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Form 1040 Ez 2013 Instructions

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Form 1040 Ez 2013 Instructions

Form 1040 ez 2013 instructions 4. Form 1040 ez 2013 instructions   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Form 1040 ez 2013 instructions Line of business. Form 1040 ez 2013 instructions Examples. Form 1040 ez 2013 instructions Improvement of business conditions. Form 1040 ez 2013 instructions Exception for local legislation. Form 1040 ez 2013 instructions De minimis exception. Form 1040 ez 2013 instructions Grass roots lobbying. Form 1040 ez 2013 instructions 501(c)(7) - Social and Recreation ClubsLimited membership. Form 1040 ez 2013 instructions Support. Form 1040 ez 2013 instructions Facilities open to public. Form 1040 ez 2013 instructions Gross receipts from nonmembership sources. Form 1040 ez 2013 instructions Gross receipts. Form 1040 ez 2013 instructions Nontraditional activities. Form 1040 ez 2013 instructions 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Form 1040 ez 2013 instructions Losses and expenses. Form 1040 ez 2013 instructions Distributions of proceeds. Form 1040 ez 2013 instructions The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Form 1040 ez 2013 instructions Perpetual care organization. Form 1040 ez 2013 instructions Care of individual plots. Form 1040 ez 2013 instructions 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Form 1040 ez 2013 instructions 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Form 1040 ez 2013 instructions Waiver of payment of income. Form 1040 ez 2013 instructions 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Form 1040 ez 2013 instructions Section 501(c)(3) organizations are covered in chapter 3 of this publication. Form 1040 ez 2013 instructions The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Form 1040 ez 2013 instructions 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Form 1040 ez 2013 instructions The discussion that follows describes the information you must provide when applying. Form 1040 ez 2013 instructions For application procedures, see chapter 1. Form 1040 ez 2013 instructions To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Form 1040 ez 2013 instructions In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Form 1040 ez 2013 instructions If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Form 1040 ez 2013 instructions See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Form 1040 ez 2013 instructions Examples. Form 1040 ez 2013 instructions   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Form 1040 ez 2013 instructions Nonprofit operation. Form 1040 ez 2013 instructions   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Form 1040 ez 2013 instructions However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Form 1040 ez 2013 instructions Social welfare. Form 1040 ez 2013 instructions   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Form 1040 ez 2013 instructions   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Form 1040 ez 2013 instructions It therefore does not qualify as a section 501(c)(4) organization. Form 1040 ez 2013 instructions Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Form 1040 ez 2013 instructions However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Form 1040 ez 2013 instructions Political activity. Form 1040 ez 2013 instructions   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Form 1040 ez 2013 instructions However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Form 1040 ez 2013 instructions See the discussion in chapter 2 under Political Organization Income Tax Return . Form 1040 ez 2013 instructions Social or recreational activity. Form 1040 ez 2013 instructions   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Form 1040 ez 2013 instructions Retirement benefit program. Form 1040 ez 2013 instructions   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Form 1040 ez 2013 instructions It may qualify under another paragraph of section 501(c) depending on all the facts. Form 1040 ez 2013 instructions   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Form 1040 ez 2013 instructions Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Form 1040 ez 2013 instructions They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Form 1040 ez 2013 instructions However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Form 1040 ez 2013 instructions for more information. Form 1040 ez 2013 instructions For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Form 1040 ez 2013 instructions gov. Form 1040 ez 2013 instructions Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Form 1040 ez 2013 instructions Volunteer fire companies. Form 1040 ez 2013 instructions   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Form 1040 ez 2013 instructions   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Form 1040 ez 2013 instructions In this event, your organization should file Form 1023. Form 1040 ez 2013 instructions Homeowners' associations. Form 1040 ez 2013 instructions   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Form 1040 ez 2013 instructions The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Form 1040 ez 2013 instructions Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Form 1040 ez 2013 instructions Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Form 1040 ez 2013 instructions   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Form 1040 ez 2013 instructions It also must show that it does not engage in exterior maintenance of private homes. Form 1040 ez 2013 instructions   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Form 1040 ez 2013 instructions Other organizations. Form 1040 ez 2013 instructions   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Form 1040 ez 2013 instructions 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Form 1040 ez 2013 instructions You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Form 1040 ez 2013 instructions In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Form 1040 ez 2013 instructions Submit any additional information that may be required, as described in this section. Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Form 1040 ez 2013 instructions However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Form 1040 ez 2013 instructions For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Form 1040 ez 2013 instructions Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Form 1040 ez 2013 instructions To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Form 1040 ez 2013 instructions In addition, no net earnings of the organization can inure to the benefit of any member. Form 1040 ez 2013 instructions Composition of membership. Form 1040 ez 2013 instructions   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Form 1040 ez 2013 instructions You must show in your application that your organization has the purposes described in the preceding paragraph. Form 1040 ez 2013 instructions These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Form 1040 ez 2013 instructions Benefits to members. Form 1040 ez 2013 instructions   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Form 1040 ez 2013 instructions However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Form 1040 ez 2013 instructions   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Form 1040 ez 2013 instructions gov. Form 1040 ez 2013 instructions Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Form 1040 ez 2013 instructions For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Form 1040 ez 2013 instructions The term harvesting, in this case, includes fishing and related pursuits. Form 1040 ez 2013 instructions Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Form 1040 ez 2013 instructions When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Form 1040 ez 2013 instructions The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Form 1040 ez 2013 instructions The following list contains some examples of activities that show an agricultural or horticultural purpose. Form 1040 ez 2013 instructions Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Form 1040 ez 2013 instructions Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Form 1040 ez 2013 instructions Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Form 1040 ez 2013 instructions Guarding the purity of a specific breed of livestock. Form 1040 ez 2013 instructions Encouraging improvements in the production of fish on privately owned fish farms. Form 1040 ez 2013 instructions Negotiating with processors for the price to be paid to members for their crops. Form 1040 ez 2013 instructions For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Form 1040 ez 2013 instructions gov. Form 1040 ez 2013 instructions 501(c)(6) - Business Leagues, etc. Form 1040 ez 2013 instructions If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Form 1040 ez 2013 instructions For a discussion of the procedure to follow, see chapter 1. Form 1040 ez 2013 instructions Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Form 1040 ez 2013 instructions In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Form 1040 ez 2013 instructions It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Form 1040 ez 2013 instructions A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Form 1040 ez 2013 instructions Trade associations and professional associations are considered business leagues. Form 1040 ez 2013 instructions Chamber of commerce. Form 1040 ez 2013 instructions   A chamber of commerce usually is composed of the merchants and traders of a city. Form 1040 ez 2013 instructions Board of trade. Form 1040 ez 2013 instructions   A board of trade often consists of persons engaged in similar lines of business. Form 1040 ez 2013 instructions For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Form 1040 ez 2013 instructions   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Form 1040 ez 2013 instructions Real estate board. Form 1040 ez 2013 instructions   A real estate board consists of members interested in improving the business conditions in the real estate field. Form 1040 ez 2013 instructions It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Form 1040 ez 2013 instructions Professional football leagues. Form 1040 ez 2013 instructions   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Form 1040 ez 2013 instructions They are exempt whether or not they administer a pension fund for football players. Form 1040 ez 2013 instructions General purpose. Form 1040 ez 2013 instructions   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Form 1040 ez 2013 instructions It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Form 1040 ez 2013 instructions Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Form 1040 ez 2013 instructions Line of business. Form 1040 ez 2013 instructions   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Form 1040 ez 2013 instructions It does not include a group composed of businesses that market a particular brand within an industry. Form 1040 ez 2013 instructions Common business interest. Form 1040 ez 2013 instructions   A common business interest of all members of the organization must be established by the application documents. Form 1040 ez 2013 instructions Examples. Form 1040 ez 2013 instructions   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Form 1040 ez 2013 instructions Improvement of business conditions. Form 1040 ez 2013 instructions   Generally, this must be shown to be the purpose of the organization. Form 1040 ez 2013 instructions This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Form 1040 ez 2013 instructions Stock or commodity exchange. Form 1040 ez 2013 instructions   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Form 1040 ez 2013 instructions Legislative activity. Form 1040 