Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Hr Block

1040ez Tax Form2011 Tax Forms 1040 InstructionsFree State Income Tax EfileAmended Tax ReturnsAmendment Return1040ez Tax Form 20102011 1040 EzEz 1040 E-file2012 Tax Forms 1040ez2012 Amended Tax FormIrs Form 1040 2012It 1040ezCan I File My 2011 Taxes Online FreeFree 1040ezIrs File 2012 TaxesDo My 2007 Taxes OnlineFree Tax Preparation1040ez FillableState Tax Forms Need Fill1040ez Tax Form 2010File 2007 Tax Return FreeWww Hrblock ComWww Myfreetaxes Com UpstreetfreetaxFile A 1040x Online For FreeInstructions For 1040xFree 1040ez Tax ReturnHow Do You Amend TaxesState 1040ez Tax FormHow To File Amended ReturnAmended Tax ReturnMyfreetaxes Com KingcountyFile 1040ez ElectronicallyWww Myfreetaxes Com Goodwillwm1040 Tax FormFree File Taxes 2011File 2011 Taxes Online For FreeE-file State And Federal Taxes For FreeFree State And Federal Tax ReturnsFreetax Com1040ez Printable Tax Forms

Hr Block

Hr block 4. Hr block   Underpayment Penalty for 2013 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: General RuleFarmers and fishermen. Hr block Higher income taxpayers. Hr block Minimum required for higher income taxpayers. Hr block Estate or trust payments of estimated tax. Hr block Lowering or eliminating the penalty. Hr block ExceptionsLess Than $1,000 Due No Tax Liability Last Year Figuring Your Required Annual Payment (Part I) Short Method for Figuring the Penalty (Part III) Regular Method for Figuring the Penalty (Part IV)Figuring Your Underpayment (Part IV, Section A) Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Annualized Income Installment Method (Schedule AI) Farmers and Fishermen Waiver of PenaltyFarmers and fishermen. Hr block Introduction If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty. Hr block You may understand this chapter better if you can refer to a copy of your latest federal income tax return. Hr block No penalty. Hr block   Generally, you will not have to pay a penalty for 2013 if any of the following apply. Hr block The total of your withholding and timely estimated tax payments was at least as much as your 2012 tax. Hr block (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen. Hr block ) The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Hr block Your total tax for 2013 (defined later) minus your withholding is less than $1,000. Hr block You did not have a tax liability for 2012. Hr block You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. Hr block IRS can figure the penalty for you. Hr block   If you think you owe the penalty, but you do not want to figure it yourself when you file your tax return, you may not have to. Hr block Generally, the IRS will figure the penalty for you and send you a bill. Hr block   You only need to figure your penalty in the following three situations. Hr block You are requesting a waiver of part, but not all, of the penalty. Hr block You are using the annualized income installment method to figure the penalty. Hr block You are treating the federal income tax withheld from your income as paid on the dates actually withheld. Hr block However, if these situations do not apply to you, and you think you can lower or eliminate your penalty, complete Form 2210 or Form 2210-F and attach it to your return. Hr block See Form 2210 , later. Hr block Topics - This chapter discusses: The general rule for the underpayment penalty, Special rules for certain individuals, Exceptions to the underpayment penalty, How to figure your underpayment and the amount of your penalty on Form 2210, and How to ask the IRS to waive the penalty. Hr block Useful Items - You may want to see: Form (and Instructions) 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 5 for information about getting these forms. Hr block General Rule In general, you may owe a penalty for 2013 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of: 90% of your 2013 tax, or 100% of your 2012 tax. Hr block (Your 2012 tax return must cover a 12-month period. Hr block ) Your 2013 tax, for this purpose, is defined under Total tax for 2013 , later. Hr block Special rules for certain individuals. Hr block   There are special rules for farmers and fishermen and certain higher income taxpayers. Hr block Farmers and fishermen. Hr block   If at least two-thirds of your gross income for 2012 or 2013 is from farming or fishing, substitute  662/3% for 90% in (1) above. Hr block   See Farmers and Fishermen , later. Hr block Higher income taxpayers. Hr block   If your AGI for 2012 was more than $150,000 ($75,000 if your 2013 filing status is married filing a separate return), substitute 110% for 100% in (2) under General Rule . Hr block This rule does not apply to farmers or fishermen. Hr block   For 2012, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. Hr block Penalty figured separately for each period. Hr block   Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. Hr block This is true even if you are due a refund when you file your income tax return. Hr block Example. Hr block You did not make estimated tax payments for 2013 because you thought you had enough tax withheld from your wages. Hr block Early in January 2014, you made an estimate of your total 2013 tax. Hr block Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax. Hr block On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Hr block Your final return shows your total tax to be $50 less than your estimate, so you are due a refund. Hr block You do not owe a penalty for your payment due January 15, 2014. Hr block However, you may owe a penalty through January 10, 2014, the day you made the $3,000 payment, for your underpayments for the earlier payment periods. Hr block Minimum required each period. Hr block   You will owe a penalty for any 2013 payment period for which your estimated tax payment plus your withholding for the period and overpayments applied from previous periods was less than the smaller of: 22. Hr block 5% of your 2013 tax, or 25% of your 2012 tax. Hr block (Your 2012 tax return must cover a 12-month period. Hr block ) Minimum required for higher income taxpayers. Hr block   If you are subject to the rule for higher income taxpayers, discussed above, substitute 27. Hr block 5% for 25% in (2) under General Rule . Hr block When penalty is charged. Hr block   If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made. Hr block If a payment is mailed, the date of the U. Hr block S. Hr block postmark is considered the date of payment. Hr block   If a payment is made electronically, the date the payment is shown on your payment account (checking, savings, etc. Hr block ) is considered to be the date of payment. Hr block Estate or trust payments of estimated tax. Hr block   If you have estimated taxes credited to you from an estate or trust (Schedule K-1 (Form 1041)), treat the payment as made by you on January 15, 2014. Hr block Amended returns. Hr block    If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. Hr block If you file an amended return after the due date of the original return, use the tax shown on the original return. Hr block   However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. Hr block This rule applies only if both original separate returns were filed on time. Hr block 2012 separate returns and 2013 joint return. Hr block    If you file a joint return with your spouse for 2013, but you filed separate returns for 2012, your 2012 tax is the total of the tax shown on your separate returns. Hr block You filed a separate return if you filed as single, head of household, or married filing separately. Hr block 2012 joint return and 2013 separate returns. Hr block    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, your 2012 tax is your share of the tax on the joint return. Hr block You are filing a separate return if you file as single, head of household, or married filing separately. Hr block   To figure your share of the taxes on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2012 using the same filing status as for 2013. Hr block Then multiply the tax on the joint return by the following fraction. Hr block   The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. Hr block Lisa and Paul filed a joint return for 2012 showing taxable income of $49,000 and a tax of $6,484. Hr block Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. Hr block For 2013, they file married filing separately. Hr block Lisa figures her share of the tax