line 50, or Form 1040A, line 33 . . . . . . . . . . 19
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 25379M Form 8863 (2015)
DF-101

Form 8863 (2015) Page 2
Name(s) shown on return
Your social security number
!
CAUTION
Complete Part III for each student for whom you are claiming either the American
opportunity credit or lifetime learning credit. Use additional copies of page 2 as needed for
each student.
DRAFT AS OF
July 31, 2015
DO NOT FILE
Part III Student and Educational Institution Information
See instructions.
20 Student name (as shown on page 1 of your tax return) 21 Student social security number (as shown on page 1 of your tax return)
22 Educational institution information (see instructions)
a. Name of first educational institution
(1) Address. Number and street (or P.O. box). City, town or
post office, state, and ZIP code. If a foreign address, see
instructions.
(2) Did the student receive Form 1098-T
from this institution for 2015?
(3) Did the student receive Form 1098-T
from this institution for 2014 with Box
2 filled in and Box 7 checked?
Yes
Yes
If you checked “No” in both (2) and (3), skip (4).
(4) If you checked “Yes” in (2) or (3), enter the institution's
federal identification number (from Form 1098-T).
–
No
No
b. Name of second educational institution (if any)
(1) Address. Number and street (or P.O. box). City, town or
post office, state, and ZIP code. If a foreign address, see
instructions.
(2) Did the student receive Form 1098-T
from this institution for 2015?
(3) Did the student receive Form 1098-T
from this institution for 2014 with Box 2
filled in and Box 7 checked?
Yes
Yes
If you checked “No” in both (2) and (3), skip (4).
(4) If you checked “Yes” in (2) or (3), enter the institution's
federal identification number (from Form 1098-T).
–
No
No
23 Has the Hope Scholarship Credit or American opportunity
credit been claimed for this student for any 4 tax years
before 2015?
24 Was the student enrolled at least half-time for at least one
academic period that began or is treated as having begun in
2015 at an eligible educational institution in a program
leading towards a postsecondary degree, certificate, or
other recognized postsecondary educational credential?
(see instructions)
25 Did the student complete the first 4 years of postsecondary
education before 2015 (see instructions)?
26 Was the student convicted, before the end of 2015, of a
felony for possession or distribution of a controlled
substance?
!
CAUTION
Yes — Stop!
Go to line 31 for this student. No — Go to line 24.
Yes — Go to line 25. No — Stop! Go to line 31
for this student.
Yes — Stop!
Go to line 31 for this
student.
Yes — Stop!
Go to line 31 for this
student.
No — Go to line 26.
No — Complete lines 27
through 30 for this student.
You cannot take the American opportunity credit and the lifetime learning credit for the same student in the same year. If
you complete lines 27 through 30 for this student, do not complete line 31.
American Opportunity Credit
27 Adjusted qualified education expenses (see instructions). Do not enter more than $4,000 . . . . 27
28 Subtract $2,000 from line 27. If zero or less, enter -0- . . . . . . . . . . . . . . . . . 28
29 Multiply line 28 by 25% (.25) . . . . . . . . . . . . . . . . . . . . . . . . . 29
30 If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and
enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I, line 1 . 30
Lifetime Learning Credit
31 Adjusted qualified education expenses (see instructions). Include the total of all amounts from all Parts
III, line 31, on Part II, line 10 . . . . . . . . . . . . . . . . . . . . . . . . . 31
Form 8863 (2015)
DF-102

Form 8867
Department of the Treasury
Internal Revenue Service
Taxpayer name(s) shown on return
Paid Preparer's Earned Income Credit Checklist
To be completed by preparer and filed with Form 1040, 1040A, or 1040EZ.
Information about Form 8867 and its separate instructions is at www.irs.gov/form8867.
OMB No. 1545-1629
2015
Attachment
Sequence No. 177
Taxpayer's social security number
Part I
DRAFT AS OF
July 14, 2015
DO NOT FILE
All Taxpayers
1 Enter preparer's name and PTIN
For the definitions of Qualifying Child and Earned Income, see Pub. 596.
2 Is the taxpayer’s filing status married filing separately? . . . . . . . . . . . . . . . Yes No
If you checked “Yes” on line 2, stop; the taxpayer cannot take the EIC. Otherwise, continue.
3 Does the taxpayer (and the taxpayer’s spouse if filing jointly) have a social security number (SSN)
that allows him or her to work and is valid for EIC purposes? See the instructions before
answering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No
If you checked “No” on line 3, stop; the taxpayer cannot take the EIC. Otherwise, continue.
4 Is the taxpayer (or the taxpayer's spouse if filing jointly) filing Form 2555 or 2555-EZ (relating to the
exclusion of foreign earned income)? . . . . . . . . . . . . . . . . . . . . . Yes No
If you checked “Yes” on line 4, stop; the taxpayer cannot take the EIC. Otherwise, continue.
5a Was the taxpayer (or the taxpayer's spouse) a nonresident alien for any part of 2015? . . . . Yes No
If you checked “Yes” on line 5a, go to line 5b. Otherwise, skip line 5b and go to line 6.
b Is the taxpayer’s filing status married filing jointly? . . . . . . . . . . . . . . . . Yes No
If you checked “Yes” on line 5a and “No” on line 5b, stop; the taxpayer cannot take the EIC.
Otherwise, continue.
6 Is the taxpayer’s investment income more than $3,400? See the instructions before answering. Yes No
If you checked “Yes” on line 6, stop; the taxpayer cannot take the EIC. Otherwise, continue.
7 Could the taxpayer be a qualifying child of another person for 2015? If the taxpayer's filing status is
married filing jointly, check “No.” Otherwise, see instructions before answering . . . . . . . Yes No
If you checked “Yes” on line 7, stop; the taxpayer cannot take the EIC. Otherwise, go to Part II
or Part III, whichever applies.
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 26142H Form 8867 (2015)
DF-103