ez 2013 instructions   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Form 1040 ez 2013 instructions Deduction not allowed for dues used for political or legislative activities. Form 1040 ez 2013 instructions   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Form 1040 ez 2013 instructions Influencing legislation. Form 1040 ez 2013 instructions Participating or intervening in a political campaign for, or against, any candidate for public office. Form 1040 ez 2013 instructions Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Form 1040 ez 2013 instructions Communicating directly with certain executive branch officials to try to influence their official actions or positions. Form 1040 ez 2013 instructions See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Form 1040 ez 2013 instructions Exception for local legislation. Form 1040 ez 2013 instructions   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Form 1040 ez 2013 instructions Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Form 1040 ez 2013 instructions De minimis exception. Form 1040 ez 2013 instructions   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Form 1040 ez 2013 instructions Grass roots lobbying. Form 1040 ez 2013 instructions   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Form 1040 ez 2013 instructions Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Form 1040 ez 2013 instructions They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Form 1040 ez 2013 instructions   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Form 1040 ez 2013 instructions gov. Form 1040 ez 2013 instructions 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Form 1040 ez 2013 instructions In applying for recognition of exemption, you should submit the information described in this section. Form 1040 ez 2013 instructions Also see chapter 1 for the procedures to follow. Form 1040 ez 2013 instructions Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Form 1040 ez 2013 instructions Discrimination prohibited. Form 1040 ez 2013 instructions   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Form 1040 ez 2013 instructions   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Form 1040 ez 2013 instructions Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Form 1040 ez 2013 instructions Private benefit prohibited. Form 1040 ez 2013 instructions   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Form 1040 ez 2013 instructions For purposes of this requirement, it is not necessary that net earnings be actually distributed. Form 1040 ez 2013 instructions Even undistributed earnings can benefit members. Form 1040 ez 2013 instructions Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Form 1040 ez 2013 instructions However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Form 1040 ez 2013 instructions Purposes. Form 1040 ez 2013 instructions   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Form 1040 ez 2013 instructions You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Form 1040 ez 2013 instructions   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Form 1040 ez 2013 instructions A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Form 1040 ez 2013 instructions   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Form 1040 ez 2013 instructions For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Form 1040 ez 2013 instructions Limited membership. Form 1040 ez 2013 instructions   The membership in a social club must be limited. Form 1040 ez 2013 instructions To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Form 1040 ez 2013 instructions   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Form 1040 ez 2013 instructions Corporate members of a club are not the kind of members contemplated by the law. Form 1040 ez 2013 instructions Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Form 1040 ez 2013 instructions See Gross receipts from nonmembership sources , later. Form 1040 ez 2013 instructions Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Form 1040 ez 2013 instructions   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Form 1040 ez 2013 instructions However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Form 1040 ez 2013 instructions Support. Form 1040 ez 2013 instructions   In general, your club should be supported solely by membership fees, dues, and assessments. Form 1040 ez 2013 instructions However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Form 1040 ez 2013 instructions Business activities. Form 1040 ez 2013 instructions   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Form 1040 ez 2013 instructions However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Form 1040 ez 2013 instructions Facilities open to public. Form 1040 ez 2013 instructions   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Form 1040 ez 2013 instructions This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Form 1040 ez 2013 instructions Gross receipts from nonmembership sources. Form 1040 ez 2013 instructions   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Form 1040 ez 2013 instructions Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Form 1040 ez 2013 instructions Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Form 1040 ez 2013 instructions If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Form 1040 ez 2013 instructions Gross receipts. Form 1040 ez 2013 instructions   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Form 1040 ez 2013 instructions These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Form 1040 ez 2013 instructions Receipts do not include initiation fees and capital contributions. Form 1040 ez 2013 instructions Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Form 1040 ez 2013 instructions Nontraditional activities. Form 1040 ez 2013 instructions   Activities conducted by a social club need to further its exempt purposes. Form 1040 ez 2013 instructions Traditional business