premium level supplement 2007 · form 4970 / tax on accumulation distribution of...

Premium Level Supplement 2007

What It IsPart I – Federal (IRS) FormsPart II – California (FTB) Forms

This document is not a stand-alone manual. It is a special supplement to theUser's Guide for HowardSoft's Tax Preparer and the Tax Forms Guide for the2007 Edition of HowardSoft's Form 1040 software, and relies on thoseguides as the main source of instructions for the Premium Level Supplementsoftware. This document and the associated software are based on informa-tion compiled and interpreted by HowardSoft late in 2006 and early 2007,including the latest information from the FTB, but their complete accuracycannot be guaranteed. Neither HowardSoft nor Dr. J. E. Howard assumesany responsibility for any consequential damages resulting from their use.

This document and the associated software are copyrighted by HowardSoft.All rights are reserved. All customers are bound by the Customer Agreementsthat are printed in the federal package. This document may not, in whole orin part, be copied, photocopied, reproduced, translated, or reduced to anyelectronic medium or machine-readable form without prior written consentfrom Dr. J. E. Howard, President of HowardSoft.

Copyright 2007 by HowardSoftP. O. Box 8432, La Jolla, CA 92038

(HowardSoft and Tax Preparer are registered trademarks of HowardSoft.)


Table of Contents

What It Is __________________________________________ 1

Part I – Federal (IRS) Forms _________________________ 2Form 1310 / Refund Due a Deceased Taxpayer ____________________________________________________________________ 2222Form 2120 / Multiple Support Declaration ____________________________________________________________________________________ 5555Form 2350 / Application for Extension of Time to File U.S. Income TaxReturn ____________________________________________________________________________________________________________________________________________________________________________________________________________________ 7777Form 2555 & 2555-EZ / Foreign Earned Income ________________________________________________________________ 10101010Form 2848 / Power of Attorney & Declaration of Representative ____________________ 22222222Form 4136 / Credit for Federal Tax Paid on Fuels ________________________________________________________ 25252525Form 4137 / Social Security & Medicare Tax on Unreorted Tip Income 40404040Form 4255 / Recapture of Investment Credit ________________________________________________________________________ 44444444Form 4970 / Tax on Accumulation Distribution of Trusts ________________________________ 46464646Form 4972 / Tax on Lump-Sum Distributions ________________________________________________________________________ 54545454Form 5884 / Work Opportunity Credit ________________________________________________________________________________________________ 59595959Form 6198 / At-Risk Limitations ________________________________________________________________________________________________________________________ 62626262Form 6478 / Credit for Alcohol Used as Fuel ________________________________________________________________________ 67676767Form 6765 / Credit for Increasing Research ____________________________________________________________________________ 73737373Form 6781 / Gains and Losses from Section 1256 Contracts andStraddles ____________________________________________________________________________________________________________________________________________________________________________________________________ 83838383Form 8271 / Investor Reporting of Tax Shelter Registration Number ________ 91919191Form 8332 / Release of Claim to Exemption for Child of Divorced orSeparated Parents ____________________________________________________________________________________________________________________________________________________________________ 92929292Form 8379 / Injured Spouse Claim and Allocation ____________________________________________________ 93939393Form 8396 / Mortgage Interest Credit ____________________________________________________________________________________________ 100100100100Form 8586 / Low-Income Housing Credit____________________________________________________________________________________ 104104104104Form 8594 / Asset Acquisition Statement Under Section 1060 ____________ 107107107107Form 8611 / Recapture of Low-Income Housing Credit ________________________________ 111111111111Form 8736 / Application for Automatic Extension of Time to File U.S.Return for a Partnership, REMIC, or for Certain Trusts ________________________________ 116116116116Form 8800 / Application for Additional Extension of Time to File U.S.Return for a Partnership, REMIC, or for Certain Trusts ________________________________ 117117117117Form 8801 / Credit for Prior Year Minimum Tax ________________________________________________________ 119119119119Form 8815 / Exclusion of Interest from Series EE and I U.S. SavingsBonds Issued After 1989 ____________________________________________________________________________________________________________________________________________ 126126126126Form 8822 / Change of Address ________________________________________________________________________________________________________________ 130130130130Form 8824 / Like-Kind Exchanges ____________________________________________________________________________________________________________ 132132132132Form 8828 / Recapture of Federal Mortgage Subsidy ____________________________________ 138138138138Form 8834 / Qualified Electric Vehicle Credit____________________________________________________________________ 143143143143Form 8839 / Qualified Adoption Expenses ____________________________________________________________________________ 147147147147


