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Freetaxes com 10. Freetaxes com   Installment Sales Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Installment Sale of a Farm Installment MethodWhen to elect out. Freetaxes com Revoking the election. Freetaxes com More information. Freetaxes com Figuring Installment Sale Income Payments Received or Considered Received ExampleSection 1231 gains. Freetaxes com Summary. Freetaxes com Introduction An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Freetaxes com If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. Freetaxes com This method of reporting gain is called the installment method. Freetaxes com You cannot use the installment method to report a loss. Freetaxes com You can choose to report all of your gain in the year of sale. Freetaxes com Installment obligation. Freetaxes com   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. Freetaxes com Topics - This chapter discusses: The general rules that apply to using the installment method Installment sale of a farm Useful Items - You may want to see: Publication 523 Selling Your Home 535 Business Expenses 537 Installment Sales 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income See chapter 16 for information about getting publications and forms. Freetaxes com Installment Sale of a Farm The installment sale of a farm for one overall price under a single contract is not the sale of a single asset. Freetaxes com It generally includes the sale of real property and personal property reportable on the installment method. Freetaxes com It may also include the sale of property for which you must maintain an inventory, which cannot be reported on the installment method. Freetaxes com See Inventory , later. Freetaxes com The selling price must be allocated to determine the amount received for each class of asset. Freetaxes com The tax treatment of the gain or loss on the sale of each class of assets is determined by its classification as a capital asset, as property used in the business, or as property held for sale and by the length of time the asset was held. Freetaxes com (See chapter 8 for a discussion of capital assets and chapter 9 for a discussion of property used in the business. Freetaxes com ) Separate computations must be made to figure the gain or loss for each class of asset sold. Freetaxes com See Sale of a Farm in chapter 8. Freetaxes com If you report the sale of property on the installment method, any depreciation recapture under section 1245 or 1250 of the Internal Revenue Code is generally taxable as ordinary income in the year of sale. Freetaxes com See Depreciation recapture , later. Freetaxes com This applies even if no payments are received in that year. Freetaxes com Installment Method An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Freetaxes com A farmer who is not required to maintain an inventory can use the installment method to report gain from the sale of property used or produced in farming. Freetaxes com See Inventory , later, for information on the sale of farm property where inventory items are included in the assets sold. Freetaxes com If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. Freetaxes com Electing out of the installment method. Freetaxes com   If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. Freetaxes com   To make this election, do not report your sale on Form 6252. Freetaxes com Instead, report it on Schedule D (Form 1040), Form 4797, or both. Freetaxes com When to elect out. Freetaxes com   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Freetaxes com   However, if you timely file your tax return for the year the sale takes place without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Freetaxes com Write “Filed pursuant to section 301. Freetaxes com 9100-2” at the top of the amended return and file it where the original return was filed. Freetaxes com Revoking the election. Freetaxes com   Once made, the election can be revoked only with IRS approval. Freetaxes com A revocation is retroactive. Freetaxes com More information. Freetaxes com   See Electing Out of the Installment Method in Publication 537 for more information. Freetaxes com Inventory. Freetaxes com   The sale of farm inventory items cannot be reported on the installment method. Freetaxes com All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Freetaxes com   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. Freetaxes com If you do not, each payment must be allocated between the inventory and the other assets sold. Freetaxes com Sale at a loss. Freetaxes com   If your sale results in a loss, you cannot use the installment method. Freetaxes com If the loss is on an installment sale of business assets, you can deduct it only in the tax year of sale. Freetaxes com Figuring Installment Sale Income Each payment on an installment sale usually consists of the following three parts. Freetaxes com Interest income. Freetaxes com Return of your adjusted basis in the property. Freetaxes com Gain on the sale. Freetaxes com In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. Freetaxes com You do not include in income the part that is the return of your basis in the property. Freetaxes com Basis is the amount of your investment in the property for installment sale purposes. Freetaxes com Interest income. Freetaxes com   You must report interest as ordinary income. Freetaxes com Interest is generally not included in a down payment. Freetaxes com However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Freetaxes com Interest provided in the