Form 8867 (2015) Page 2
Part II Taxpayers With a Child
Caution: If there is more than one child, complete lines 8 through 14 for
one child before going to the next column.
Child 1 Child 2 Child 3
8 Child’s name . . . . . . . . . . . . . . . . . . . . .
9 Is the child the taxpayer’s son, daughter, stepchild, foster child, brother, sister,
stepbrother, stepsister, half brother, half sister, or a descendant of any of them? Yes No Yes No Yes No
DRAFT AS OF
July 14, 2015
DO NOT FILE
10 Was the child unmarried at the end of 2015?
If the child was married at the end of 2015, see the instructions before
answering . . . . . . . . . . . . . . . . . . . . . Yes No Yes No Yes No
11 Did the child live with the taxpayer in the United States for over half of 2015?
See the instructions before answering . . . . . . . . . . . . Yes No Yes No Yes No
12 Was the child (at the end of 2015)—
• Under age 19 and younger than the taxpayer (or the taxpayer’s spouse,
if the taxpayer files jointly),
• Under age 24, a student (defined in the instructions), and younger than
the taxpayer (or the taxpayer’s spouse, if the taxpayer files jointly), or
13a
• Any age and permanently and totally disabled? . . . . . . . . Yes No Yes No Yes No
If you checked “Yes” on lines 9, 10, 11, and 12, the child is the
taxpayer’s qualifying child; go to line 13a. If you checked “No” on line 9,
10, 11, or 12, the child is not the taxpayer’s qualifying child; see the
instructions for line 12.
Do you or the taxpayer know of another person who could check “Yes”
on lines 9, 10, 11, and 12 for the child? (If the only other person is the
taxpayer's spouse, see the instructions before answering.) . . . . Yes No Yes No Yes No
If you checked “No” on line 13a, go to line 14. Otherwise, go to
line 13b.
b Enter the child’s relationship to the other person(s) . . . . . . . .
c Under the tiebreaker rules, is the child treated as the taxpayer’s qualifying Yes No Yes No Yes No
child? See the instructions before answering . . . . . . . . . . Don’t know Don’t know Don’t know
If you checked “Yes” on line 13c, go to line 14. If you checked “No,” the
taxpayer cannot take the EIC based on this child and cannot take the EIC for
taxpayers who do not have a qualifying child. If there is more than one child,
see the Note at the bottom of this page. If you checked “Don’t know,”
explain to the taxpayer that, under the tiebreaker rules, the taxpayer’s EIC
and other tax benefits may be disallowed. Then, if the taxpayer wants to take
the EIC based on this child, complete lines 14 and 15. If not, and there are no
other qualifying children, the taxpayer cannot take the EIC, including the EIC
for taxpayers without a qualifying child; do not complete Part III. If there is
more than one child, see the Note at the bottom of this page.
14 Does the qualifying child have an SSN that allows him or her to work and is
valid for EIC purposes? See the instructions before answering . . . Yes No Yes No Yes No
If you checked “No” on line 14, the taxpayer cannot take the EIC
based on this child and cannot take the EIC available to taxpayers
without a qualifying child. If there is more than one child, see the Note at
the bottom of this page. If you checked “Yes” on line 14, continue.
15 Are the taxpayer’s earned income and adjusted gross income each less
than the limit that applies to the taxpayer for 2015? See instructions . . Yes No
If you checked “No” on line 15, stop; the taxpayer cannot take the
EIC. If you checked “Yes” on line 15, the taxpayer can take the EIC.
Complete Schedule EIC and attach it to the taxpayer’s return. If there
are two or three qualifying children with valid SSNs, list them on
Schedule EIC in the same order as they are listed here. If the taxpayer’s
EIC was reduced or disallowed for a year after 1996, see Pub. 596 to see
if Form 8862 must be filed. Go to line 20.
Note: If there is more than one child, complete lines 8 through 14 for the
other child(ren) (but for no more than three qualifying children).
Form 8867 (2015)
DF-104

Form 8867 (2015) Page 3
Part III Taxpayers Without a Qualifying Child
16 Was the taxpayer’s main home, and the main home of the taxpayer’s spouse if filing jointly, in the
United States for more than half the year? (Military personnel on extended active duty outside the
United States are considered to be living in the United States during that duty period.) See the
instructions before answering. Yes No
DRAFT AS OF
July 14, 2015
DO NOT FILE
If you checked “No” on line 16, stop; the taxpayer cannot take the EIC. Otherwise, continue.
17 Was the taxpayer, or the taxpayer’s spouse if filing jointly, at least age 25 but under age 65 at the
end of 2015? See the instructions before answering . . . . . . . . . . . . . . . . Yes No
If you checked “No” on line 17, stop; the taxpayer cannot take the EIC. Otherwise, continue.
18 Is the taxpayer eligible to be claimed as a dependent on anyone else’s federal income tax return for
2015? If the taxpayer's filing status is married filing jointly, check “No” . . . . . . . . . . Yes No
If you checked “Yes” on line 18, stop; the taxpayer cannot take the EIC. Otherwise, continue.
19 Are the taxpayer’s earned income and adjusted gross income each less than the limit that
applies to the taxpayer for 2015? See instructions . . . . . . . . . . . . . . . . Yes No
If you checked “No” on line 19, stop; the taxpayer cannot take the EIC. If you checked “Yes”
on line 19, the taxpayer can take the EIC. If the taxpayer’s EIC was reduced or disallowed for a
year after 1996, see Pub. 596 to find out if Form 8862 must be filed. Go to line 20.
Part IV Due Diligence Requirements
20 Did you complete Form 8867 based on current information provided by the taxpayer or reasonably
obtained by you? . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No
21 Did you complete the EIC worksheet found in the Form 1040, 1040A, or 1040EZ instructions (or your
own worksheet that provides the same information as the 1040, 1040A, or 1040EZ worksheet)? . . Yes No
22 If any qualifying child was not the taxpayer's son or daughter, do you know or did you ask why the Yes No
parents were not claiming the child? . . . . . . . . . . . . . . . . . . . . . Does not apply
23 If the answer to question 13a is “Yes” (indicating that the child lived for more than half the year with
someone else who could claim the child for the EIC), did you explain the tiebreaker rules and Yes No
possible consequences of another person claiming your client's qualifying child? . . . . . . Does not apply
24 Did you ask this taxpayer any additional questions that are necessary to meet your knowledge Yes No
requirement? See the instructions before answering . . . . . . . . . . . . . . . . Does not apply
To comply with the EIC knowledge requirement, you must not know or have reason to know
that any information you used to determine the taxpayer's eligibility for, and the amount of,
the EIC is incorrect. You may not ignore the implications of information furnished to you or
known by you, and you must make reasonable inquiries if the information furnished to you
appears to be incorrect, inconsistent, or incomplete. At the time you make these inquiries,
you must document in your files the inquiries you made and the taxpayer's responses.
25 Did you document (a) the taxpayer's answer to question 22 (if applicable), (b) whether you explained
the tiebreaker rules to the taxpayer and any additional information you got from the taxpayer as a Yes No
result, and (c) any additional questions you asked and the taxpayer's answers? . . . . . . . Does not apply
You have complied with all the due diligence requirements if you:
1. Completed the actions described on lines 20 and 21 and checked "Yes" on those lines,
2. Completed the actions described on lines 22, 23, 24, and 25 (if they apply) and checked "Yes" (or
"Does not apply") on those lines,
3. Submit Form 8867 in the manner required, and
4. Keep all five of the following records for 3 years from the latest of the dates specified in the
instructions under Document Retention:
a. Form 8867,
b. The EIC worksheet(s) or your own worksheet(s),
c. Copies of any taxpayer documents you relied on to determine eligibility for or amount of EIC,
d. A record of how, when, and from whom the information used to prepare the form and
worksheet(s) was obtained, and
e. A record of any additional questions you asked and your client's answers.
You have not complied with all the due diligence requirements if you checked “No” on line 20, 21, 22,
23, 24, or 25. You may have to pay a $500 penalty for each failure to comply.
Form 8867 (2015)
DF-105