on the 2012 joint return as follows. Hr block 2012 tax on $41,000 based on a separate return $ 6,286 2012 tax on $8,000 based on a  separate return 803 Total $ 7,089 Lisa's percentage of total tax  ($6,286 ÷ $ 7,089) 88. Hr block 67% Lisa's part of tax on joint return ($6,484 × 88. Hr block 67%) $ 5,749 Form 2210. Hr block   In most cases, you do not need to file Form 2210. Hr block The IRS will figure the penalty for you and send you a bill. Hr block If you want us to figure the penalty for you, leave the penalty line on your return blank. Hr block Do not file Form 2210. Hr block   To determine if you should file Form 2210, see Part II of Form 2210. Hr block If you decide to figure your penalty, complete Part I, Part II, and either Part III or Part IV of the form and the Penalty Worksheet in the Instructions for Form 2210. Hr block If you use Form 2210, you cannot file Form 1040EZ. Hr block   On Form 1040, enter the amount of your penalty on line 77. Hr block If you owe tax on line 76, add the penalty to your tax due and show your total payment on line 76. Hr block If you are due a refund, subtract the penalty from the overpayment and enter the result on line 73. Hr block   On Form 1040A, enter the amount of your penalty on line 46. Hr block If you owe tax on line 45, add the penalty to your tax due and show your total payment on line 45. Hr block If you are due a refund, subtract the penalty from the overpayment and enter the result on line 42. Hr block Lowering or eliminating the penalty. Hr block    You may be able to lower or eliminate your penalty if you file Form 2210. Hr block You must file Form 2210 with your return if any of the following applies. Hr block You request a waiver. Hr block See Waiver of Penalty , later. Hr block You use the annualized income installment method. Hr block See the explanation of this method under Annualized Income Installment Method (Schedule AI) . Hr block You use your actual withholding for each payment period for estimated tax purposes. Hr block See Actual withholding method under Figuring Your Underpayment (Part IV, Section A). Hr block You base any of your required installments on the tax shown on your 2012 return and you filed or are filing a joint return for either 2012 or 2013, but not for both years. Hr block Exceptions Generally, you do not have to pay an underpayment penalty if either: Your total tax is less than $1,000, or You had no tax liability last year. Hr block Less Than $1,000 Due You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000. Hr block Total tax for 2013. Hr block   For 2013, your total tax on Form 1040 is the amount on line 61 reduced by the following. Hr block    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Hr block Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Hr block The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Hr block Any refundable credit amounts listed on lines 64a, 65, 66, 70, and any credit from Form 8885 included on line 71. Hr block   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Hr block   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. Hr block Note. Hr block When figuring the amount on line 60, include household employment taxes only if you had federal income tax withheld from your income or you would owe the penalty even if you did not include those taxes. Hr block Paid through withholding. Hr block    For 2013, the amount you paid through withholding on Form 1040 is the amount on line 62 plus any excess social security or tier 1 RRTA tax withholding on line 69. Hr block Add to that any write-in amount on line 72 identified as “Form 8689. Hr block ” On Form 1040A, the amount you paid through withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included on line 41. Hr block On Form 1040EZ, it is the amount on line 7. Hr block No Tax Liability Last Year You do not owe a penalty if you had no tax liability last year and you were a U. Hr block S. Hr block citizen or resident for the whole year. Hr block For this rule to apply, your tax year must have included all 12 months of the year. Hr block You had no tax liability for 2012 if your total tax was zero or you were not required to file an income tax return. Hr block Example. Hr block Ray, who is single and 22 years old, was unemployed for a few months during 2012. Hr block He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. Hr block He had no other income. Hr block Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($9,750 for 2012). Hr block He filed a return only to have his withheld income tax refunded to him. Hr block In 2013, Ray began regular work as an independent contractor. Hr block Ray made no estimated tax payments in 2013. Hr block Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2013 because he had no tax liability in 2012. Hr block Total tax for 2012. Hr block   For 2012, your total tax on Form 1040 is the amount on line 61 reduced by the following. Hr block    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Hr block Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Hr block The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Hr block Any refundable credit amounts listed on lines 64a, 65, 66, 70, and credits from Forms 8801 (line 27 only), and 8885 included on line 71. Hr block   If you filed Form 1040A, your 2012 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Hr block   If you filed Form 1040EZ, your 2012 total tax is the amount on line 11 reduced by the amount on line 8a. Hr block Figuring Your Required Annual Payment (Part I) Figure your required annual payment in Part I of Form 2210, following the line-by-line instructions. Hr block If you rounded the entries on your tax return to whole dollars, you can round on Form 2210. Hr block Example. Hr block The tax on Lori Lane's 2012 return was $12,400. Hr block Her AGI was not more than $150,000 for either 2012 or 2013. Hr block The tax on her 2013 return (Form 1040, line 55) is $13,044. Hr block Line 56 (self-employment tax) is $8,902. Hr block Her 2013 total tax is $21,946. Hr block For 2013, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). Hr block 90% of her 2013 tax is $19,751. Hr block Because she paid less than her 2012 tax ($12,400) and less than 90% of her 2013 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. Hr block The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return. Hr block Lori's required annual payment is $12,400 (100% of 2012 tax) because that is smaller than 90% of her 2013 tax. Hr block Different 2012 filing status. Hr block    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, see 2012 joint return and 2013 separate returns , earlier, to figure the amount to enter as your 2012 tax on line 8 of Form 2210. Hr block Short Method for Figuring the Penalty (Part III) You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. Hr block If you qualify to use this method, it will result in the same penalty amount as the regular method. Hr block However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty. Hr block You can use the short method only if you meet one of the following requirements. Hr block You made no estimated tax payments for 2013 (it does not matter whether you had income tax withholding). Hr block You paid the same amount of estimated tax on each of the four payment due dates. Hr block If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions. Hr block Note. Hr block If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. Hr block However, if the payment was only a few days early, the difference is likely to be small. Hr block You cannot use the short method if any of the following apply. Hr block You made any estimated tax payments late. Hr block You checked box C or D in Part II of Form 2210. Hr block You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U. Hr block S. Hr block income tax withholding. Hr block If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Hr block Also, you cannot use your actual withholding during each period to figure your payments for each period. Hr block These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A). Hr block Complete Part III of Form 2210 following the line-by-line instructions in the Instructions for Form 2210. Hr block Regular Method for Figuring the Penalty (Part IV) You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date. Hr block You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you. Hr block You paid one or more estimated tax payments on