Table of Contents

Form 8846 / Credit for Employer Social Security and MedicareTaxes Paid on Certain Employee Tips ________________________________________________________________________________________ 161161161161Form 8853 / Archer MSAs and Long-Term Care Insurance Contracts 163163163163Form 8859 / District of Columbia First-Time Homebuyer Credit ____________ 176176176176Form 8861 / Welfare-to-Work Credit ________________________________________________________________________________________________ 178178178178Form 8862 / Information to Claim Earned Income Credit AfterDisallowance ________________________________________________________________________________________________________________________________________________________________________________ 180180180180Form 8885 / Health Coverage Tax Credit ________________________________________________________________________________ 185185185185Form 8889 / Health Savings Accounts (HSAs) ____________________________________________________________________________ 187187187187

Part II – California (FTB) Forms ____________________ 195Schedule G-1 / Tax on Lump-Sum Distributions ________________________________________________________ 195195195195Form 3501 / Employer Child Care Program/Contribution Credit 196196196196Form 3508 / Solar Energy System Credit ________________________________________________________________________________ 197197197197Form 3510 / Credit for Prior Year Alternative Minimum Tax________________ 198198198198Form 3521 / Low-Income Housing Credit ________________________________________________________________________________ 199199199199Form 3523 / Research Credit ____________________________________________________________________________________________________________________________ 200200200200Form 3526 / Investment Interest Expense Deduction ________________________________________ 201201201201Form 3533 / Change of Address ________________________________________________________________________________________________________________ 202202202202Form 3548 / Disabled Access Credit ________________________________________________________________________________________________ 203203203203Form 3553 / Enterprise Zone Employee Credit ____________________________________________________________ 204204204204Form 3801-CR / Passive Activity Credit Limitations ____________________________________________ 205205205205Form 3805V / NOL Computation and NOL and Disaster LossLimitations ________________________________________________________________________________________________________________________________________________________________________________________ 206206206206Form 3805Z / Enterprise Zone Deduction and Credit Summary 207207207207Form 3806 / LARZ Deduction and Credit Summary ____________________________________________ 208208208208Form 5123 / Employer-Provided Adoption Assistance Exclusion 209209209209Form 5870A / Tax on Accumulation Distribution of Trusts ____________________ 210210210210