Form 8867 (2015) Page 4
Part V Documents Provided to You
26 Identify below any document that the taxpayer provided to you and that you relied on to determine the taxpayer's EIC
eligibility. Check all that apply. Keep a copy of any documents you relied on. See the instructions before answering. If there
is no qualifying child, check box a. If there is no disabled child, check box o.
a
b
c
d
e
f
g
h
o
p
q
r
Residency of Qualifying Child(ren)
No qualifying child
i Place of worship statement
School records or statement
j Indian tribal official statement
Landlord or property management statement
k Employer statement
Health care provider statement
l Other (specify)
Medical records
Child care provider records
Placement agency statement
Social service records or statement
DRAFT AS OF
July 14, 2015
DO NOT FILE
m Did not rely on any documents, but made notes in file
n Did not rely on any documents
Disability of Qualifying Child(ren)
No disabled child
s Other (specify)
Doctor statement
Other health care provider statement
Social services agency or program statement
t Did not rely on any documents, but made notes in file
u Did not rely on any documents
27 If a Schedule C is included with this return, identify below the information that the taxpayer provided to you and that you relied
on to prepare the Schedule C. Check all that apply. Keep a copy of any documents you relied on. See the instructions
before answering. If there is no Schedule C, check box a.
Documents or Other Information
a No Schedule C
h Bank statements
b Business license
i Reconstruction of income and expenses
c Forms 1099
j Other (specify)
d Records of gross receipts provided by taxpayer
e Taxpayer summary of income
f Records of expenses provided by taxpayer
k Did not rely on any documents, but made notes in file
g Taxpayer summary of expenses
l Did not rely on any documents
Form 8867 (2015)
DF-106

Form 8941
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
Credit for Small Employer Health Insurance Premiums
Attach to your tax return.
OMB No. 1545-2198
2015
Attachment
Information about Form 8941 and its separate instructions is at www.irs.gov/form8941. Sequence No. 65
Identifying number
A
B
DRAFT AS OF
August 14, 2015
DO NOT FILE
Did you pay premiums during your tax year for employee health insurance coverage you provided through a Small Business
Health Options Program (SHOP) Marketplace (or do you qualify for an exception to this requirement)? (see instructions)
Yes. Enter Marketplace Identifier (if any):
No. Stop. Do not file Form 8941 (see instructions for an exception that may apply to a partnership, S corporation,
cooperative, estate, or trust).
Enter the employer identification number (EIN) used to report employment taxes for individuals included on line 1 below if
different from the identifying number listed above
Caution: See the instructions and complete Worksheets 1 through 7 as needed.
1 Enter the number of individuals you employed during the tax year who are considered
employees for purposes of this credit (total from Worksheet 1, column (a)) . . . . . . . 1
2 Enter the number of full-time equivalent employees (FTEs) you had for the tax year (from
Worksheet 2, line 3). If you entered 25 or more, skip lines 3 through 11 and enter -0- on line 12 2
3 Average annual wages you paid for the tax year (from Worksheet 3, line 3). This amount must be
a multiple of $1,000. If you entered $52,000 or more, skip lines 4 through 11 and enter -0- on
line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Premiums you paid during the tax year for employees included on line 1 for health insurance
coverage under a qualifying arrangement (total from Worksheet 4, column (b)) . . . . . . 4
5 Premiums you would have entered on line 4 if the total premium for each employee equaled the
average premium for the small group market in which the employee enrolls in health insurance
coverage (total from Worksheet 4, column (c)) . . . . . . . . . . . . . . . . . 5
6 Enter the smaller of line 4 or line 5 . . . . . . . . . . . . . . . . . . . . 6
7 Multiply line 6 by the applicable percentage:
• Tax-exempt small employers, multiply line 6 by 35% (0.35)
• All other small employers, multiply line 6 by 50% (0.50) . . . . . . . . . . . . . 7
8 If line 2 is 10 or less, enter the amount from line 7. Otherwise, enter the amount from Worksheet
5, line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 If line 3 is $25,000 or less, enter the amount from line 8. Otherwise, enter the amount from
Worksheet 6, line 7 . . . . . . . . . . . . . . . . . . . . . . . . . 9
10 Enter the total amount of any state premium subsidies paid and any state tax credits available to
you for premiums included on line 4 (see instructions) . . . . . . . . . . . . . . 10
11 Subtract line 10 from line 4. If zero or less, enter -0- . . . . . . . . . . . . . . . 11
12 Enter the smaller of line 9 or line 11 . . . . . . . . . . . . . . . . . . . . 12
13 If line 12 is zero, skip lines 13 and 14 and go to line 15. Otherwise, enter the number of
employees included on line 1 for whom you paid premiums during the tax year for health
insurance coverage under a qualifying arrangement (total from Worksheet 4, column (a)) . . . 13
14 Enter the number of FTEs you would have entered on line 2 if you only included employees
included on line 13 (from Worksheet 7, line 3) . . . . . . . . . . . . . . . . . 14
15 Credit for small employer health insurance premiums from partnerships, S corporations,
cooperatives, estates, and trusts (see instructions) . . . . . . . . . . . . . . . 15
16 Add lines 12 and 15. Cooperatives, estates, and trusts, go to line 17. Tax-exempt small
employers, skip lines 17 and 18 and go to line 19. Partnerships and S corporations, stop here
and report this amount on Schedule K. All others, stop here and report this amount on Form
3800, Part III, line 4h . . . . . . . . . . . . . . . . . . . . . . . . . 16
17 Amount allocated to patrons of the cooperative or beneficiaries of the estate or trust (see
instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 Cooperatives, estates, and trusts, subtract line 17 from line 16. Stop here and report this amount
on Form 3800, Part III, line 4h . . . . . . . . . . . . . . . . . . . . . . 18
19 Enter the amount you paid in 2015 for taxes considered payroll taxes for purposes of this credit
(see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . 19
20 Tax-exempt small employers, enter the smaller of line 16 or line 19 here and on Form 990-T,
line 44f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 37757S Form 8941 (2015)
DF-107

Form 8959
Department of the Treasury
Internal Revenue Service
Name(s) shown on return
Additional Medicare Tax
OMB No. 1545-0074
If any line does not apply to you, leave it blank. See separate instructions.
2015
Attach to Form 1040, 1040NR, 1040-PR, or 1040-SS.
Attachment
Information about Form 8959 and its instructions is at www.irs.gov/form8959.
Sequence No. 71
Your social security number
Part I Additional Medicare Tax on Medicare Wages
1 Medicare wages and tips from Form W-2, box 5. If you have
more than one Form W-2, enter the total of the amounts
from box 5 . . . . . . . . . . . . . . . . 1
2 Unreported tips from Form 4137, line 6 . . . . . . . 2
DRAFT AS OF
July 27, 2015
DO NOT FILE
3 Wages from Form 8919, line 6 . . . . . . . . . . 3
4 Add lines 1 through 3 . . . . . . . . . . . . . 4
5 Enter the following amount for your filing status:
Married filing jointly. . . . . . . . . . $250,000
Married filing separately . . . . . . . . $125,000
Single, Head of household, or Qualifying widow(er) $200,000 5
6 Subtract line 5 from line 4. If zero or less, enter -0- . . . . . . . . . . . . . . 6
7 Additional Medicare Tax on Medicare wages. Multiply line 6 by 0.9% (.009). Enter here and
go to Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Part II Additional Medicare Tax on Self-Employment Income
8 Self-employment income from Schedule SE (Form 1040),
Section A, line 4, or Section B, line 6. If you had a loss, enter
-0- (Form 1040-PR and Form 1040-SS filers, see instructions.) 8
9 Enter the following amount for your filing status:
Married filing jointly. . . . . . . . . . $250,000
Married filing separately . . . . . . . . $125,000
Single, Head of household, or Qualifying widow(er) $200,000 9
10 Enter the amount from line 4 . . . . . . . . . . 10
11 Subtract line 10 from line 9. If zero or less, enter -0- . . . 11
12 Subtract line 11 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . 12
13 Additional Medicare Tax on self-employment income. Multiply line 12 by 0.9% (.009). Enter
here and go to Part III . . . . . . . . . . . . . . . . . . . . . . . . 13
Part III Additional Medicare Tax on Railroad Retirement Tax Act (RRTA) Compensation
14 Railroad retirement (RRTA) compensation and tips from
Form(s) W-2, box 14 (see instructions) . . . . . . . 14
15 Enter the following amount for your filing status:
Married filing jointly. . . . . . . . . . $250,000
Married filing separately . . . . . . . . $125,000
Single, Head of household, or Qualifying widow(er) $200,000 15
16 Subtract line 15 from line 14. If zero or less, enter -0- . . . . . . . . . . . . . 16
17 Additional Medicare Tax on railroad retirement (RRTA) compensation. Multiply line 16 by
0.9% (.009). Enter here and go to Part IV . . . . . . . . . . . . . . . . . 17
Part IV Total Additional Medicare Tax
18 Add lines 7, 13, and 17. Also include this amount on Form 1040, line 62, (Form 1040NR,
1040-PR, and 1040-SS filers, see instructions) and go to Part V . . . . . . . . . . 18
Part V Withholding Reconciliation
19 Medicare tax withheld from Form W-2, box 6. If you have
more than one Form W-2, enter the total of the amounts
from box 6 . . . . . . . . . . . . . . . . 19
20 Enter the amount from line 1 . . . . . . . . . . 20
21 Multiply line 20 by 1.45% (.0145). This is your regular
Medicare tax withholding on Medicare wages . . . . . 21
22 Subtract line 21 from line 19. If zero or less, enter -0-. This is your Additional Medicare Tax
withholding on Medicare wages . . . . . . . . . . . . . . . . . . . . 22
23 Additional Medicare Tax withholding on railroad retirement (RRTA) compensation from Form
W-2, box 14 (see instructions) . . . . . . . . . . . . . . . . . . . . . 23
24 Total Additional Medicare Tax withholding. Add lines 22 and 23. Also include this
amount with federal income tax withholding on Form 1040, line 64 (Form 1040NR, 1040-PR,
and 1040-SS filers, see instructions) . . . . . . . . . . . . . . . . . . . 24
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 59475X Form 8959 (2015)
DF-108