agreement is called stated interest. Freetaxes com If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Freetaxes com See Unstated interest , later. Freetaxes com    You must continue to report the interest income on payments you receive in subsequent years as interest income. Freetaxes com Adjusted basis and installment sale income (gain on sale). Freetaxes com   After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. Freetaxes com A tax-free return of your adjusted basis in the property, and Your gain (referred to as “installment sale income” on Form 6252). Freetaxes com Figuring adjusted basis for installment sale purposes. Freetaxes com   You can use Worksheet 10-1 to figure your adjusted basis in the property for installment sale purposes. Freetaxes com When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. Freetaxes com    Worksheet 10-1. Freetaxes com Figuring Adjusted Basis and Gross Profit Percentage 1. Freetaxes com Enter the selling price for the property   2. Freetaxes com Enter your adjusted basis for the property     3. Freetaxes com Enter your selling expenses     4. Freetaxes com Enter any depreciation recapture     5. Freetaxes com Add lines 2, 3, and 4. Freetaxes com  This is your adjusted basis  for installment sale purposes   6. Freetaxes com Subtract line 5 from line 1. Freetaxes com If zero or less, enter -0-. Freetaxes com  This is your gross profit     If the amount entered on line 6 is zero, Stop here. Freetaxes com You cannot use the installment method. Freetaxes com   7. Freetaxes com Enter the contract price for the property   8. Freetaxes com Divide line 6 by line 7. Freetaxes com This is your gross profit percentage   Selling price. Freetaxes com   The selling price is the total cost of the property to the buyer and includes the following. Freetaxes com Any money you are to receive. Freetaxes com The fair market value (FMV) of any property you are to receive (FMV is discussed at Property used as a payment under Payments Received or Considered Received ). Freetaxes com Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). Freetaxes com Any of your selling expenses the buyer pays. Freetaxes com Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Freetaxes com Adjusted basis for installment sale purposes. Freetaxes com   Your adjusted basis is the total of the following three items. Freetaxes com Adjusted basis. Freetaxes com Selling expenses. Freetaxes com Depreciation recapture. Freetaxes com Adjusted basis. Freetaxes com   Basis is your investment in the property for installment sale purposes. Freetaxes com The way you figure basis depends on how you acquire the property. Freetaxes com The basis of property you buy is generally its cost. Freetaxes com The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Freetaxes com   While you own property, various events may change your original basis. Freetaxes com Some events, such as adding rooms or making permanent improvements, increase basis. Freetaxes com Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Freetaxes com The result is adjusted basis. Freetaxes com See chapter 6 and Publication 551, Basis of Assets, for more information. Freetaxes com Selling expenses. Freetaxes com   Selling expenses relate to the sale of the property. Freetaxes com They include commissions, attorney fees, and any other expenses paid on the sale. Freetaxes com Selling expenses are added to the basis of the sold property. Freetaxes com Depreciation recapture. Freetaxes com   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Freetaxes com See Depreciation Recapture in chapter 9 and Depreciation Recapture Income in Publication 537. Freetaxes com Gross profit. Freetaxes com   Gross profit is the total gain you report on the installment method. Freetaxes com   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Freetaxes com If the property you sold was your home, subtract from the gross profit any gain you can exclude. Freetaxes com Contract price. Freetaxes com   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. Freetaxes com Gross profit percentage. Freetaxes com   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Freetaxes com This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Freetaxes com   The gross profit percentage generally remains the same for each payment you receive. Freetaxes com However, see the example under Selling price reduced , later, for a situation where the gross profit percentage changes. Freetaxes com Amount to report as installment sale income. Freetaxes com   Multiply the payments you receive each year (less interest) by the gross profit percentage. Freetaxes com The result is your installment sales income for the tax year. Freetaxes com In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Freetaxes com A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Freetaxes com For a detailed discussion, see Payments Received or Considered Received , later. Freetaxes com Selling price reduced. Freetaxes com   If the selling price is reduced at a later date, the gross profit on the sale also will change. Freetaxes com You then must refigure the gross profit percentage for the remaining payments. Freetaxes com Refigure your gross profit using Worksheet 10-2. Freetaxes com New Gross Profit Percentage — Selling Price Reduced. Freetaxes com You will spread any remaining gain over future installments. Freetaxes com    Worksheet 10-2. Freetaxes com New Gross Profit Percentage — Selling Price Reduced 1. Freetaxes com Enter the reduced selling  price for the property   2. Freetaxes com Enter your adjusted  