a date after the due date. Hr block You paid at least one, but less than four, installments of estimated tax. Hr block You paid estimated tax payments in un- equal amounts. Hr block You use the annualized income installment method to figure your underpayment for each payment period. Hr block You use your actual withholding during each payment period to figure your payments. Hr block Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. Hr block Enter the results on line 27 of Section B. Hr block Figuring Your Underpayment (Part IV, Section A) Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions in the Instructions for Form 2210. Hr block Complete lines 20 through 26 of the first column before going to line 20 of the next column. Hr block Required installments—line 18. Hr block   Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). Hr block This method—the regular method—is the one to use if you received your income evenly throughout the year. Hr block   However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Hr block First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. Hr block See Annualized Income Installment Method (Schedule AI), later. Hr block Payments made—line 19. Hr block   Enter in each column the total of: Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and One-fourth of your withholding. Hr block For special rules for figuring your payments, see Form 2210 instructions for line 19. Hr block   If you file Form 1040, your withholding is the amount on line 62, plus any excess social security or tier 1 RRTA tax withholding on line 69. Hr block If you file Form 1040A, your withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41. Hr block Actual withholding method. Hr block    Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. Hr block You can make this choice separately for the tax withheld from your wages and for all other withholding. Hr block This includes any excess social security and tier 1 RRTA tax withheld. Hr block   Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year. Hr block   If you use your actual withholding, you must check box D in Form 2210, Part II. Hr block Then complete Form 2210 using the regular method (Part IV) and file it with your return. Hr block Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. Hr block The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid. Hr block For 2013, there are four rate periods—April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2014 through April 15, 2014. Hr block A 3% rate applies to all four periods. Hr block Payments. Hr block    Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. Hr block For example, if you had an underpayment for the first payment period, list your payments after April 15, 2013. Hr block You can use the table in the Form 2210 instructions to make your list. Hr block Follow those instructions for listing income tax withheld and payments made with your return. Hr block Use the list to determine when each underpayment was paid. Hr block   If you mail your estimated tax payments, use the date of the U. Hr block S. Hr block postmark as the date of payment. Hr block Line 1b. Hr block   Apply the payments listed to underpayment balance in the first column until it is fully paid. Hr block Apply payments in the order made. Hr block Figuring the penalty. Hr block   If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. Hr block On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. Hr block On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. Hr block If no payments are applied, figure the penalty on the amount on line 1a. Hr block Aid for counting days. Hr block    Table 4-1 provides a simple method for counting the number of days between a due date and a payment date. Hr block Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date. Hr block In the same manner, find the number for the date the payment was made. Hr block Subtract the due date “number” from the payment date “number. Hr block ”   For example, if a payment was due on June 15 (61), but was not paid until September 1 (139), the payment was 78 (139 – 61) days late. Hr block Table 4-1. Hr block Calendar To Determine the Number of Days a Payment Is Late Instructions. Hr block Use this table with Form 2210 if you are completing Part IV, Section B. Hr block First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. Hr block Then, in the same manner, find the number for the date the payment was made. Hr block Finally, subtract the due date number from the payment date number. Hr block The result is the number of days the payment is late. Hr block Example. Hr block The payment due date is June 15 (61). Hr block The payment was made on November 4 (203). Hr block The payment is 142 days late (203 – 61). Hr block Tax Year 2013 Day of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 Month April May June July Aug. Hr block Sept. Hr block Oct. Hr block Nov. Hr block Dec. Hr block Jan. Hr block Feb. Hr block Mar. Hr block Apr. Hr block 1   16 47 77 108 139 169 200 230 261 292 320 351 2   17 48 78 109 140 170 201 231 262 293 321 352 3   18 49 79 110 141 171 202 232 263 294 322 353 4   19 50 80 111 142 172 203 233 264 295 323 354 5   20 51 81 112 143 173 204 234 265 296 324 355 6   21 52 82 113 144 174 205 235 266 297 325 356 7   22 53 83 114 145 175 206 236 267 298 326 357 8   23 54 84 115 146 176 207 237 268 299 327 358 9   24 55 85 116 147 177 208 238 269 300 328 359 10   25 56 86 117 148 178 209 239 270 301 329 360 11   26 57 87 118 149 179 210 240 271 302 330 361 12   27 58 88 119 150 180 211 241 272 303 331 362 13   28 59 89 120 151 181 212 242 273 304 332 363 14   29 60 90 121 152 182 213 243 274 305 333 364 15 0 30 61 91 122 153 183 214 244 275 306 334 365 16 1 31 62 92 123 154 184 215 245 276 307 335   17 2 32 63 93 124 155 185 216 246 277 308 336   18 3 33 64 94 125 156 186 217 247 278 309 337   19 4 34 65 95 126 157 187 218 248 279 310 338   20 5 35 66 96 127 158 188 219 249 280 311 339   21 6 36 67 97 128 159 189 220 250 281 312 340   22 7 37 68 98 129 160 190 221 251 282 313 341   23 8 38 69 99 130 161 191 222 252 283 314 342   24 9 39 70 100 131 162 192 223 253 284 315 343   25 10 40 71 101 132 163 193 224 254 285 316 344   26 11 41 72 102 133 164 194 225 255 286 317 345   27 12 42 73 103 134 165 195 226 256 287 318 346   28 13 43 74 104 135 166 196 227 257 288 319 347   29 14 44 75 105 136 167 197 228 258 289   348   30 15 45 76 106 137 168 198 229 259 290   349   31   46   107 138   199   260 291   350   Annualized Income Installment Method (Schedule AI) If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Hr block Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than one-fourth of your required annual payment. Hr block To figure your underpayment using this method, complete Form 2210, Schedule AI. Hr block Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. Hr block If you use the annualized income installment method, you must check box C in Part II of Form 2210. Hr block Also, you must attach Form 2210 and Schedule AI to your return. Hr block If you use Schedule AI for any payment due date, you must use it for all payment due dates. Hr block Completing Schedule AI. Hr block   Follow the Form 2210 instructions to complete Schedule AI. Hr block For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. Hr block If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period. Hr block Note. Hr block Each period includes amounts from the previous period(s). Hr block Period (a) includes items for January 1 through March 31. Hr block Period (b) includes items for January 1 through May 31. Hr block Period (c) includes items for January 1 through August 31. Hr block Period (d) includes items for the entire year. Hr block Farmers and Fishermen If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you. Hr block The penalty for underpaying your 2013 estimated tax will not apply if you file your return and pay all the tax due by March 3, 2014. Hr block If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year. Hr block Any penalty you owe for underpaying your 2013 estimated tax will be figured from one payment due date, January 15, 2014. Hr block The underpayment penalty for 2013 is figured on the difference between the amount of 2013 withholding plus estimated tax paid by the due date and the smaller of: 662/3% (rather than 90%) of your 2013 tax, or 100% of the tax shown on your 2012 return. Hr block Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions . Hr block See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules. Hr block Form 2210-F. Hr block   Use Form 2210-F to figure any underpayment penalty. Hr block Do not attach it to your return unless you check a box in Part I. Hr block However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F. Hr block Enter the amount from line 16 on Form 1040, line 77 and add the penalty to any balance due on your return or subtract it from your refund. Hr block Keep your filled-in Form 2210-F for your records. Hr block    If none of the boxes on Form 2210-F apply to you and you owe a penalty, the IRS can figure your penalty and send you a bill. Hr block Waiver of Penalty The IRS can waive the penalty for underpayment if either of the following applies. Hr block You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. Hr block You retired (after reaching age 62) or became disabled in 2012 or 2013 and both the following requirements are met. Hr block You had a reasonable cause for not making the payment. Hr block Your underpayment was not due to willful neglect. Hr block How to request a waiver. Hr block   To request a waiver, see the Instructions for Form 2210. Hr block Farmers and fishermen. Hr block   To request a waiver, see the Instructions for Form 2210-F. Hr block Federally declared disaster. Hr block   Certain estimated tax payment deadlines for taxpayers who reside or have a business in a federally declared disaster area are postponed for a period during and after the disaster. Hr block During the processing of your tax return, the IRS automatically identifies taxpayers located in a covered disaster area (by county or parish) and applies the appropriate penalty relief. Hr block Do not file Form 2210 or 2210-F if your underpayment was due to a federally declared disaster. Hr block If you still owe a penalty after the automatic waiver is applied, we will send you a bill. Hr block   Individuals, estates, and trusts not in a covered disaster area but whose books, records, or tax professionals' offices are in a covered area are also entitled to relief. Hr block Also eligible are relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in a covered disaster area. Hr block If you meet either of these eligibility requirements, you must call the IRS disaster hotline at 1-866-562-5227 and identify yourself as eligible for this relief. Hr block   Details on the applicable disaster postponement period can be found at IRS. Hr block gov. Hr block Enter Tax Relief in Disaster Situations. Hr block Select the federally declared disaster that affected you. Hr block    Worksheet 4-1. Hr block 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Note. Hr block To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the  annualization amount on line 2 of Schedule AI for the same period. Hr block                   1. Hr block Enter line 11 of your Schedule AI, or line 3 from Worksheet 4-2 1. Hr block       2. Hr block Enter your annualized qualified dividends for the period 2. Hr block           3. Hr block Are you filing Schedule D?               □ Yes. Hr block Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. Hr block If either line 15 or line 16 is blank or a loss, enter -0-. Hr block 3. Hr block             □ No. Hr block Enter your annualized capital gain distributions from Form 1040, line 13             4. Hr block Add lines 2 and 3   4. Hr block           5. Hr block If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. Hr block Otherwise, enter -0-   5. Hr block           6. Hr block Subtract line 5 from line 4. Hr block If zero or less, enter -0- 6. Hr block       7. Hr block Subtract line 6 from line 1. Hr block If zero or less, enter -0- 7. Hr block       8. Hr block Enter: $36,900 if single or married filing separately, $73,800 if married filing jointly or qualifying widow(er), $49,400 if head of household. Hr block 8. Hr block       9. Hr block Enter the smaller of line 1 or line 8 9. Hr block       10. Hr block Enter the smaller of line 7 or line 9 10. Hr block       11. Hr block Subtract line 10 from line 9. Hr block This amount is taxed at 0% 11. Hr block       12. Hr block Enter the smaller of line 1 or line 6 12. Hr block       13. Hr block Enter the amount from line 11 13. Hr block       14. Hr block Subtract line 13 from line 12 14. Hr block       15. Hr block Multiply line 14 by 15% (. Hr block 15) 15. Hr block   16. Hr block Figure the tax on the amount on line 7. Hr block If the amount on line 7 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Hr block If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 16. Hr block   17. Hr block Add lines 15 and 16 17. Hr block   18. Hr block Figure the tax on the amount on line 1. Hr block If the amount on line 1 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Hr block If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 18. Hr block   19. Hr block Tax on all taxable income. Hr block Enter the smaller of line 17 or line 18. Hr block Also enter this amount on line 12 of Schedule AI in the appropriate column. Hr block However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 4-2, enter the amount from line 19 on Worksheet 4-2, line 4 19. Hr block   Worksheet 4-2. Hr block 2013 Form 2210, Schedule AI—Line 12 Foreign Earned Income Tax Worksheet Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet. Hr block             1. Hr block Enter the amount from line 11 of Schedule AI for the period 1. Hr block   2. Hr block Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from  Form 2555, lines 45 and 50, or Form 2555-EZ, line 18) in figuring the amount entered for the period on line 1  of Schedule AI 2. Hr block   3. Hr block Add lines 1 and 2 3. Hr block   4. Hr block Tax on the amount on line 3. Hr block Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. Hr block See the 2013 Instructions for Form 1040, line 44, to find out which tax computation method to use. Hr block (Note. Hr block You do not have to use the same method for each period on Schedule AI. Hr block ) 4. Hr block   5. Hr block Tax on the amount on line 2. Hr block If the amount on line 2 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Hr block If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 5. Hr block   6. Hr block Subtract line 5 from line 4. Hr block Enter the result here and on line 12 of Schedule AI. Hr block If zero or less,  enter -0- 6. Hr block             * To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period. Hr block     ** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. Hr block If the child's parent files Form 2555 or 2555-EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. Hr block Complete the rest of Form 8615 according to its instructions. Hr block Then complete lines 5 and 6 above. Hr block     *** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 4-1 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. Hr block Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). Hr block Next, determine if you have a capital gain excess. Hr block     Figuring capital gain excess. Hr block To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 4-1 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). Hr block If the result is more than zero, that amount is your capital gain excess. Hr block     No capital gain excess. Hr block If you do not have a capital gain excess, complete the rest of Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. Hr block Then complete lines 5 and 6 above. Hr block     Capital gain excess. Hr block If you have a capital gain excess, complete a second Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. Hr block Then complete lines 5 and 6 above. Hr block     Make the modifications below only for purposes of filling out Worksheet 4-2 above. Hr block     a. Hr block Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 4-1, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess. Hr block     b. Hr block Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 4-1, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above. Hr block     c. Hr block Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess. Hr block     d. Hr block Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2013 Instructions for Schedule D (Form 1040). Hr block   Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding Your CP261 Notice

CP261 is the approval notice for Form 2553, Election by a Small Business Corporation.