Form 8960
Department of the Treasury
Internal Revenue Service (99)
Name(s) shown on your tax return
Net Investment Income Tax—
Individuals, Estates, and Trusts
Attach to your tax return.
Information about Form 8960 and its separate instructions is at www.irs.gov/form8960.
OMB No. 1545-2227
2015
Attachment
Sequence No. 72
Your social security number or EIN
Part I Investment Income Section 6013(g) election (see instructions)
Section 6013(h) election (see instructions)
Regulations section 1.1411-10(g) election (see instructions)
1 Taxable interest (see instructions) . . . . . . . . . . . . . . . . . . . . . 1
2 Ordinary dividends (see instructions) . . . . . . . . . . . . . . . . . . . . 2
DRAFT AS OF
August 17, 2015
DO NOT FILE
3 Annuities (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 3
4a Rental real estate, royalties, partnerships, S corporations, trusts,
etc. (see instructions) . . . . . . . . . . . . . . . 4a
b Adjustment for net income or loss derived in the ordinary course of
a non-section 1411 trade or business (see instructions) . . . . 4b
c Combine lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . . . 4c
5a Net gain or loss from disposition of property (see instructions) . 5a
b Net gain or loss from disposition of property that is not subject to
net investment income tax (see instructions) . . . . . . . 5b
c Adjustment from disposition of partnership interest or S corporation
stock (see instructions) . . . . . . . . . . . . . . 5c
d Combine lines 5a through 5c . . . . . . . . . . . . . . . . . . . . . . 5d
6 Adjustments to investment income for certain CFCs and PFICs (see instructions) . . . . . 6
7 Other modifications to investment income (see instructions) . . . . . . . . . . . . 7
8 Total investment income. Combine lines 1, 2, 3, 4c, 5d, 6, and 7 . . . . . . . . . . . 8
Part II Investment Expenses Allocable to Investment Income and Modifications
9a Investment interest expenses (see instructions) . . . . . . 9a
b State, local, and foreign income tax (see instructions) . . . . 9b
c Miscellaneous investment expenses (see instructions) . . . . 9c
d Add lines 9a, 9b, and 9c . . . . . . . . . . . . . . . . . . . . . . . . 9d
10 Additional modifications (see instructions) . . . . . . . . . . . . . . . . . . 10
11 Total deductions and modifications. Add lines 9d and 10 . . . . . . . . . . . . . 11
Part III Tax Computation
12 Net investment income. Subtract Part II, line 11 from Part I, line 8. Individuals complete lines 13–
17. Estates and trusts complete lines 18a–21. If zero or less, enter -0- . . . . . . . . . 12
Individuals:
13 Modified adjusted gross income (see instructions) . . . . . 13
14 Threshold based on filing status (see instructions) . . . . . 14
15 Subtract line 14 from line 13. If zero or less, enter -0- . . . . 15
16 Enter the smaller of line 12 or line 15 . . . . . . . . . . . . . . . . . . . . 16
17 Net investment income tax for individuals. Multiply line 16 by 3.8% (.038). Enter here and
include on your tax return (see instructions) . . . . . . . . . . . . . . . . . 17
Estates and Trusts:
18a Net investment income (line 12 above) . . . . . . . . . 18a
b Deductions for distributions of net investment income and
deductions under section 642(c) (see instructions) . . . . . 18b
c Undistributed net investment income. Subtract line 18b from 18a (see
instructions). If zero or less, enter -0- . . . . . . . . . . 18c
19a Adjusted gross income (see instructions) . . . . . . . . 19a
b Highest tax bracket for estates and trusts for the year (see
instructions) . . . . . . . . . . . . . . . . . . 19b
c Subtract line 19b from line 19a. If zero or less, enter -0- . . . 19c
20 Enter the smaller of line 18c or line 19c . . . . . . . . . . . . . . . . . . . 20
21 Net investment income tax for estates and trusts. Multiply line 20 by 3.8% (.038). Enter here
and include on your tax return (see instructions) . . . . . . . . . . . . . . . 21
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 59474M Form 8960 (2015)
DF-109