Table of Contents

Table of FiguresFigure Prem-1. Eligible Person WorksheetFigure Prem-1. Eligible Person WorksheetFigure Prem-1. Eligible Person WorksheetFigure Prem-1. Eligible Person Worksheet ____________________________________________________________________________________________6666Figure Prem-2. Tax Home WorksheetFigure Prem-2. Tax Home WorksheetFigure Prem-2. Tax Home WorksheetFigure Prem-2. Tax Home Worksheet ________________________________________________________________________________________________________13131313Figure Prem-3. U.S. Income WorksheetFigure Prem-3. U.S. Income WorksheetFigure Prem-3. U.S. Income WorksheetFigure Prem-3. U.S. Income Worksheet ________________________________________________________________________________________________14141414Figure Prem-4. U.S. Home Maintained WorksheetFigure Prem-4. U.S. Home Maintained WorksheetFigure Prem-4. U.S. Home Maintained WorksheetFigure Prem-4. U.S. Home Maintained Worksheet ____________________________________________________________15151515Figure Prem-5. Travel Abroad WorksheetFigure Prem-5. Travel Abroad WorksheetFigure Prem-5. Travel Abroad WorksheetFigure Prem-5. Travel Abroad Worksheet ________________________________________________________________________________________16161616Figure Prem-6. Fuel Use WorksheetFigure Prem-6. Fuel Use WorksheetFigure Prem-6. Fuel Use WorksheetFigure Prem-6. Fuel Use Worksheet ____________________________________________________________________________________________________________29292929Figure Prem-7. Fuel Sale WorksheetFigure Prem-7. Fuel Sale WorksheetFigure Prem-7. Fuel Sale WorksheetFigure Prem-7. Fuel Sale Worksheet ____________________________________________________________________________________________________________31313131Figure Prem-8. ITC Recapture WorksheetFigure Prem-8. ITC Recapture WorksheetFigure Prem-8. ITC Recapture WorksheetFigure Prem-8. ITC Recapture Worksheet ________________________________________________________________________________________44444444Figure Prem-9. Section 1256 ContractsFigure Prem-9. Section 1256 ContractsFigure Prem-9. Section 1256 ContractsFigure Prem-9. Section 1256 Contracts ____________________________________________________________________________________________________85858585Figure Prem-10. Losses from StraddlesFigure Prem-10. Losses from StraddlesFigure Prem-10. Losses from StraddlesFigure Prem-10. Losses from Straddles ________________________________________________________________________________________________87878787Figure Prem-11. Gains from StraddlesFigure Prem-11. Gains from StraddlesFigure Prem-11. Gains from StraddlesFigure Prem-11. Gains from Straddles ____________________________________________________________________________________________________88888888Figure Prem-12. Unrecognized GainsFigure Prem-12. Unrecognized GainsFigure Prem-12. Unrecognized GainsFigure Prem-12. Unrecognized Gains ________________________________________________________________________________________________________89898989Figure Prem-13. Tax Shelter Registration WorksheetFigure Prem-13. Tax Shelter Registration WorksheetFigure Prem-13. Tax Shelter Registration WorksheetFigure Prem-13. Tax Shelter Registration Worksheet____________________________________________________91919191Figure Prem-14. Credit on Additions WorksheetFigure Prem-14. Credit on Additions WorksheetFigure Prem-14. Credit on Additions WorksheetFigure Prem-14. Credit on Additions Worksheet ________________________________________________________________113113113113Figure Prem-15. Student WorksheetFigure Prem-15. Student WorksheetFigure Prem-15. Student WorksheetFigure Prem-15. Student Worksheet ________________________________________________________________________________________________________127127127127Figure Prem-16. Electric Vehicle WorksheetFigure Prem-16. Electric Vehicle WorksheetFigure Prem-16. Electric Vehicle WorksheetFigure Prem-16. Electric Vehicle Worksheet ____________________________________________________________________________145145145145Figure Prem-17. Adoption Expense (Screen 1)Figure Prem-17. Adoption Expense (Screen 1)Figure Prem-17. Adoption Expense (Screen 1)Figure Prem-17. Adoption Expense (Screen 1) ____________________________________________________________________149149149149Figure Prem-18. Adoption Expense (Screen 2)Figure Prem-18. Adoption Expense (Screen 2)Figure Prem-18. Adoption Expense (Screen 2)Figure Prem-18. Adoption Expense (Screen 2) ____________________________________________________________________151151151151Figure Prem-19. Adoption Expense (Screen 3)Figure Prem-19. Adoption Expense (Screen 3)Figure Prem-19. Adoption Expense (Screen 3)Figure Prem-19. Adoption Expense (Screen 3) ____________________________________________________________________153153153153Figure Prem-20. Adoption Expense (Screen 4)Figure Prem-20. Adoption Expense (Screen 4)Figure Prem-20. Adoption Expense (Screen 4)Figure Prem-20. Adoption Expense (Screen 4) ____________________________________________________________________154154154154Figure Prem-21. Long-Term Care WorksheetFigure Prem-21. Long-Term Care WorksheetFigure Prem-21. Long-Term Care WorksheetFigure Prem-21. Long-Term Care Worksheet ________________________________________________________________________174174174174Figure Prem-22. Address WorksheetFigure Prem-22. Address WorksheetFigure Prem-22. Address WorksheetFigure Prem-22. Address Worksheet ________________________________________________________________________________________________________184184184184Figure Prem-23. Other Person WorksheetFigure Prem-23. Other Person WorksheetFigure Prem-23. Other Person WorksheetFigure Prem-23. Other Person Worksheet ____________________________________________________________________________________184184184184