activities are those that further a social club's exempt purposes. Form 1040 ez 2013 instructions Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Form 1040 ez 2013 instructions Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Form 1040 ez 2013 instructions Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Form 1040 ez 2013 instructions Fraternity foundations. Form 1040 ez 2013 instructions   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Form 1040 ez 2013 instructions 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Form 1040 ez 2013 instructions The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Form 1040 ez 2013 instructions , purposes. Form 1040 ez 2013 instructions The procedures to follow in applying for recognition of exemption are described in chapter 1. Form 1040 ez 2013 instructions If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Form 1040 ez 2013 instructions If so, your organization need not apply for individual recognition of exemption. Form 1040 ez 2013 instructions For more information, see Group Exemption Letter in chapter 1 of this publication. Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Form 1040 ez 2013 instructions Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Form 1040 ez 2013 instructions The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Form 1040 ez 2013 instructions Lodge system. Form 1040 ez 2013 instructions   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Form 1040 ez 2013 instructions Payment of benefits. Form 1040 ez 2013 instructions   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Form 1040 ez 2013 instructions An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Form 1040 ez 2013 instructions   The benefits must be limited to members and their dependents. Form 1040 ez 2013 instructions If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Form 1040 ez 2013 instructions Whole-life insurance. Form 1040 ez 2013 instructions   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Form 1040 ez 2013 instructions Reinsurance pool. Form 1040 ez 2013 instructions   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Form 1040 ez 2013 instructions Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Form 1040 ez 2013 instructions The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Form 1040 ez 2013 instructions The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Form 1040 ez 2013 instructions 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Form 1040 ez 2013 instructions Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Form 1040 ez 2013 instructions Chapter 1 describes the procedures to follow in applying for exemption. Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Form 1040 ez 2013 instructions Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Form 1040 ez 2013 instructions A local employees' association must apply for recognition of exemption by filing Form 1024. Form 1040 ez 2013 instructions The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Form 1040 ez 2013 instructions A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Form 1040 ez 2013 instructions Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Form 1040 ez 2013 instructions Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Form 1040 ez 2013 instructions The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Form 1040 ez 2013 instructions To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Form 1040 ez 2013 instructions Note. Form 1040 ez 2013 instructions Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Form 1040 ez 2013 instructions Notice requirement. Form 1040 ez 2013 instructions   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Form 1040 ez 2013 instructions The organization gives notice by filing Form 1024. Form 1040 ez 2013 instructions If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Form 1040 ez 2013 instructions An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Form 1040 ez 2013 instructions Membership. Form 1040 ez 2013 instructions   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Form 1040 ez 2013 instructions This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Form 1040 ez 2013 instructions   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Form 1040 ez 2013 instructions For example, the owner of a business whose employees are members of the association can be a member. Form 1040 ez 2013 instructions An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Form 1040 ez 2013 instructions Employees. Form 1040 ez 2013 instructions   Employees include individuals who became entitled to membership because they are or were employees. Form 1040 ez 2013 instructions For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Form 1040 ez 2013 instructions   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Form 1040 ez 2013 instructions Conversely, membership is involuntary if the designation as a member is due to employee status. Form 1040 ez 2013 instructions However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Form 1040 ez 2013 instructions An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Form 1040 ez 2013 instructions Payment of benefits. Form 1040 ez 2013 instructions   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Form 1040 ez 2013 instructions The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Form 1040 ez 2013 instructions Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Form 1040 ez 2013 instructions Nondiscrimination requirements. Form 1040 ez 2013 instructions   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Form 1040 ez 2013 instructions However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Form 1040 ez 2013 instructions   A plan meets the nondiscrimination requirements only if both of the following statements are true. Form 1040 ez 2013 instructions Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Form 1040 ez 2013 instructions The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Form 