basis for the  property     3. Freetaxes com Enter your selling  expenses     4. Freetaxes com Enter any depreciation  recapture     5. Freetaxes com Add lines 2, 3, and 4. Freetaxes com   6. Freetaxes com Subtract line 5 from line 1. Freetaxes com  This is your adjusted  gross profit   7. Freetaxes com Enter any installment sale  income reported in  prior year(s)   8. Freetaxes com Subtract line 7 from line 6   9. Freetaxes com Future installments     10. Freetaxes com Divide line 8 by line 9. Freetaxes com  This is your new  gross profit percentage*. Freetaxes com   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Freetaxes com Example. Freetaxes com In 2011, you sold land with a basis of $40,000 for $100,000. Freetaxes com Your gross profit was $60,000. Freetaxes com You received a $20,000 down payment and the buyer's note for $80,000. Freetaxes com The note provides for monthly payments of $1,953 each, figured at 8% interest, amortized over four years, beginning in January 2012. Freetaxes com Your gross profit percentage was 60%. Freetaxes com You received the down payment of $20,000 in 2011 and total payments of $23,436 in 2012, of which $17,675 was principal and $5,761 was interest according to the amortization schedule. Freetaxes com You reported a gain of $12,000 on the down payment received in 2011 and $10,605 ($17,675 X 60% (. Freetaxes com 60)) in 2012. Freetaxes com In January 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $1,483 a month amortized over the remaining three years. Freetaxes com The new gross profit percentage, 47. Freetaxes com 32%, is figured in Example — Worksheet 10-2. Freetaxes com Example — Worksheet 10-2. Freetaxes com New Gross Profit Percentage — Selling Price Reduced 1. Freetaxes com Enter the reduced selling  price for the property 85,000 2. Freetaxes com Enter your adjusted  basis for the  property 40,000   3. Freetaxes com Enter your selling  expenses -0-   4. Freetaxes com Enter any depreciation  recapture -0-   5. Freetaxes com Add lines 2, 3, and 4. Freetaxes com 40,000 6. Freetaxes com Subtract line 5 from line 1. Freetaxes com  This is your adjusted  gross profit 45,000 7. Freetaxes com Enter any installment sale  income reported in  prior year(s) 22,605 8. Freetaxes com Subtract line 7 from line 6 22,395 9. Freetaxes com Future installments   47,325 10. Freetaxes com Divide line 8 by line 9. Freetaxes com  This is your new  gross profit percentage*. Freetaxes com 47. Freetaxes com 32% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Freetaxes com You will report installment sale income of $6,878 (47. Freetaxes com 32% of $14,535) in 2013, $7,449 (47. Freetaxes com 32% of $15,742) in 2014, and $8,067 (47. Freetaxes com 32% of $17,048) in 2015. Freetaxes com Form 6252. Freetaxes com   Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. Freetaxes com Attach it to your tax return for each year. Freetaxes com Disposition of Installment Obligation If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report. Freetaxes com It is considered gain or loss on the sale of the property for which you received the installment obligation. Freetaxes com Cancellation. Freetaxes com   If an installment obligation is canceled or otherwise becomes unenforceable, it is treated as a disposition other than a sale or exchange. Freetaxes com Your gain or loss is the difference between your basis in the obligation and its fair market value (FMV) at the time you cancel it. Freetaxes com If the parties are related, the FMV of the obligation is considered to be no less than its full face value. Freetaxes com Transfer due to death. Freetaxes com   The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller is not a disposition. Freetaxes com Any unreported gain from the installment obligation is not treated as gross income to the decedent. Freetaxes com No income is reported on the decedent's return due to the transfer. Freetaxes com Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments. Freetaxes com   However, if the installment obligation is canceled, becomes unenforceable, or is transferred to the buyer because of the death of the holder of the obligation, it is a disposition. Freetaxes com The estate must figure its gain or loss on the disposition. Freetaxes com If the holder and the buyer were related, the FMV of the installment obligation is considered to be no less than its full face value. Freetaxes com More information. Freetaxes com   For more information on the disposition of an installment obligation, see Publication 537. Freetaxes com Sale of depreciable property. Freetaxes com   You generally cannot report gain from the sale of depreciable property to a related person on the installment method. Freetaxes com See Sale to a Related Person in Publication 537. Freetaxes com   You cannot use the installment method to report any depreciation recapture income up to the gain on the sale. Freetaxes com However, report any gain greater than the recapture income on the installment method. Freetaxes com   The recapture income reported in the year of sale is included in your installment sale basis to determine your gross profit on the installment sale. Freetaxes com   Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Freetaxes com Report the depreciation recapture income in Part II of Form 4797 as ordinary income in the year of sale. Freetaxes com    If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. Freetaxes com See the Form 6252 instructions for details. Freetaxes com   For more information on the section 179 deduction, see Section 179 Expense