What you need to do

  • Keep this S corporation approval letter (CP261 Notice), in your permanent records.
  • Timely file Form 1120S reporting income/loss for the S corporation including Schedules K-1 for all shareholders.
  • Timely file all employment tax returns.

You may want to

  • If your address changes, submit Form 8822-B, Change of Address – Business, to ensure our records remain correct.

Answers to Common Questions

Page Last Reviewed or Updated: 14-Feb-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Hr Block

Hr block 4. Hr block   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Hr block Resident aliens are generally taxed in the same way as U. Hr block S. Hr block citizens. Hr block Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Hr block S. Hr block trade or business. Hr block The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Hr block S. Hr block trade or business and how it is taxed. Hr block Topics - This chapter discusses: Income that is effectively connected with a U. Hr block S. Hr block trade or business. Hr block Income that is not effectively connected with a U. Hr block S. Hr block trade or business. Hr block Interrupted period of residence. Hr block Expatriation tax. Hr block Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Hr block Resident Aliens Resident aliens are generally taxed in the same way as U. Hr block S. Hr block citizens. Hr block This means that their worldwide income is subject to U. Hr block S. Hr block tax and must be reported on their U. Hr block S. Hr block tax return. Hr block Income of resident aliens is subject to the graduated tax rates that apply to U. Hr block S. Hr block citizens. Hr block Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Hr block S. Hr block citizens. Hr block Nonresident Aliens A nonresident alien's income that is subject to U. Hr block S. Hr block income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Hr block The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Hr block These are the same rates that apply to U. Hr block S. Hr block citizens and residents. Hr block Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Hr block If you were formerly a U. Hr block S. Hr block citizen or resident alien, these rules may not apply. Hr block See Expatriation Tax, later, in this chapter. Hr block Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Hr block Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Hr block The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Hr block Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Hr block Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Hr block For more information, see Services Performed for Foreign Employer in chapter 3. Hr block Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Hr block Students and trainees. Hr block   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Hr block A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Hr block The taxable part of any scholarship or fellowship grant that is U. Hr block S. Hr block source income is treated as effectively connected with a trade or business in the United States. Hr block Business operations. Hr block   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Hr block Partnerships. Hr block   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Hr block Beneficiary of an estate or trust. Hr block   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Hr block Trading in stocks, securities, and commodities. Hr block   If your only U. Hr block S. Hr block business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Hr block S. Hr block resident broker or other agent, you are not engaged in a trade or business in the United States. Hr block   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Hr block   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Hr block   This discussion does not apply if you have a U. Hr block S. Hr block office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Hr block Trading for a nonresident alien's own account. Hr block   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Hr block S. Hr block business activity. Hr block This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Hr block   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Hr block This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Hr block Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Hr block Effectively Connected Income If you are engaged in a U. Hr block S. Hr block trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Hr block This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Hr block Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Hr block In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Hr block For a discussion of these rules, see Foreign Income , later. Hr block Investment Income Investment income from U. Hr block S. Hr block sources that may or may not be treated as effectively connected with a U. Hr block S. Hr block trade or business generally falls into the following three categories. Hr block Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Hr block ). Hr block Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Hr block Timber, coal, or domestic iron ore with a retained economic interest. Hr block Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Hr block Patents transferred before October 5, 1966. Hr block Original issue discount obligations. Hr block Capital gains (and losses). Hr block Use the two tests, described next, to determine whether an item of U. Hr block S. Hr block source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Hr block S. Hr block trade or business. Hr block If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Hr block If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Hr block Asset-use test. Hr block   This test usually applies to income that is not directly produced by trade or business activities. Hr block Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Hr block   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Hr block Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Hr block Business-activities test. Hr block   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Hr block The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Hr block Under this test, if the conduct of the U. Hr block S. Hr block trade or business was a material factor in producing the income, the income is considered effectively connected. Hr block Personal Service Income You usually are engaged in a U. Hr block S. Hr block trade or business when you perform personal services in the United States. Hr block Personal service income you receive in a tax year in which you are engaged in a U. Hr block S. Hr block trade or business is effectively connected with a U. Hr block S. Hr block trade or business. Hr block Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Hr block Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Hr block The income may be paid to you in the form of cash, services, or property. Hr block If you are engaged in a U. Hr block S. Hr block trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Hr block However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Hr block Pensions. Hr block   If you were a nonresident alien engaged in a U. Hr block S. Hr block trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Hr block This is true whether or not you are engaged in a U. Hr block S. Hr block trade or business in the year you receive the retirement pay. Hr block Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Hr block You had a fixed place of business in the United States involved in earning the income. Hr block At least 90% of your U. Hr block S. Hr block source transportation income is attributable to regularly scheduled transportation. Hr block “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Hr block “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Hr block This definition applies to both scheduled and chartered air transportation. Hr block If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Hr block See Transportation Tax, later, in this chapter. Hr block Business Profits and Losses and Sales Transactions All profits or losses from U. Hr block S. Hr block sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Hr block For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Hr block A share of U. Hr block S. Hr block source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Hr block Real Property Gain or Loss Gains and losses from the sale or exchange of U. Hr block S. Hr block real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Hr block You must treat the gain or loss as effectively connected with that trade or business. Hr block U. Hr block S. Hr block real property interest. Hr block   This is any interest in real property located in the United States or the U. Hr block S. Hr block Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Hr block S. Hr block real property holding corporation. Hr block Real property includes the following. Hr block Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Hr block Improvements on land, including buildings, other permanent structures, and their structural components. Hr block Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Hr block U. Hr block S. Hr block real property holding corporation. Hr block   A corporation is a U. Hr block S. Hr block real property holding corporation if the fair market value of the corporation's U. Hr block S. Hr block real property interests are at least 50% of the total fair market value of: The corporation's U. Hr block S. Hr block real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Hr block   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Hr block S. Hr block trade or business unless you establish that the corporation is not a U. Hr block S. Hr block real property holding corporation. Hr block   A U. Hr block S. Hr block real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Hr block An interest in a foreign corporation owning U. Hr block S. Hr block