1040 ez 2013 instructions A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Form 1040 ez 2013 instructions   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Form 1040 ez 2013 instructions This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Form 1040 ez 2013 instructions   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Form 1040 ez 2013 instructions The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Form 1040 ez 2013 instructions For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Form 1040 ez 2013 instructions Excluded employees. Form 1040 ez 2013 instructions   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Form 1040 ez 2013 instructions These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Form 1040 ez 2013 instructions Highly compensated individual. Form 1040 ez 2013 instructions   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Form 1040 ez 2013 instructions Go to IRS. Form 1040 ez 2013 instructions gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Form 1040 ez 2013 instructions However, the employer can choose not to have (3) apply. Form 1040 ez 2013 instructions Aggregation rules. Form 1040 ez 2013 instructions   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Form 1040 ez 2013 instructions Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Form 1040 ez 2013 instructions Leased employees are treated as employees of the recipient. Form 1040 ez 2013 instructions One employee. Form 1040 ez 2013 instructions   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Form 1040 ez 2013 instructions Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Form 1040 ez 2013 instructions The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Form 1040 ez 2013 instructions A conformed copy of the plan of which the trust is a part should be attached to the application. Form 1040 ez 2013 instructions To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Form 1040 ez 2013 instructions Note. Form 1040 ez 2013 instructions Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Form 1040 ez 2013 instructions Notice requirement. Form 1040 ez 2013 instructions   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Form 1040 ez 2013 instructions The organization gives notice by filing Form 1024. Form 1040 ez 2013 instructions If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Form 1040 ez 2013 instructions An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Form 1040 ez 2013 instructions Types of payments. Form 1040 ez 2013 instructions   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Form 1040 ez 2013 instructions In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Form 1040 ez 2013 instructions Diversion of funds. Form 1040 ez 2013 instructions   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Form 1040 ez 2013 instructions Discrimination in benefits. Form 1040 ez 2013 instructions   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Form 1040 ez 2013 instructions However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Form 1040 ez 2013 instructions Prohibited transactions and exemption. Form 1040 ez 2013 instructions   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Form 1040 ez 2013 instructions It must file the claim on Form 1024. Form 1040 ez 2013 instructions The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Form 1040 ez 2013 instructions An authorized principal officer of your organization must make this declaration under the penalties of perjury. Form 1040 ez 2013 instructions   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Form 1040 ez 2013 instructions However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Form 1040 ez 2013 instructions Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Form 1040 ez 2013 instructions For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Form 1040 ez 2013 instructions 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Form 1040 ez 2013 instructions Benevolent life insurance associations of a purely local character and like organizations. Form 1040 ez 2013 instructions Mutual ditch or irrigation companies and like organizations. Form 1040 ez 2013 instructions Mutual or cooperative telephone companies and like organizations. Form 1040 ez 2013 instructions A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Form 1040 ez 2013 instructions The information to be provided upon application by each of these organizations is described in this section. Form 1040 ez 2013 instructions For information as to the procedures to follow in applying for exemption, see chapter 1. Form 1040 ez 2013 instructions General requirements. Form 1040 ez 2013 instructions   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Form 1040 ez 2013 instructions They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Form 1040 ez 2013 instructions Mutual character. Form 1040 ez 2013 instructions   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Form 1040 ez 2013 instructions They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Form 1040 ez 2013 instructions To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Form 1040 ez 2013 instructions   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Form 1040 ez 2013 instructions Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Form 1040 ez 2013 instructions The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Form 1040 ez 2013 instructions Membership. Form 1040 ez 2013 instructions   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Form 1040 ez 2013 instructions In a stock company, the stockholders are members. Form 1040 ez 2013 instructions However, a mutual life insurance organization cannot have policyholders other than its members. Form 1040 ez 2013 instructions Losses and expenses. Form 1040 ez 2013 instructions   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Form 1040 ez 2013 instructions Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Form 1040 ez 2013 instructions