Deduction in chapter 7. Freetaxes com For more information on depreciation recapture, see Depreciation Recapture in  chapter 9. Freetaxes com Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. Freetaxes com In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Freetaxes com These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. Freetaxes com However, as discussed later, the buyer's assumption of your debt is treated as a recovery of basis, rather than as a payment, in many cases. Freetaxes com Buyer pays seller's expenses. Freetaxes com   If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. Freetaxes com Include these expenses in the selling and contract prices when figuring the gross profit percentage. Freetaxes com Buyer assumes mortgage. Freetaxes com   If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. Freetaxes com Mortgage less than basis. Freetaxes com   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. Freetaxes com It is considered a recovery of your basis. Freetaxes com The contract price is the selling price minus the mortgage. Freetaxes com Example. Freetaxes com You sell property with an adjusted basis of $19,000. Freetaxes com You have selling expenses of $1,000. Freetaxes com The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 8% interest) in each of the next 4 years). Freetaxes com The selling price is $25,000 ($15,000 + $10,000). Freetaxes com Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Freetaxes com The contract price is $10,000 ($25,000 − $15,000 mortgage). Freetaxes com Your gross profit percentage is 50% ($5,000 ÷ $10,000). Freetaxes com You report half of each $2,000 payment received as gain from the sale. Freetaxes com You also report all interest you receive as ordinary income. Freetaxes com Mortgage more than basis. Freetaxes com   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Freetaxes com The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Freetaxes com   To figure the contract price, subtract the mortgage from the selling price. Freetaxes com This is the total amount (other than interest) you will receive directly from the buyer. Freetaxes com Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Freetaxes com The contract price is then the same as your gross profit from the sale. Freetaxes com    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Freetaxes com Example. Freetaxes com The selling price for your property is $9,000. Freetaxes com The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Freetaxes com Your adjusted basis in the property is $4,400. Freetaxes com You have selling expenses of $600, for a total installment sale basis of $5,000. Freetaxes com The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Freetaxes com This amount is included in the contract price and treated as a payment received in the year of sale. Freetaxes com The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000   Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000   Your gross profit percentage is 100%. Freetaxes com Report 100% of each payment (less interest) as gain from the sale. Freetaxes com Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. Freetaxes com Buyer assumes other debts. Freetaxes com   If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. Freetaxes com   If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Freetaxes com Compare the debt to your installment sale basis in the property being sold. Freetaxes com If the debt is less than your installment sale basis, none of it is treated as a payment. Freetaxes com If it is more, only the difference is treated as a payment. Freetaxes com If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. Freetaxes com These rules are the same as the rules discussed earlier under Buyer assumes mortgage . Freetaxes com However, they apply only to the following types of debt the buyer assumes. Freetaxes com Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Freetaxes com Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Freetaxes com   If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. Freetaxes com The value of the assumed debt is then considered a payment to you in the year of sale. Freetaxes com Property used as a payment. Freetaxes com   If you receive property rather than money from the buyer, it is still considered a payment in the year received. Freetaxes com However, see Trading property for like-kind property , later. Freetaxes com Generally, the amount of the payment is the property's FMV on the date you receive it. Freetaxes com Exception. Freetaxes com   If the property the buyer gives you is payable on demand or readily tradable (see examples later), the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use an accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. Freetaxes com See Unstated interest , later. Freetaxes com Examples. Freetaxes com If you receive a note from the buyer as payment, and the note stipulates that you can demand payment from the buyer at any time, the note is payable on demand. Freetaxes com If you receive marketable securities from the buyer as payment, and you can sell the securities on an established securities market (such as the New York Stock Exchange) at any time, the securities are readily tradable. Freetaxes com In these examples, use the above rules to determine the amount you should consider as payment in the year received. Freetaxes com Debt not payable on demand. Freetaxes com   Any evidence of debt you receive from the buyer that is not payable on demand is not considered a payment. Freetaxes com This is