Form 8962
Department of the Treasury
Internal Revenue Service
Name shown on your return
Premium Tax Credit (PTC)
Attach to Form 1040, 1040A, or 1040NR.
Information about Form 8962 and its separate instructions is at www.irs.gov/form8962.
Your social security number
OMB No. 1545-0074
2015
Attachment
Sequence No. 73
DRAFT AS OF
July 22, 2015
DO NOT FILE
You cannot claim the PTC if your filing status is married filing separately unless you are eligible for an exception (see instructions). If you qualify, check the box.
Part I Annual and Monthly Contribution Amount
1 Tax family size. Enter the number of exemptions from Form 1040 or Form 1040A, line 6d, or Form 1040NR, line 7d 1
2 a Modified AGI. Enter your modified
b Enter the total of your dependents'
AGI (see instructions) . . . . . 2a
modified AGI (see instructions) . . . 2b
3 Household income. Add the amounts on lines 2a and 2b . . . . . . . . . . . . . . . . . 3
4 Federal poverty line. Enter the federal poverty line amount from Table 1-1, 1-2, or 1-3 (see instructions). Check the
appropriate box for the federal poverty table used. a Alaska b Hawaii c Other 48 states and DC 4
5 Household income as a percentage of federal poverty line (see instructions) . . . . . . . . . . . . 5 %
6 Did you enter 401% on line 5? (See instructions if you entered less than 100%.)
No. Continue to line 7.
Yes. You are not eligible to receive PTC. If advance payment of the PTC was made, see the instructions for
how to report your excess advance PTC repayment amount.
7 Applicable Figure. Using your line 5 percentage, locate your “applicable figure” on the table in the instructions . . 7
8 a Annual contribution amount. Multiply
b Monthly contribution amount. Divide line 8a by
line 3 by line 7 . . . . . . . 8a
12. Round to whole dollar amount . . 8b
Part II Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit
9 Are you allocating policy amounts with another taxpayer or do you want to use the alternative calculation for year of marriage (see instructions)?
Yes. Skip to Part IV, Shared Policy Allocation, or Part V, Alternative Calculation for Year of Marriage. No. Continue to line 10.
10 See the instructions to determine if you can use line 11 or must complete lines 12 through 23.
Yes. Continue to line 11. Compute your annual PTC. Then skip lines 12–23
and continue to line 24.
Annual
Calculation
11 Annual Totals
Monthly
Calculation
(a) Annual enrollment
premiums (Form(s)
1095-A, line 33a)
(a) Monthly enrollment
premiums (Form(s)
1095-A, lines 21–32,
column a)
(b) Annual applicable
SLCSP premium
(Form(s) 1095-A,
line 33b)
(b) Monthly applicable
SLCSP premium (Form
(s) 1095-A, lines 21–32,
column b)
(c) Annual
contribution amount
(line 8a)
(c) Monthly
contribution amount
(amount from line 8b
or alternative marriage
monthly contribution)
(d) Annual maximum
premium assistance
(subtract (c) from (b), if
zero or less, enter -0-)
(d) Monthly maximum
premium assistance
(subtract (c) from (b), if
zero or less, enter -0-)
No. Continue to lines 12–23. Compute
your monthly PTC and continue to line 24.
(e) Annual premium tax
credit allowed
(smaller of (a) or (d))
(e) Monthly premium tax
credit allowed
(smaller of (a) or (d))
12 January
13 February
14 March
15 April
16 May
17 June
18 July
19 August
20 September
21 October
22 November
23 December
24 Total premium tax credit. Enter the amount from line 11(e) or add lines 12(e) through 23(e) and enter the total here 24
25 Advance payment of PTC. Enter the amount from line 11(f) or add lines 12(f) through 23(f) and enter the total here 25
(f) Annual advance
payment of PTC (Form
(s) 1095-A, line 33c)
(f) Monthly advance
payment of PTC (Form(s)
1095-A, lines 21–32,
column c)
26 Net premium tax credit. If line 24 is greater than line 25, subtract line 25 from line 24. Enter the difference here and on Form
1040, line 69; Form 1040A, line 45; or Form 1040NR, line 65. If you elected the alternative calculation for marriage, enter zero.
If line 24 equals line 25, enter zero. Stop here. If line 25 is greater than line 24, leave this line blank and continue to line 27 . 26
Part III Repayment of Excess Advance Payment of the Premium Tax Credit
27 Excess advance payment of PTC. If line 25 is greater than line 24, subtract line 24 from line 25. Enter the difference here 27
28 Repayment limitation (see instructions) . . . . . . . . . . . . . . . . . . . . . . 28
29 Excess advance premium tax credit repayment. Enter the smaller of line 27 or line 28 here and on Form 1040, line
46; Form 1040A, line 29; or Form 1040NR, line 44 . . . . . . . . . . . . . . . . . . . 29
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 37784Z Form 8962 (2015)
DF-110

Form 8962 (2015) Page 2
Part IV Shared Policy Allocation
Complete the following information for up to four shared policy allocations. See instructions for allocation details.
Shared Policy Allocation 1
30 (a) Policy Number (Form 1095-A, line 2) (b) SSN of other taxpayer (c) Allocation start month (d) Allocation stop month
DRAFT AS OF
July 22, 2015
DO NOT FILE
Allocation percentage
applied to monthly
amounts
(e) Premium Percentage
(f) SLCSP Percentage
(g) Advance Payment of the PTC
Percentage
Shared Policy Allocation 2
31 (a) Policy Number (Form 1095-A, line 2) (b) SSN of other taxpayer (c) Allocation start month (d) Allocation stop month
Allocation percentage
applied to monthly
amounts
(e) Premium Percentage
(f) SLCSP Percentage
(g) Advance Payment of the PTC
Percentage
Shared Policy Allocation 3
32 (a) Policy Number (Form 1095-A, line 2) (b) SSN of other taxpayer (c) Allocation start month (d) Allocation stop month
Allocation percentage
applied to monthly
amounts
(e) Premium Percentage
(f) SLCSP Percentage
(g) Advance Payment of the PTC
Percentage
Shared Policy Allocation 4
33 (a) Policy Number (Form 1095-A, line 2) (b) SSN of other taxpayer (c) Allocation start month (d) Allocation stop month
Allocation percentage
applied to monthly
amounts
(e) Premium Percentage
(f) SLCSP Percentage
(g) Advance Payment of the PTC
Percentage
34 Have you completed shared policy allocation information for all allocated Forms 1095-A?
Yes. Multiply the amounts on Form 1095-A by the allocation percentages entered by policy. Add allocated amounts across all allocated
policies with amounts for non-allocated policies from Forms 1095-A, if any, to compute a combined total for each month. Enter the combined
total for each month on lines 12–23, columns (a), (b), and (f). Compute the amounts for lines 12–23, columns (c)–(e), and continue to line 24.
No. See the instructions to report additional shared policy allocations.
Part V Alternative Calculation for Year of Marriage
Complete line(s) 35 and/or 36 to elect the alternative calculation for year of marriage. For eligibility to make the election, see the instructions for line 9.
To complete line(s) 35 and/or 36 and compute the amounts for lines 12–23, see the instructions for this Part V.
35 Alternative entries
(a) Alternative family size (b) Monthly contribution (c) Alternative start month (d) Alternative stop month
for your SSN
36 Alternative entries
for your spouse's
SSN
(a) Alternative family size (b) Monthly contribution (c) Alternative start month (d) Alternative stop month
Form 8962 (2015)
DF-111

September 18, 2014
DRAFT AS OF
2014
Premium Tax Credit (PTC)
CAUTION
!
CAUTION
!
TIP
DF-112