If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Form 1040 ez 2013 instructions Distributions of proceeds. Form 1040 ez 2013 instructions   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Form 1040 ez 2013 instructions Such distribution represents a refund in the costs of services rendered to the member. Form 1040 ez 2013 instructions The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Form 1040 ez 2013 instructions Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Form 1040 ez 2013 instructions Mutual or cooperative telephone company. Form 1040 ez 2013 instructions   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Form 1040 ez 2013 instructions Mutual or cooperative electric company. Form 1040 ez 2013 instructions   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Form 1040 ez 2013 instructions   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Form 1040 ez 2013 instructions Qualified pole rental. Form 1040 ez 2013 instructions   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Form 1040 ez 2013 instructions   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Form 1040 ez 2013 instructions The 85% requirement is applied on the basis of an annual accounting period. Form 1040 ez 2013 instructions Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Form 1040 ez 2013 instructions Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Form 1040 ez 2013 instructions Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Form 1040 ez 2013 instructions Example. Form 1040 ez 2013 instructions   The books of an organization reflect the following for the calendar year. Form 1040 ez 2013 instructions Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Form 1040 ez 2013 instructions   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Form 1040 ez 2013 instructions   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Form 1040 ez 2013 instructions   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Form 1040 ez 2013 instructions Tax treatment of donations. Form 1040 ez 2013 instructions   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Form 1040 ez 2013 instructions Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Form 1040 ez 2013 instructions If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Form 1040 ez 2013 instructions To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Form 1040 ez 2013 instructions If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Form 1040 ez 2013 instructions A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Form 1040 ez 2013 instructions A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Form 1040 ez 2013 instructions Organizations similar to local benevolent life insurance companies. Form 1040 ez 2013 instructions   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Form 1040 ez 2013 instructions However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Form 1040 ez 2013 instructions Burial and funeral benefit insurance organization. Form 1040 ez 2013 instructions   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Form 1040 ez 2013 instructions An organization that provides its benefits in the form of supplies and service is not a life insurance company. Form 1040 ez 2013 instructions Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Form 1040 ez 2013 instructions Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Form 1040 ez 2013 instructions They can serve noncontiguous areas. Form 1040 ez 2013 instructions Like organization. Form 1040 ez 2013 instructions   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Form 1040 ez 2013 instructions Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Form 1040 ez 2013 instructions 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Form 1040 ez 2013 instructions For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Form 1040 ez 2013 instructions A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Form 1040 ez 2013 instructions A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Form 1040 ez 2013 instructions The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Form 1040 ez 2013 instructions If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Form 1040 ez 2013 instructions Operating a mortuary is not permitted. Form 1040 ez 2013 instructions However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Form 1040 ez 2013 instructions How income can be used. Form 1040 ez 2013 instructions   You should show that your organization's earnings are or will be used only in one or more of the following ways. Form 1040 ez 2013 instructions To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Form 1040 ez 2013 instructions To buy cemetery property. Form 1040 ez 2013 instructions To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Form 1040 ez 2013 instructions No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Form 1040 ez 2013 instructions Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Form 1040 ez 2013 instructions Buying cemetery property. Form 1040 ez 2013 instructions   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Form 1040 ez 2013 instructions You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Form 1040 ez 2013 instructions   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Form 1040 ez 2013 instructions Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not
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The Form 1040 Ez 2013 Instructions