true even if the debt is guaranteed by a third party, including a government agency. Freetaxes com Fair market value (FMV). Freetaxes com   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. Freetaxes com Third-party note. Freetaxes com   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. Freetaxes com Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. Freetaxes com The excess of the note's face value over its FMV is interest. Freetaxes com Exclude this interest in determining the selling price of the property. Freetaxes com However, see Exception under Property used as a payment , earlier. Freetaxes com Example. Freetaxes com You sold real estate in an installment sale. Freetaxes com As part of the down payment, the buyer assigned to you a $50,000, 8% third-party note. Freetaxes com The FMV of the third-party note at the time of the sale was $30,000. Freetaxes com This amount, not $50,000, is a payment to you in the year of sale. Freetaxes com The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. Freetaxes com The remaining 40% is interest taxed as ordinary income. Freetaxes com Bond. Freetaxes com   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. Freetaxes com For more information on the amount you should treat as a payment, see Exception under Property used as a payment , earlier. Freetaxes com   If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. Freetaxes com However, see Exception under Property used as a payment , earlier. Freetaxes com Buyer's note. Freetaxes com   The buyer's note (unless payable on demand) is not considered payment on the sale. Freetaxes com However, its full face value is included when figuring the selling price and the contract price. Freetaxes com Payments you receive on the note are used to figure your gain in the year received. Freetaxes com Sale to a related person. Freetaxes com   If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. Freetaxes com For information on these rules, see the Instructions for Form 6252 and Sale to a Related Person in Publication 537. Freetaxes com Trading property for like-kind property. Freetaxes com   If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. Freetaxes com See Like-Kind Exchanges in chapter 8 for a discussion of like-kind property. Freetaxes com   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine installment sale income each year. Freetaxes com The contract price is reduced by the FMV of the like-kind property received in the trade. Freetaxes com The gross profit is reduced by any gain on the trade that can be postponed. Freetaxes com Like-kind property received in the trade is not considered payment on the installment obligation. Freetaxes com Unstated interest. Freetaxes com   An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. Freetaxes com Interest provided in the contract is called stated interest. Freetaxes com   If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. Freetaxes com If Internal Revenue Code section 483 applies to the contract, this interest is called unstated interest. Freetaxes com   If Internal Revenue Code section 1274 applies to the contract, this interest is called original issue discount (OID). Freetaxes com   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Freetaxes com Therefore, the buyer cannot deduct the unstated interest. Freetaxes com The seller must report the unstated interest as income. Freetaxes com Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. Freetaxes com   If the debt is subject to the Internal Revenue Code section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. Freetaxes com   Unstated interest reduces the stated selling price of the property and the buyer's basis in the property. Freetaxes com It increases the seller's interest income and the buyer's interest expense. Freetaxes com   In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the applicable federal rate (AFR). Freetaxes com    The AFRs are published monthly in the Internal Revenue Bulletin (IRB). Freetaxes com You can get this information by contacting an IRS office. Freetaxes com IRBs are also available at IRS. Freetaxes com gov. Freetaxes com More information. Freetaxes com   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Freetaxes com Example. Freetaxes com You sell property at a contract price of $6,000 and your gross profit is $1,500. Freetaxes com Your gross profit percentage is 25% ($1,500 ÷ $6,000). Freetaxes com After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. Freetaxes com The remainder (balance) of each payment is the tax-free return of your adjusted basis. Freetaxes com Example On January 3, 2013, you sold your farm, including the home, farm land and buildings. Freetaxes com You received $50,000 down and the buyer's note for $200,000. Freetaxes com In addition, the buyer assumed an outstanding $50,000 mortgage on the farm land. Freetaxes com The total selling price was $300,000. Freetaxes com The note payments of $25,000 each, plus adequate interest, are due every July 1 and January 1, beginning in July 2013. Freetaxes com Your selling expenses were $15,000. Freetaxes com Adjusted basis and depreciation. Freetaxes com   The adjusted basis and depreciation claimed on each asset sold are as follows:   Depreciation Adjusted Asset Claimed Basis Home* -0- $33,743 Farm land -0- 73,610 Buildings $31,500 35,130 * Owned and used as main home for at least 2 of the 5 years prior to the sale Gain on each asset. Freetaxes com   The following schedule shows the assets included in the sale, each asset's selling price based on its respective