DRAFT AS OF
September 18, 2014
DF-113

DRAFT AS OF
September 18, 2014
DF-114

DRAFT AS OF
September 18, 2014
DF-115

September 18, 2014
DRAFT AS OF
DF-116

DRAFT AS OF
September 18, 2014
TIP
DF-117

DRAFT AS OF
September 18, 2014
DF-118

DRAFT AS OF
September 18, 2014
!
CAUTION
DF-119

DRAFT AS OF
September 18, 2014
!
CAUTION
TIP
TIP
DF-120

DRAFT AS OF
September 18, 2014
DF-121

DRAFT AS OF
September 18, 2014
!
CAUTION
DF-122

September 18, 2014
DRAFT AS OF
CAUTION
!
CAUTION
!
DF-123

September 18, 2014
DRAFT AS OF
DF-124

September 18, 2014
DRAFT AS OF
TIP
DF-125

DRAFT AS OF
September 18, 2014
!
CAUTION
DF-126

Health Coverage Exemptions
Form 8965 2015
Department of the Treasury
Internal Revenue Service
Name as shown on return
Attach to Form 1040, Form 1040A, or Form 1040EZ.
Information about Form 8965 and its separate instructions is at www.irs.gov/form8965.
Your social security number
OMB No. 1545-0074
Attachment
Sequence No. 75
DRAFT AS OF
Marketplace-Granted Coverage Exemptions for Individuals. If you and/or a member of your tax household
Complete this form if you have a Marketplace-granted coverage exemption or you are claiming a coverage exemption
on your return.
Part I
have an exemption granted by the Marketplace, complete Part I.
(a)
Name of Individual
(b)
SSN
(c)
Exemption Certificate Number
1
August 4, 2015
2
3
4
DO NOT FILE
5
6
Part II
Coverage Exemptions Claimed on Your Return for Your Household
7a Are you claiming an exemption because your household income is below the filing threshold? . . . . . . Yes No
b Are you claiming a hardship exemption because your gross income is below the filing threshold? . . . . Yes No
Coverage Exemptions Claimed on Your Return for Individuals. If you and/or a member of your tax
Part III
household are claiming an exemption on your return, complete Part III.
(a)
Name of Individual
(b)
SSN
(c)
Exemption
Type
(d)
Full
Year
(e)
Jan
(f)
Feb
(g)
Mar
(h)
Apr
(i)
May
(j)
June
(k)
July
(l)
Aug
(m)
Sept
(n)
Oct
(o)
Nov
(p)
Dec
8
9
10
11
12
13
For Privacy Act and Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 37787G Form 8965 (2015)
DF-127

DRAFT AS OF
Have Health Coverage
✓
For each month you must either:
See the instructions for your tax return for
information on reporting full-year coverage.
OR
August 25, 2015
$
Claim a Coverage Exemption
on Form 8965
OR
Make a Shared Responsibility
Payment
See Shared Responsibility Payment for information on
how to figure your shared responsibility payment.
TIP
DF-128

!
CAUTION
DRAFT AS OF
August 25, 2015
TIP
TIP
DF-129

August 25, 2015
DRAFT AS OF
DF-130

August 25, 2015
DRAFT AS OF
TIP
DF-131

August 25, 2015
DRAFT AS OF
DF-132

August 25, 2015
DRAFT AS OF
TIP
TIP
DF-133

August 25, 2015
DRAFT AS OF
TIP
DF-134

DRAFT AS OF
August 25, 2015
!
CAUTION
DF-135

August 25, 2015
DRAFT AS OF
DF-136

DRAFT AS OF
!
August 25, 2015
CAUTION
DF-137

August 25, 2015
DRAFT AS OF
TIP
TIP
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DRAFT AS OF
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DF-145

Form 9465
(Rev. December 2013)
Department of the Treasury
Internal Revenue Service
Installment Agreement Request
Information about Form 9465 and its separate instructions is at www.irs.gov/form9465.
If you are filing this form with your tax return, attach it to the front of the return.
See separate instructions.
OMB No. 1545-0074
Tip: If you owe $50,000 or less, you may be able to establish an installment agreement online, even if you have not yet received a bill
for your taxes. Go to IRS.gov to apply to pay online. Caution: Do not file this form if you are currently making payments on an
installment agreement or can pay your balance in full within 120 days. Instead, call 1-800-829-1040. Do not file if your business is still
operating and owes employment or unemployment taxes. Instead, call the telephone number on your most recent notice. If you are in
bankruptcy or we have accepted your offer-in-compromise, see Bankruptcy or offer-in-compromise, in the instructions.
DRAFT AS OF
August 27, 2013
Part I
This request is for Form(s) (for example, Form 1040 or Form 941)
and for tax year(s) (for example, 2012 and 2013)
1 a Your first name and initial Last name Your social security number
If a joint return, spouse’s first name and initial Last name Spouse’s social security number
Current address (number and street). If you have a P.O. box and no home delivery, enter your box number.
City, town or post office, state, and ZIP code. If a foreign address, also complete the spaces below (see instructions)
Apt. number
Foreign country name Foreign province/state/county Foreign postal code
DO NOT FILE
1 b If this address is new since you filed your last tax return, check here . . . . . . . . . . . . . . . . .
2 Name of your business (must be no longer operating) Employer identification number (EIN)
3
Your home phone number
Best time for us to call
5 Name of your bank or other financial institution:
4
Your work phone number Ext. Best time for us to call
6 Your employer’s name:
Address
Address
City, state, and ZIP code
City, state, and ZIP code
7 Enter the total amount you owe as shown on your tax return(s) (or notice(s)) . . . . . . . . 7
8 Enter the amount of any payment you are making with your tax return(s) (or notice(s)). See instructions 8
9 Subtract line 8 from line 7 and enter the result . . . . . . . . . . . . . . . . . . 9
10 Enter the amount you can pay each month. Make your payments as large as possible to limit interest
and penalty charges. The charges will continue until you pay in full. If no payment amount is listed
on line 10, a payment will be determined for you by dividing the balance due by 72 months . . 10
11 Divide the amount on line 9 by 72 and enter the result . . . . . . . . . . . . . . . 11
• If the amount on line 10 is less than the amount on line 11 and you are unable to increase your payment to the amount on line
11, complete and attach Form 433-F, Collection Information Statement.
• If the amount on line 10 is equal to or greater than the amount on line 11 but the amount you owe is greater than $25,000 but
not more than $50,000, you must complete either line 13 or 14, if you do not wish to complete Form 433-F.
• If the amount on line 9 is greater than $50,000, complete and attach Form 433-F, Collection Information Statement.
12 Enter the date you want to make your payment each month. Do not enter a date later than the 28th
13 If you want to make your payments by direct debit from your checking account, see the instructions and fill in lines 13a and
13b. This is the most convenient way to make your payments and it will ensure that they are made on time.
a Routing number
b Account number
I authorize the U.S. Treasury and its designated Financial Agent to initiate a monthly ACH debit (electronic withdrawal) entry to the financial
institution account indicated for payments of my Federal taxes owed, and the financial institution to debit the entry to this account. This
authorization is to remain in full force and effect until I notify the U.S. Treasury Financial Agent to terminate the authorization. To revoke
payment, I must contact the U.S. Treasury Financial Agent at 1-800-829-1040 no later than 14 business days prior to the payment (settlement)
date. I also authorize the financial institutions involved in the processing of the electronic payments of taxes to receive confidential information
necessary to answer inquiries and resolve issues related to the payments.
14 If you want to make your payments by payroll deduction, check this box and attach a completed Form 2159, Payroll Deduction
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Your signature Date Spouse’s signature. If a joint return, both must sign. Date
For Privacy Act and Paperwork Reduction Act Notice, see instructions. Cat. No. 14842Y Form 9465 (Rev. 12-2013)
DF-146