Form 1040 ez 2013 instructions 10. Form 1040 ez 2013 instructions   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. Form 1040 ez 2013 instructions Eligible educational institution. Form 1040 ez 2013 instructions Dependent for whom you claim an exemption. Form 1040 ez 2013 instructions MAGI when using Form 1040A. Form 1040 ez 2013 instructions MAGI when using Form 1040. Form 1040 ez 2013 instructions Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions savings bonds. Form 1040 ez 2013 instructions If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. Form 1040 ez 2013 instructions However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. Form 1040 ez 2013 instructions Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. Form 1040 ez 2013 instructions You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. Form 1040 ez 2013 instructions Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. Form 1040 ez 2013 instructions Your filing status is not married filing separately. Form 1040 ez 2013 instructions Qualified U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions savings bonds. Form 1040 ez 2013 instructions   A qualified U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions savings bond is a series EE bond issued after 1989 or a series I bond. Form 1040 ez 2013 instructions The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). Form 1040 ez 2013 instructions   The owner must be at least 24 years old before the bond's issue date. Form 1040 ez 2013 instructions The issue date is printed on the front of the savings bond. Form 1040 ez 2013 instructions    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). Form 1040 ez 2013 instructions Qualified education expenses. Form 1040 ez 2013 instructions   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Form 1040 ez 2013 instructions Tuition and fees required to enroll at or attend an eligible educational institution. Form 1040 ez 2013 instructions Qualified education 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. Form 1040 ez 2013 instructions Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). Form 1040 ez 2013 instructions Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). Form 1040 ez 2013 instructions Adjusted qualified education expenses. Form 1040 ez 2013 instructions   You must reduce your qualified education expenses by all of the following tax-free benefits. Form 1040 ez 2013 instructions Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Form 1040 ez 2013 instructions Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). Form 1040 ez 2013 instructions Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). Form 1040 ez 2013 instructions Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). Form 1040 ez 2013 instructions Any expenses used in figuring the American opportunity and lifetime learning credits. Form 1040 ez 2013 instructions See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. Form 1040 ez 2013 instructions Eligible educational institution. Form 1040 ez 2013 instructions   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions Department of Education. Form 1040 ez 2013 instructions It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040 ez 2013 instructions The educational institution should be able to tell you if it is an eligible educational institution. Form 1040 ez 2013 instructions   Certain educational institutions located outside the United States also participate in the U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions Department of Education's Federal Student Aid (FSA) programs. Form 1040 ez 2013 instructions Dependent for whom you claim an exemption. Form 1040 ez 2013 instructions   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. Form 1040 ez 2013 instructions Modified adjusted gross income (MAGI). Form 1040 ez 2013 instructions   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. Form 1040 ez 2013 instructions However, as discussed below, there may be other modifications. Form 1040 ez 2013 instructions MAGI when using Form 1040A. Form 1040 ez 2013 instructions   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Form 1040 ez 2013 instructions MAGI when using Form 1040. Form 1040 ez 2013 instructions   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Form 1040 ez 2013 instructions    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. Form 1040 ez 2013 instructions If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. Form 1040 ez 2013 instructions Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. Form 1040 ez 2013 instructions Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). Form 1040 ez 2013 instructions    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Form 1040 ez 2013 instructions Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. Form 1040 ez 2013 instructions See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. Form 1040 ez 2013 instructions Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. Form 1040 ez 2013 instructions However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. Form 1040 ez 2013 instructions To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. Form 1040 ez 2013 instructions The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. Form 1040 ez 2013 instructions The denominator (bottom part) of the fraction is the total proceeds you received during the year. Form 1040 ez 2013 instructions Example. Form 1040 ez 2013 instructions In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. Form 1040 ez 2013 instructions S. Form 1040 ez 2013 instructions savings bond. Form 1040 ez 2013 instructions They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. Form 1040 ez 2013 instructions In 2013, they paid $7,650 of their daughter's college tuition. Form 1040 ez 2013 instructions They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. Form 1040 ez 2013 instructions Their MAGI for 2013 was $80,000. Form 1040 ez 2013 instructions   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. Form 1040 ez 2013 instructions They must pay tax on the remaining $450 ($3,000 − $2,550) interest. Form 1040 ez 2013 instructions Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. Form 1040 ez 2013 instructions Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. Form 1040 ez 2013 instructions Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Form 1040 ez 2013 instructions Attach Form 8815 to your tax return. Form 1040 ez 2013 instructions Prev  Up  Next   Home   More Online Publications