value, the selling expense allocated to each asset, the adjusted basis of each asset, and the gain on each asset. Freetaxes com The selling expense for each asset is 5% of the selling price ($15,000 selling expense ÷ $300,000 selling price). Freetaxes com   Selling Selling Adjusted     Price Expense Basis Gain Home* $60,000 $3,000 $33,743 $23,257 Farm land  165,000  8,250  73,610  83,140 Buildings 75,000 3,750 35,130 36,120   $300,000 $15,000 $142,483 $142,517 * Owned and used as main home for at least 2 of the 5 years prior to the sale Depreciation recapture. Freetaxes com   The buildings are section 1250 property. Freetaxes com There is no depreciation recapture income for them because they were depreciated using the straight line method. Freetaxes com See chapter 9 for more information on depreciation recapture. Freetaxes com   Special rules may apply when you sell section 1250 assets depreciated under the straight line method. Freetaxes com See the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). Freetaxes com See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for more information on section 1250 assets. Freetaxes com Installment sale basis and gross profit. Freetaxes com   The following table shows each asset reported on the installment method, its selling price, installment sale basis, and gross profit. Freetaxes com     Installment     Selling Sale Gross   Price Basis Profit Farm land $165,000 $73,610 $83,140 Buildings 75,000 35,130 36,120   $240,000 $108,740 $119,260 Section 1231 gains. Freetaxes com   The gain on the farm land and buildings is reported as section 1231 gains. Freetaxes com See Section 1231 Gains and Losses in chapter 9. Freetaxes com Contract price and gross profit percentage. Freetaxes com   The contract price is $250,000 for the part of the sale reported on the installment method. Freetaxes com This is the selling price ($300,000) minus the mortgage assumed ($50,000). Freetaxes com   Gross profit percentage for the sale is 47. Freetaxes com 70% ($119,260 gross profit ÷ $250,000 contract price). Freetaxes com The gross profit percentage for each asset is figured as follows:   Percent Farm land ($83,140 ÷ $250,000) 33. Freetaxes com 256 Buildings ($36,120 ÷ $250,000) 14. Freetaxes com 448 Total 47. Freetaxes com 70 Figuring the gain to report on the installment method. Freetaxes com   One hundred percent (100%) of each payment is reported on the installment method. Freetaxes com The total amount received on the sale in 2013 is $75,000 ($50,000 down payment + $25,000 payment on July 1). Freetaxes com The installment sale part of the total payments received in 2013 is also $75,000. Freetaxes com Figure the gain to report for each asset by multiplying its gross profit percentage times $75,000. Freetaxes com   Income Farm land—33. Freetaxes com 256% × $75,000 $24,942 Buildings—14. Freetaxes com 448% × $75,000 10,836 Total installment income for 2013 $35,778 Reporting the sale. Freetaxes com   Report the installment sale on Form 6252. Freetaxes com Then report the amounts from Form 6252 on Form 4797 and Schedule D (Form 1040). Freetaxes com Attach a separate page to Form 6252 that shows the computations in the example. Freetaxes com If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. Freetaxes com Section 1231 gains. Freetaxes com   The gains on the farm land and buildings are section 1231 gains. Freetaxes com They may be reported as either capital or ordinary gain depending on the net balance when combined with other section 1231 losses. Freetaxes com A net 1231 gain is capital gain and a net 1231 loss is an ordinary loss. Freetaxes com Installment income for years after 2013. Freetaxes com   You figure installment income for the years after 2013 by applying the same gross profit percentages to the payments you receive each year. Freetaxes com If you receive $50,000 during the year, the entire $50,000 is considered received on the installment sale (100% × $50,000). Freetaxes com You realize income as follows:   Income Farm land—33. Freetaxes com 256% × $50,000 $16,628 Buildings—14. Freetaxes com 448% × $50,000 7,224 Total installment income $23,852   In this example, no gain ever is recognized from the sale of your home. Freetaxes com You will combine your section 1231 gains from this sale with section 1231 gains and losses from other sales in each of the later years to determine whether to report them as ordinary or capital gains. Freetaxes com The interest received with each payment will be included in full as ordinary income. Freetaxes com Summary. Freetaxes com   The installment income (rounded to the nearest dollar) from the sale of the farm is reported as follows: Selling price $190,000 Minus: Installment basis (108,740) Gross profit $81,260     Gain reported in 2012 (year of sale) $35,778 Gain reported in 2013:   $50,000 × 47. Freetaxes com 70% 23,850 Gain reported in 2014:   $50,000 × 47. Freetaxes com 70% 23,850 Gain reported in 2015:   $50,000 × 47. Freetaxes com 70% 23,850 Gain reported in 2016:   $25,000 × 47. Freetaxes com 70% 11,925 Total gain reported $119,253 Prev  Up  Next   Home   More Online Publications
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Letter 2840C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter is confirming an Installment Agreement request you made when you filed a balance due return and confirms the payment date and the payment amount. The letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify).

What do I have to do?

Make monthly payments by the due date contained in the letter.

How much time do I have?