real property generally is not a U. Hr block S. Hr block real property interest unless the corporation chooses to be treated as a domestic corporation. Hr block Qualified investment entities. Hr block   Special rules apply to qualified investment entities (QIEs). Hr block A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Hr block S. Hr block real property holding corporation. Hr block    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Hr block S. Hr block real property interest is treated as a U. Hr block S. Hr block real property gain by the shareholder receiving the distribution. Hr block A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Hr block S. Hr block real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Hr block A distribution that you do not treat as gain from the sale or exchange of a U. Hr block S. Hr block real property interest is included in your gross income as a regular dividend. Hr block Note. Hr block Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Hr block S. Hr block real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Hr block Domestically controlled QIE. Hr block   The sale of an interest in a domestically controlled QIE is not the sale of a U. Hr block S. Hr block real property interest. Hr block The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Hr block The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Hr block Wash sale. Hr block    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Hr block An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Hr block S. Hr block real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Hr block If this occurs, you are treated as having gain from the sale or exchange of a U. Hr block S. Hr block real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Hr block This also applies to any substitute dividend payment. Hr block   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Hr block Alternative minimum tax. Hr block   There may be a minimum tax on your net gain from the disposition of U. Hr block S. Hr block real property interests. Hr block Figure the amount of this tax, if any, on Form 6251. Hr block Withholding of tax. Hr block   If you dispose of a U. Hr block S. Hr block real property interest, the buyer may have to withhold tax. Hr block See the discussion of Tax Withheld on Real Property Sales in chapter 8. Hr block Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Hr block An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Hr block The three kinds of foreign source income are listed below. Hr block Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Hr block Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Hr block Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Hr block A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Hr block Income, gain, or loss from the sale outside the United States, through the U. Hr block S. Hr block office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Hr block Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Hr block Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Hr block S. Hr block trade or business. Hr block For example, foreign source interest and dividend equivalents are treated as U. Hr block S. Hr block effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Hr block Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Hr block S. Hr block citizens and residents. Hr block Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Hr block However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Hr block Example. Hr block Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Hr block S. Hr block office of his overseas employer. Hr block He worked in the U. Hr block S. Hr block office until December 25, 2012, but did not leave this country until January 11, 2013. Hr block On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Hr block All of Ted's income during his stay here is U. Hr block S. Hr block source income. Hr block During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Hr block Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Hr block The salary payment Ted received in January 2013 is U. Hr block S. Hr block source income to him in 2013. Hr block It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Hr block Real property income. Hr block   You may be able to choose to treat all income from real property as effectively connected. Hr block See Income From Real Property , later, in this chapter. Hr block The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Hr block S. Hr block sources but only if the items are not effectively connected with your U. Hr block S. Hr block trade or business. Hr block Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Hr block S. Hr block source fixed or determinable annual or periodic gains, profits, or income. Hr block Income is fixed when it is paid in amounts known ahead of time. Hr block Income is determinable whenever there is a basis for figuring the amount to be paid. Hr block Income can be periodic if it is paid from time to time. Hr block It does not have to be paid annually or at regular intervals. Hr block Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Hr block Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Hr block A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Hr block Other items of income, such as royalties, also may be subject to the 30% tax. Hr block Some fixed or determinable income may be exempt from U. Hr block S. Hr block tax. Hr block See chapter 3 if you are not sure whether the income is taxable. Hr block Original issue discount (OID). Hr block   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Hr block The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Hr block The 30% tax applies in the following circumstances. Hr block You received a payment on a debt instrument. Hr block In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Hr block But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Hr block You sold or exchanged the debt instrument. Hr block The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Hr block   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Hr block S. Hr block Source Income Subject to Withholding, if you bought the debt instrument at original issue. Hr block However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Hr block You bought the debt instrument at a premium or paid an acquisition premium. Hr block The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Hr block S. Hr block Treasury securities). Hr block The debt instrument is a contingent payment or inflation-indexed debt instrument. Hr block For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Hr block   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Hr block See chapter 12. Hr block Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Hr block S. Hr block trade or business and is not exempted by treaty. Hr block However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Hr block Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Hr block S. Hr block trade or business. Hr block Social Security Benefits A nonresident alien must include 85% of any U. Hr block S. Hr block social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Hr block S. Hr block source fixed or determinable annual or periodic income. Hr block Social security benefits include monthly retirement, survivor, and disability benefits. Hr block This income is exempt under some tax treaties. Hr block See Table 1 in Publication 901, U. Hr block S. Hr block Tax Treaties, for a list of tax treaties that exempt U. Hr block S. Hr block social security benefits from U. Hr block S. Hr block tax. Hr block Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Hr block They apply even if you are engaged in a trade or business in the United States. Hr block These rules do not apply to the sale or exchange of a U. Hr block S. Hr block real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Hr block See Real Property Gain or Loss , earlier, under Effectively Connected Income. Hr block A capital asset is everything you own except: Inventory. Hr block Business accounts or notes receivable. Hr block Depreciable property used in a trade or business. Hr block Real property used in a trade or business. Hr block Supplies regularly used in a trade or business. Hr block Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Hr block Certain U. Hr block S. Hr block government publications. Hr block Certain commodities derivative financial instruments held by a commodities derivatives dealer. Hr block Hedging transactions. Hr block A capital gain is a gain on the sale or exchange of a capital asset. Hr block A capital loss is a loss on the sale or exchange of a capital asset. Hr block If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Hr block S. Hr block currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Hr block You may want to read Publication 544. Hr block However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Hr block Specific tax treatment that applies to U. Hr block S. Hr block citizens or residents generally does not apply to you. Hr block The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Hr block Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Hr block Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Hr block Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Hr block Gains on the sale or exchange of original issue discount obligations. Hr block Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Hr block S. Hr block trade or business. Hr block See Income From Real Property , later. Hr block 183-day rule. Hr block   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Hr block For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Hr block S. Hr block sources over your capital losses from U. Hr block S. Hr block sources. Hr block This rule applies even if any of the transactions occurred while you were not in the United States. Hr block   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Hr block S. Hr block trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Hr block   In arriving at your net gain, do not take the following into consideration. Hr block The four types of gains listed earlier. Hr block The deduction for a capital loss carryover. Hr block Capital losses in excess of capital gains. Hr block Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Hr block Losses from the sale or exchange of property held for personal use. Hr block However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Hr block See Itemized Deductions in chapter 5. Hr block   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Hr block Also, you must file your tax return on a calendar-year basis. Hr block   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Hr block Reporting. Hr block   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Hr block Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Hr block Attach them to Form 1040NR. Hr block Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Hr block The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Hr block This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Hr block It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Hr block You can make this choice only for real property income that is not otherwise effectively connected with your U. Hr block S. Hr block trade or business. Hr block If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Hr block This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Hr block S. Hr block trade or business, as being engaged in a trade or business in the United States during the year. Hr block Example. Hr block You are a nonresident alien and are not engaged in a U. Hr block S. Hr block trade or business. Hr block You own a single-family house in the United States that you rent out. Hr block Your rental income for the year is $10,000. Hr block This is your only U. Hr block S. Hr block source income. Hr block As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Hr block You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Hr block You do not have to file a U. Hr block S. Hr block tax return (Form 1040NR) because your U. Hr block S. Hr block tax liability is satisfied by the withholding of tax. Hr block If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Hr block (See Publication 527, Residential Rental Property, for information on rental expenses. Hr block ) Any resulting net income is taxed at graduated rates. Hr block If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Hr block For the first year you make the choice, also attach the statement discussed next. Hr block Making the choice. Hr block   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Hr block Include the following in your statement. Hr block That you are making the choice. Hr block Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Hr block A complete list of all your real property, or any interest in real property, located in the United States. Hr block Give the legal identification of U. Hr block S. Hr block timber, coal, or iron ore in which you have an interest. Hr block The extent of your ownership in the property. Hr block The location of the property. Hr block A description of any major improvements to the property. Hr block The dates you owned the property. Hr block Your income from the property. Hr block Details of any previous choices and revocations of the real property income choice. Hr block   This choice stays in effect for all later tax years unless you revoke it. Hr block Revoking the choice. Hr block   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Hr block S. Hr block Individual Income Tax Return, for the year you made the choice and for later tax years. Hr block You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Hr block If this time period has expired for the year of choice, you cannot revoke the choice for that year. Hr block However, you may revoke the choice for later tax years only if you have IRS approval. Hr block For information on how to get IRS approval, see Regulation section 1. Hr block 871-10(d)(2). Hr block Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Hr block If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Hr block Attach a statement to your return that includes the following information (if applicable). Hr block Your name, taxpayer identification number, and tax year. Hr block A description of the types of services performed (whether on or off board). Hr block Names of vessels or registration numbers of aircraft on which you performed the services. Hr block Amount of U. Hr block S. Hr block source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Hr block Total amount of U. Hr block S. Hr block source transportation income derived from all types of services for the calendar year. Hr block This 4% tax applies to your U. Hr block S. Hr block source gross transportation income. Hr block This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Hr block For transportation income from personal services, the transportation must be between the United States and a U. Hr block S. Hr block possession. Hr block For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Hr block Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Hr block S. Hr block residence with a period of nonresidence. Hr block The special rule applies if you meet all of the following conditions. Hr block You were a U. Hr block S. Hr block resident for a period that includes at least 3 consecutive calendar years. Hr block You were a U. Hr block S. Hr block resident for at least 183 days in each of those years. Hr block You ceased to be treated as a U. Hr block S. Hr block resident. Hr block You then again became a U. Hr block S. Hr block resident before the end of the third calendar year after the end of the period described in (1) above. Hr block Under this special rule, you are subject to tax on your U. Hr block S. Hr block source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Hr block S. Hr block trade or business. Hr block For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Hr block Example. Hr block John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Hr block On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Hr block During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Hr block He returned to the United States on October 5, 2013, as a lawful permanent resident. Hr block He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Hr block Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Hr block Reporting requirements. Hr block   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Hr block The return is due by the due date (including extensions) for filing your U. Hr block S. Hr block income tax return for the year that you again become a U. Hr block S. Hr block resident. Hr block If you already filed returns for that period, you must file amended returns. Hr block You must attach a statement to your return that identifies the source of all of your U. Hr block S. Hr block and foreign gross income and the items of income subject to this special rule. Hr block Expatriation Tax The expatriation tax provisions apply to U. Hr block S. Hr block citizens who have renounced their citizenship and long-term residents who have ended their residency. Hr block The rules that apply are based on the dates of expatriation, which are described in the following sections. Hr block Expatriation Before June 4, 2004. Hr block Expatriation After June 3, 2004, and Before June 17, 2008. Hr block Expatriation After June 16, 2008. Hr block Long-term resident defined. Hr block   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Hr block In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Hr block Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Hr block S. Hr block taxes. Hr block Unless you received a ruling from the IRS that you did not expatriate to avoid U. Hr block S. Hr block taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Hr block The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Hr block Table 4-1. Hr block Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Hr block . Hr block . Hr block   THEN the rules outlined on this page apply if . Hr block . Hr block . Hr block     Your 5-year average annual net income tax was more than . Hr block . Hr block . Hr block OR Your net worth equaled or exceeded . Hr block . Hr block . Hr block 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Hr block Reporting requirements. Hr block   If you lost your U. Hr block S. Hr block citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Hr block If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Hr block   Your U. Hr block S. Hr block residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Hr block Penalties. Hr block   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Hr block The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Hr block The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Hr block Expatriation tax. Hr block   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Hr block It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Hr block See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Hr block Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Hr block Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Hr block $127,000 if you expatriated or terminated residency in 2005. Hr block $131,000 if you expatriated or terminated residency in 2006. Hr block $136,000 if you expatriated or terminated residency in 2007. Hr block $139,000 if you expatriated or terminated residency in 2008. Hr block Your net worth is $2 million or more on the date of your expatriation or termination of residency. Hr block You fail to certify on Form 8854 that you have complied with all U. Hr block S. Hr block federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Hr block Exception for dual-citizens and certain minors. Hr block   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Hr block However, they still must provide the certification required in (3). Hr block Certain