Form 9465 (Rev. 12-2013) Page 2
Part II
Additional information. Complete this part only if you have defaulted on an installment agreement within the
past 12 months and the amount you owe is greater than $25,000 but not more $50,000 and the amount on
line 10 is equal to or greater than the amount on line 11. If you owe more than $50,000, complete and attach
Form 433-F, Collection Information Statement.
DRAFT AS OF
August 27, 2013
15
In which county is your primary residence?
16a Marital status:
Single. Skip question 16b and go to question 17.
Married. Go to question 16b.
b Do you share household expenses with your spouse?
Yes.
No.
17 How many dependents will you be able to claim on this year's tax return?. . . . . . . . . 17
18 How many people in your household are 65 or older? . . . . . . . . . . . . . . . 18
19 How often are you paid?
Once
DO
a week.
NOT FILE
Once every two weeks.
Once a month.
Twice a month.
20 What is your net income per pay period (take home pay)? . . . . . . . . . . . . . . 20 $
21 How often is your spouse paid?
Once a week.
Once every two weeks.
Once a month.
Twice a month.
22 What is your spouse's net income per pay period (take home pay)? . . . . . . . . . . . 22 $
23 How many vehicles do you own? . . . . . . . . . . . . . . . . . . . . . . 23
24 How many car payments do you have each month? . . . . . . . . . . . . . . . . . . . 24
25a Do you have health insurance?
Yes. Go to question 25b.
No. Skip question 25b and go to question 26a.
b Are your premiums deducted from your paycheck?
Yes. Skip question 25c and go to question 26a.
No. Go to question 25c.
c How much are your monthly premiums? . . . . . . . . . . . . . . . . . . . 25c $
26a Do you make court-ordered payments?
Yes. Go to question 26b.
No. Go to question 27.
b Are your court-ordered payments deducted from your paycheck?
Yes. Go to question 27.
No. Go to question 26c.
c How much are your court-ordered payments each month? . . . . . . . . . . . . . 26c $
27 Not including any court-ordered payments for child and dependent support, how much do you pay
for child or dependent care each month? . . . . . . . . . . . . . . . . . . . 27 $
Form 9465 (Rev. 12-2013)
DF-147

Employer identification number (EIN)
a Employee’s social security number
OMB No. 1545-0008
Safe, accurate,
FAST! Use
Visit the IRS website at
www.irs.gov/efile
1 Wages, tips, other compensation 2 Federal income tax withheld
c Employer’s name, address, and ZIP code
3 Social security wages 4 Social security tax withheld
5 Medicare wages and tips 6 Medicare tax withheld
7 Social security tips 8 Allocated tips
d Control number
9 10 Dependent care benefits
e Employee’s first name and initial Last name Suff.
11 Nonqualified plans 12a See instructions for box 12
C
13 Statutory
employee
14 Other
f Employee’s address and ZIP code
15 State Employer’s state ID number 16 State wages, tips, etc. 17 State income tax 18 Local wages, tips, etc. 19 Local income tax 20 Locality name
Retirement
plan
Third-party
sick pay
o
d
e
12b
C
o
d
e
12c
C
o
d
e
12d
C
o
d
e
Wage and Tax
Form W-2
Copy B—To Be Filed With Employee’s FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.
Statement 2015
Department of the Treasury—Internal Revenue Service
DF-148

GLOSSARY
Additional Medicare Tax
The Affordable Care Act added an Additional Medicare Tax of 0.9% to earnings in
excess of $200,000 ($125,000 for married filing separately and $250,000 for married
filing jointly).
Adjusted Basis
The net cost of an asset after adjusting for various tax-related items such as deferred
gains and losses, depreciation, reinvested income, etc.
Adjusted Gross Income
Gross income reduced by specified deductions in §62(a).
Affordable Care Act (ACA)
Legislation enacted which requires an Individual Shared Responsibility Provision that
taxpayers have minimum essential health coverage, qualify for a health coverage
exemption, or make a shared responsibility payment when they file their federal
income tax return.
Allowable suspended PAL
Losses generated by passive activities can only be used to offset income generated by
passive activities. A passive activity loss (PAL) is the excess of the passive activity
deductions over the passive activity gross income. Such “disallowed losses” are
treated as a deduction allocable to passive activity in the next tax year.
American Opportunity Credit
A tax credit for college students or their parents to help pay for college expenses,
available only for the first four years of postsecondary education and the student must
be enrolled at least half-time.
Annual Gift Tax Exclusion
The amount that is annually exempted from federal gift taxes and does not require the
filing of a Form 709 Gift Tax Return. The amount in 2015 is $14,000.
Capital Gain Tax Rate
Capital gains are taxed depending on what kind of capital asset was invested in and
how long the asset was held. The tax rate on most net capital gain is no higher than
15% for most taxpayers with exceptions where capital gains may be taxed at rates
greater than 15%.
Cancellation of Indebtedness
Cancellation of all or part of a debt that is secured by property may occur because of
a foreclosure, a repossession, a voluntary return of the property to the lender,
abandonment of the property, or a principal residence loan modification.
1

Catch Up Rules for IRA Contributions
Individuals age 50 or over at the end of the calendar year can make annual catch-up
contributions. The type of retirement plan determines the contribution amount.
Child Tax Credit
A credit for taxpayers with qualifying children under 17 years old at the end of the
year. The maximum amount for the credit is $1,000 for each qualifying child and is
subject to phase out of $50 for each $1,000 or fraction thereof above a specified
threshold based on filing status.
Coverdell Education Savings Account
A trust or custodial account set up for paying qualified education expenses for the
designated beneficiary of the account.
Capital Gains and Losses
Generally calculated as the difference between the adjusted basis and the amount
realized on a sale of a capital asset such as stocks, bonds, or real estate. The gain is
the difference between a higher amount realized and a lower adjusted basis.
Conversely, a capital loss arises if the amount realized from the sale of a capital asset
is less than the adjusted basis.
CP Notices
Notices the IRS mails a taxpayer when there are issues, questions, and adjustments
on a tax return.
Deferral Plans
A contribution arrangement of an employer-sponsored retirement plan under which
participants can choose to set aside part of their pretax compensation as a contribution
to the plan.
Defining Gross Income and Adjusted Gross Income
Gross income is the total amount of unearned and earned income for a tax year from
whatever source derived. Adjusted gross income (AGI) is gross income minus
allowable deductions.
Depreciation
An annual allowance for the wear and tear, deterioration, or obsolescence of tangible
property (excluding land), such as buildings, machinery, vehicles, furniture, and
equipment. In addition, certain intangible property, such as patents, copyrights, and
computer software is depreciable. Each asset has a statutory life and method for
determining the annual amount.
Earned Income Credit (EIC)
A refundable tax credit for low-to moderate-income working individuals and couples,
particularly those with children. The amount of credit varies depending on a
recipient’s income and the number of dependents.
2

Educational Expenses
Qualified education expenses include tuition and certain related expenses required for
enrollment or attendance at an eligible educational institution.
Elective Deferrals
Amounts contributed to a qualified employer-sponsored retirement plan in which
participants can elect to have the employer contribute a portion of their cash wages to
the plan on a pre-tax basis.
Estimated Tax Payments
Method used to pay tax on income that is not subject to withholding. This includes
income from self-employment, interest, dividends, alimony, rent, gains from the sale
of assets, prizes, and awards. In addition, there may be a need for estimated tax if the
amount of income tax being withheld from salary, pension, or other income is not
sufficient.
Exclusion of Interest on U.S. Savings Bonds
Permits qualified taxpayers to exclude from their gross income all or part of the
interest paid upon the redemption of eligible Series EE savings bonds and Series I
savings bonds issued after 1989, to a taxpayer who already reached age 24 when the
bond owner pays qualified higher education expenses at eligible institutions.
Exemption Amount
The exemption amount taxpayers can claim on income tax returns for themselves,
their spouses, and their dependents. The personal exemption is deducted against the
taxpayer's income to arrive at the taxable income.
Dependent Health Benefits
The Patient Protection and Affordable Care Act extends health care coverage for adult
children under their parent's health plan up to age 26.
Federal Poverty Level (FPL)
A measure of income level issued annually by the Department of Health and Human
Services. Federal poverty levels are used to determine eligibility for §36 Premium
Assistance Credit calculation on IRS Form 8962 Premium Tax Credit.
Health Care Marketplace
A resource where individuals, families, and small businesses can learn about their
health coverage options; compare health insurance plans based on costs, benefits, and
other important features; choose a plan; and enroll in coverage.
Health Insurance Premium Tax Credit
The premium tax credit, or PTC, is a refundable credit that helps eligible individuals
and families with low or moderate income afford health insurance purchased through
a Health Insurance Marketplace.
3