The letter contains the due date of the payment.

What happens if I don't take any action?

Failing to make timely installment payments will cause the account to default which could result in levy, lien actions and additional fees.

Who should I contact?

You can call the toll free number provided in the letter. The person who answers the phone will assist you.

What if I don't agree or have already taken corrective action?

If you don't agree, you should call the telephone number on the letter as soon as possible. If you have already taken corrective action, you can call the toll free number to verify that your installment agreement is in place.

Page Last Reviewed or Updated: 30-Jan-2014

The Freetaxes Com

Freetaxes com Publication 557 - Additional Material Table of Contents Appendix. Freetaxes com Sample Articles of Organization, continued Organization Reference Chart Section of 1986 Code Description of organization General nature of activities Application  Form Annual return required to be  filed Contributions  allowable 501(c)(1) Corporations Organized under Act of Congress (including Federal Credit Unions) Instrumentalities of the  United States No Form None Yes, if made for exclusively public purposes 501(c)(2) Title Holding Corporation For Exempt Organization Holding title to property of an  exempt organization 1024 9901 or 990-EZ8 No2 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Activities of nature implied by description of class of organization 1023 9901 or 990-EZ8, or 990-PF Yes, generally 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees Promotion of community welfare; charitable, educational, or recreational 1024 9901 or 990-EZ8 No, generally 2, 3 501(c)(5) Labor, Agricultural, and Horticultural Organizations Educational or instructive, the  purpose being to improve conditions of work, and to improve products of efficiency 1024 9901 or 990-EZ8 No2 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. Freetaxes com Improvement of business  conditions of one or more lines of business 1024 9901 or 990-EZ8 No2 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 9901 or 990-EZ8 No2 501(c)(8) Fraternal Beneficiary Societies  and Associations Lodge providing for payment of life, sickness, accident or other benefits  to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. Freetaxes com 501(c)(3) purposes 501(c)(9) Voluntary Employees Beneficiary Associations Providing for payment of life, sickness, accident, or other benefits to members 1024 9901 or 990-EZ8 No2 501(c)(10) Domestic Fraternal Societies  and Associations Lodge devoting its net earnings to charitable, fraternal, and other  specified purposes. Freetaxes com No life, sickness, or accident benefits to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. Freetaxes com 501(c)(3) purposes 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of retirement benefits Letter6 9901 or 990-EZ8 No2 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or  Irrigation Companies, Mutual or Cooperative Telephone Companies, etc. Freetaxes com Activities of a mutually beneficial  nature similar to those implied by the description of class of organization 1024 9901 or 990-EZ8 No2 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9901 or 990-EZ8 Yes, generally 501(c)(14) State-Chartered Credit Unions,  Mutual Reserve Funds Loans to members Letter6 9901 or 990-EZ8 No2 501(c)(15) Mutual Insurance Companies or Associations Providing insurance to members substantially at cost 1024 9901 or 990-EZ8 No2 501(c)(16) Cooperative Organizations to  Finance Crop Operations Financing crop operations in  conjunction with activities of a marketing  or purchasing association Form 1120-C6 9901 or 990-EZ8 No2 501(c)(17) Supplemental Unemployment  Benefit Trusts Provides for payment of  supplemental unemployment compensation benefits 1024 9901 or 990-EZ8 No2 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) Payment of benefits under a  pension plan funded by employees Letter6 9901 or 990-EZ8 No2 501(c)(19) Post or Organization of Past or  Present Members of the Armed Forces Activities implied by nature of organization 1024 9901 or 990-EZ8 No, generally7 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy their liability for disability or  death due to black lung diseases Letter6 990-BL No4 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the  liability of employers withdrawing from  a multi-employer pension fund Letter6 9901 or 990-EZ8 No5 501(c)(23) Veterans' Organization (created before 1880) To provide insurance and other  benefits to veterans Letter6 9901 or 990-EZ8 No, generally7 501(c)(25) Title Holding Corporations or Trusts with Multiple Parent Corporations Holding title and paying over  income from property to 35 or fewer parents or beneficiaries 1024 9901 or 990-EZ8 No 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk Individuals Provides health care coverage to high-risk individuals Letter6 9901 or 990-EZ8 No 501(c)(27) State-Sponsored Workers' Compensation Reinsurance Organization Reimburses members for losses  under workers' compensation acts Letter6 9901 or 990-EZ8 No 501(c)(28) National Railroad Retirement Investment Trust Manages and invests the assets of the Railroad Retirement Account No Form 99011 No11 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which has received a loan or grant under the CO-OP program Letter and Form 871814 9901 No13 501(d) Religious and Apostolic Associations Regular business activities;  Communal religious community No Form 10659 No2 501(e) Cooperative Hospital Service Organizations Performs cooperative services for hospitals 1023 9901 or 990-EZ8 Yes 501(f) Cooperative Service Organizations  of Operating Educational Organizations Performs collective investment  services for educational organizations 1023 9901 or 990-EZ8 Yes 501(k) Child Care Organizations Provides care for children 1023 9901 or 990-EZ8 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. Freetaxes com 501(c)(3) organizations 1023 9901 or 990-EZ8 Yes 501(q) Credit Counseling Organization Credit counseling services 1023 102312 No 521(a) Farmers' Cooperative Associations Cooperative marketing and  purchasing for agricultural procedures 1028 1120-C No 527 Political organizations A party, committee, fund,  association, etc. Freetaxes com , that directly or indirectly accepts contributions or makes expenditures