dual-citizens. Hr block   You may qualify for the exception described above if all of the following apply. Hr block You became at birth a U. Hr block S. Hr block citizen and a citizen of another country and you continue to be a citizen of that other country. Hr block You were never a resident alien of the United States (as defined in chapter 1). Hr block You never held a U. Hr block S. Hr block passport. Hr block You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Hr block S. Hr block citizenship. Hr block Certain minors. Hr block   You may qualify for the exception described above if you meet all of the following requirements. Hr block You became a U. Hr block S. Hr block citizen at birth. Hr block Neither of your parents was a U. Hr block S. Hr block citizen at the time of your birth. Hr block You expatriated before you were 18½. Hr block You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Hr block Tax consequences of presence in the United States. Hr block   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Hr block   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Hr block Instead, you are treated as a U. Hr block S. Hr block citizen or resident and taxed on your worldwide income for that tax year. Hr block You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Hr block   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Hr block However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Hr block You have ties with other countries. Hr block You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Hr block You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Hr block Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Hr block See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Hr block Related employer. Hr block   If your employer in the United States is any of the following, then your employer is related to you. Hr block You must count any days you performed services in the United States for that employer as days of presence in the United States. Hr block Members of your family. Hr block This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Hr block ), and lineal descendants (children, grandchildren, etc. Hr block ). Hr block A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Hr block A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Hr block (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Hr block ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Hr block Date of tax expatriation. Hr block   For purposes of U. Hr block S. Hr block tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Hr block You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Hr block You file Form 8854 in accordance with the form instructions. Hr block Annual return. Hr block   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Hr block You must file this form even if you owe no U. Hr block S. Hr block tax. Hr block Penalty. Hr block   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Hr block You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Hr block How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Hr block S. Hr block source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Hr block S. Hr block trade or business. Hr block For this purpose, U. Hr block S. Hr block source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Hr block S. Hr block domestic corporation, and Debt obligations of U. Hr block S. Hr block persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Hr block U. Hr block S. Hr block source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Hr block The income or gain is considered U. Hr block S. Hr block source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Hr block Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Hr block S. Hr block source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Hr block Other information. Hr block   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Hr block S. Hr block source rules, see section 877 of the Internal Revenue Code. Hr block Expatriation Tax Return If you expatriated or terminated your U. Hr block S. Hr block residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Hr block Attach it to Form 1040NR if you are required to file that form. Hr block If you are present in the United States following your expatriation and are subject to tax as a U. Hr block S. Hr block citizen or resident, file Form 8854 with Form 1040. Hr block Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Hr block Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Hr block $145,000 if you expatriated or terminated residency in 2009 or 2010. Hr block $147,000 if you expatriated or terminated residency in 2011. Hr block $151,000 if you expatriated or terminated residency in 2012. Hr block $155,000 if you expatriated or terminated residency in 2013. Hr block Your net worth is $2 million or more on the date of your expatriation or termination of residency. Hr block You fail to certify on Form 8854 that you have complied with all U. Hr block S. Hr block federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Hr block Exception for dual-citizens and certain minors. Hr block   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Hr block However, they still must provide the certification required in (3) above. Hr block Certain dual-citizens. Hr block   You may qualify for the exception described above if both of the following apply. Hr block You became at birth a U. Hr block S. Hr block citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Hr block You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Hr block For the purpose of determining U. Hr block S. Hr block residency, use the substantial presence test described in chapter 1. Hr block Certain minors. Hr block   You may qualify for the exception described earlier if you meet both of the following requirements. Hr block You expatriated before you were 18½. Hr block You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Hr block For the purpose of determining U. Hr block S. Hr block residency, use the substantial presence test described in chapter 1. Hr block Expatriation date. Hr block   Your expatriation date is the date you relinquish U. Hr block S. Hr block citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Hr block S. Hr block resident). Hr block Former U. Hr block S. Hr block citizen. Hr block   You are considered to have relinquished your U. Hr block S. Hr block citizenship on the earliest of the following dates. Hr block The date you renounced U. Hr block S. Hr block citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Hr block The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Hr block S. Hr block nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Hr block The date the State Department issued a certificate of loss of nationality. Hr block The date that a U. Hr block S. Hr block court canceled your certificate of naturalization. Hr block Former long-term resident. Hr block   You are considered to have terminated your long-term residency on the earliest of the following dates. Hr block The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Hr block S. Hr block consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Hr block The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Hr block If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Hr block See Effect of Tax Treaties in chapter 1 for more information about dual residents. Hr block How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Hr block This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Hr block But see Exceptions , later. Hr block Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Hr block S. Hr block internal revenue laws. Hr block Losses from deemed sales must be taken into account to the extent otherwise provided under U. Hr block S. Hr block internal revenue laws. Hr block However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Hr block The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Hr block $626,000 if you expatriated or terminated residency in 2009. Hr block $627,000 if you expatriated or terminated residency in 2010. Hr block $636,000 if you expatriated or terminated residency in 2011. Hr block $651,000 if you expatriated or terminated residency in 2012. Hr block $668,000 if you expatriated or terminated residency in 2013. Hr block Exceptions. Hr block   The mark-to-market tax does not apply to the following. Hr block Eligible deferred compensation items. Hr block Ineligible deferred compensation items. Hr block Interests in nongrantor trusts. Hr block Specified tax deferred accounts. Hr block Instead, items (1) and (3) may be subject to withholding at source. Hr block In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Hr block In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Hr block See paragraphs (d), (e), and (f) of section 877A for more information. Hr block Expatriation Tax Return If you expatriated or terminated your U. Hr block S. Hr block residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Hr block Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Hr block Deferral of payment of mark-to-market tax. Hr block   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Hr block If you make this election, the following rules apply. Hr block You can make the election on a property-by-property basis. Hr block The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Hr block Interest is charged for the period the tax is deferred. Hr block The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Hr block The due date of the return required for the year of death. Hr block The time that the security provided for the property fails to be adequate. Hr block See item (6) below. Hr block You make the election on Form 8854. Hr block You must provide adequate security (such as a bond). Hr block You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Hr block   For more information about the deferral of payment, see the Instructions for Form 8854. Hr block Prev  Up  Next   Home   More Online Publications