Health Flexible Spending Accounts (FSA)
A Flexible Spending Account (Flexible Spending Arrangement) is a tax-exempt trust
or custodial account set up with a qualified HSA trustee to pay or reimburse certain
medical expenses that are incurred. FSAs are limited to $2,550 in 2015.
Home Office Deductions
Home office expenses can be deducted if a dwelling unit is used as a principle place
of business and a “space” is used exclusively and regularly by the taxpayer to conduct
management and administrative activities of the business.
Hope Scholarship Credit
For purposes of the American Opportunity Credit, qualified education expenses are
tuition and certain related expenses required for enrollment or attendance at an
eligible educational institution.
IRA – Individual Retirement Arrangements
An investing tool used by individuals to earn and earmark funds for retirement
savings. IRAs allow tax-deferred investments to provide financial retirement security.
There are several types of IRAs: Traditional, Roth, SIMPLE, and SEP.
Lifetime Learning Credits
A credit of up to $2,000 for qualified education expenses paid for all eligible students.
There is no limit on the number of years the lifetime learning credit can be claimed
for each student. The credit is 20% of the first $10,000 of qualified educational
expenses.
Installment Agreements, Administrative Relief
IRS allows taxpayers to pay off tax debt through an installment agreement. The IRS
has four different types of installment agreements: guaranteed, streamlined, partial
payment, and non-streamlined.
Kiddie Tax Exemption Amount
The amount a child can exclude from gross income without paying any federal income
tax. In 2015, the amount is $1,050.
Limitations on Capital Losses
Losses from sales or exchanges of capital assets shall be allowed only to the extent of
gains from such sales or exchanges with an additional $3,000 allowed annually
against other source of income.
Long-Term Capital Gains
A gain from a qualifying investment owned for longer than 12 months and then sold.
The amount of an asset sale that counts toward a capital gain is the difference between
the amount realized and the adjusted losses. Long-term capital gains are assigned a
lower tax rate than short-term capital gains.
4

Long-Term Care Insurance Premium Deductions
Premiums for "qualified" long-term care insurance policies are allowable as a medical
deduction limited to an amount based on the taxpayer’s age.
Passive Activity Loss
A financial loss from rental property, limited partnership or other activities in which
the investor does not materially participate.
Payment Card Reporting Requirements
Requires Form 1099-K information returns to be reported by certain payors with
respect to payments made in settlement of payment card (merchant card) transactions
and third party payment network transactions.
Penalties for Failure to File Correct Information Returns
Under §6721 the IRS can assess a penalty if a taxpayer fails to file, or provide
complete data on an information return. Beginning in 2016, the amount per failure is
increased from $100 to $250 per failure with a maximum penalty of $3,000,000.
Personal Exemption Amounts
The personal exemption for tax year 2015 is $4,000, up from the 2014 exemption of
$3,950. However, in 2015, the exemption is subject to a phase-out that begins with
adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It
phases out completely at $380,750 ($432,400 for married couples filing jointly.)
Phase-Out of Itemized Deductions
The phase-out threshold is based on the taxpayer’s filing status and adjusted gross
income and uses the same amounts as the phase-out for exemptions.
Premium Assistance Credit (PAC)
Individuals may qualify for the tax credit if they do not have access to minimum
essential coverage through a government plan or employer-sponsored health plan, and
their income is at least 100% of the federal poverty level and not greater than 400%
of the federal poverty level, and they purchase health insurance through a health
insurance exchange.
Premium Tax Credit (PTC)
This is the same as the American Assistance Credit. It is refundable credit that helps
eligible individuals and families with low or moderate income afford health insurance
purchased through a Health Insurance Marketplace.
Principal Residence Gain Exclusion
Homeowners who have owned and occupied their residence for at least two of the last
five years are eligible for up to $250,000 ($500,000 if married filing a joint return).
The exclusion is available once every two years with no limit to the number of times
it can be taken.
5

Qualified Charitable Distribution
For eligible tax years, individuals age 70½ or over can exclude up to $100,000 from
gross income for donations paid directly to a qualified charity from their IRA.
Roth Elective Deferral Plans
A provision that allows 401(k), 403(b), and 457(b) retirement plans to provide
participants the option of designating all or a portion of their contributions as an aftertax
or Roth contribution.
Reconciliation of Advance Premium Assistance Credit
A taxpayer must reconcile the amount of credit allowed under section 36B with
advance credit payments on the taxpayer's income tax return for a taxable year.
A taxpayer whose premium tax credit for the taxable year exceeds the taxpayer's
advance credit payments may receive the excess as an income tax refund.
A taxpayer whose advance credit payments for the taxable year exceed the
taxpayer's premium tax credit owes the excess as an additional income tax
liability.
Retirement Plan Tax Credit
The Retirement Savings Contribution Credit is a federal tax credit designed to
encourage low-and modest-income individuals to save for retirement. It is also
referred to as the Saver’s Credit.
Roth IRA
Unlike a traditional IRA, contributions to a Roth IRA are not deductible.
Contributions can be made to a Roth IRA after age 70½ as long as the taxpayer has
earned income and amounts can be left as long as they live.
Shared Responsibility Payment
An individual shared responsibility payment must be made for any month during the
year that a taxpayer or any of their dependents do not have minimum essential
coverage and do not qualify for a coverage exemption.
Simple IRA
Savings Incentive Match Plan for Employees allows employees and employers to
contribute to traditional IRAs. It is ideally suited as a start-up retirement savings plan
for small employers not currently sponsoring a retirement plan.
Simplified Options for Claiming a Home Office Deduction
The simplified option is a $5 standard deduction per square foot of office space for a
maximum of 300 square feet.
Subchapter S Corporation
S corporations are corporations that elect to pass corporate income, losses,
deductions, and credits through to their shareholders for federal tax purposes.
6

TIGTA
The Treasury Inspector General for Tax Administration (TIGTA) was established
under the IRS Restructuring and Reform Act of 1998 to provide independent
oversight of IRS activities.
Unrecaptured Depreciation
A type of depreciation-recapture income that is realized on the sale of depreciable real
estate and has a maximum long-term capital gain rate of 25%.
Wash Sales
The wash sale rule is a provision that prohibits taxpayers from creating artificial
losses by selling stocks and bonds at a loss, then repurchasing them. A wash sale
occurs when an investor sells a security at a loss but then purchases the same or a
substantially similar security within 30 days before or after the sale.
Net Investment Income Tax
Individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the
lesser of their net investment income, or the amount by which their modified adjusted
gross income exceeds the statutory threshold amount based on their filing status.
7

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