for political campaigns 8871 1120-POL10 9901 or 990-EZ8 No 1For exceptions to the filing requirement, see chapter 2 and the form instructions. Freetaxes com Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. Freetaxes com Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. Freetaxes com    2An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. Freetaxes com Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). Freetaxes com    3Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. Freetaxes com    4Deductible as a business expense to the extent allowed by section 192. Freetaxes com    5Deductible as a business expense to the extent allowed by section 194A. Freetaxes com 6Application is by letter to the address shown on Form 8718. Freetaxes com A copy of the organizing document should be attached and the letter should be signed by an officer. Freetaxes com    7Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. Freetaxes com    8For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). Freetaxes com    9Although the organization files a partnership return, all distributions are deemed dividends. Freetaxes com The members are not entitled to pass through treatment of the organization's income or expenses. Freetaxes com    10Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). Freetaxes com    11Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). Freetaxes com    12See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). Freetaxes com Use Form 1024 if applying for recognition under section 501(c)(4). Freetaxes com    13See section 501(c)(29) for details. Freetaxes com    14See Revenue Procedure 2012-11, sec. Freetaxes com 4. Freetaxes com 01, 2012-7 I. Freetaxes com R. Freetaxes com B. Freetaxes com 368, for details. Freetaxes com Appendix. Freetaxes com Sample Articles of Organization The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. Freetaxes com You should bear in mind that requirements for these instruments may vary under applicable state law. Freetaxes com See Private Foundations and Public Charities , earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption. Freetaxes com DRAFT A  Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify: First: The name of the Corporation shall be . Freetaxes com Second: The place in this state where the principal office of the Corporation is to be located is the City of , County. Freetaxes com Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Freetaxes com Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. Freetaxes com No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Freetaxes com Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Freetaxes com   If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation. Freetaxes com ” Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Freetaxes com Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. Freetaxes com   In witness whereof, we have hereunto subscribed our names this day of , 20. Freetaxes com Appendix. Freetaxes com Sample Articles of Organization, continued Draft B The Charitable Trust. Freetaxes com Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows: First: This trust shall be called “The Charitable Trust. Freetaxes com ” Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Freetaxes com Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. Freetaxes com The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. Freetaxes com Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. Freetaxes com No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. Freetaxes com No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office. Freetaxes com b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. Freetaxes com On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Freetaxes com The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. Freetaxes com Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. Freetaxes com The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph. Freetaxes com c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which do not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. Freetaxes com It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Freetaxes com d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of. Freetaxes com Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Freetaxes com An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. Freetaxes com All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees. Freetaxes com Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. Freetaxes com The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. Freetaxes com Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. Freetaxes com Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. Freetaxes com  None of the trustees shall be required to furnish any bond or surety. Freetaxes com None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. Freetaxes com  The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. Freetaxes com A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. Freetaxes com  The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter. Freetaxes com Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers. Freetaxes com a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority would not be considered proper and although all of the trust funds are invested in the securities of one company. Freetaxes com No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security. Freetaxes com b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust. Freetaxes com c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust. Freetaxes com d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage. Freetaxes com e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities. Freetaxes com f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees. Freetaxes com Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise. Freetaxes com Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office. Freetaxes com Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. Freetaxes com Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. Freetaxes com No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. Freetaxes com No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust. Freetaxes com Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . Freetaxes com Trustee Trustee Prev  Up  Next   Home   More Online Publications