What It Is

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What It IsThe Premium Level Supplement 2007 is a special supplement to the TaxForms Guides for all 2007 Editions of Tax Preparer®. It provides instructionsfor forms included only in our Premium Level software. Instructions for formsincluded in Economy and Standard Level software as well as Premium Levelsoftware are found in our regular tax forms guides:

Tax Forms Guide 2007 Edition. This is the primary Tax Forms Guide forall programs for the 2007 filing season. It covers all forms found inour Economy and Standard Level software for Form 1040 returns.Because our software for Form 540 and Form 1065 returns containmany of the same or analogous forms, the separate supplements re-fer liberally to this document as the main source of informationabout forms.

Partnership Tax Forms Guide 2007 Edition – Supplement PAR. Thisdocument covers all forms built into our Economy and StandardLevel Partnership Edition software, for preparing U.S. PartnershipIncome Tax Returns (Form 1065 returns). Many of the forms areidentical to those used for Form 1040 returns except for selectedinstructions.

California Tax Forms Guide 2007 Edition – Supplement CA. This docu-ment covers all forms built into our Economy and Standard LevelCalifornia Supplement software, for preparing California IndividualIncome Tax Returns (Form 540 returns). Although all forms areunique to California, many of them are directly analogous of federalforms.

Accordingly, you should use this document as your secondary source of in-formation, since the main form and the most widely used supporting formsare described in the above documents, not here.

Two parts – Federal and California. The bulk of this document, Part I, coversforms added to the Premium Level for Federal Form 1040 and Form 1065 re-turns, which amounts to more than 40 forms. Part II covers forms added tothe Premium Level for Form 540 returns, which amounts to more than adozen California forms. A complete list of forms covered here appears in theTable of Contents of this document. For on-screen versions of this manual,you can also see the complete list of forms covered through the Bookmarkson the left side of a split screen, made visible by pressing the F5 key. If youclick a bookmark you are taken immediately to the corresponding section ofthis document.

Use the Find or Search key for quickest searches through the on-screenmanuals. The search capabilities built into on-screen manuals let you find anyphrase in this document quickly. Find (ctrl-F) shows you the first occurrenceof a phrase, and Find Next (ctrl-G) shows you the rest one page at a time.Search (shift-ctrl-F) gives you a complete list of all occurrences of the phrasein the manual, letting you choose which pages to view.

HowardSoft

Form 1310

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Part I – Federal (IRS) FormsFollowing are details for forms contained only in the Premium Level softwarefor preparing Form 1040 or Form 1065 returns, in numerical order by IRSform number. None of the forms detailed here is included in Economy Level orStandard Level software.

Forms 1116 and 4952 now detailed in main Tax Forms Guide. Form 1116(Foreign Tax Credit) and Form 4952 (Investment Interest Expense Deduction)are now included in Standard Level Form 1040 software. As a result, detailsfor Forms 1116 and 4952 are now contained in the main manual for Form1040 returns, Tax Forms Guide 2007 Edition, not here.

Form 1310 / Refund Due a Deceased TaxpayerPurpose. Form 1310 is used to claim a refund on behalf of a deceased tax-payer, and is usually filed with the final return for the deceased taxpayer.However, you do not have to file Form 1310 with the return if

You are surviving spouse of decedent and are filing jointly with the de-cedent, or

You are personal representative of decedent’s estate and are attachinga court certificate showing your appointment as the executor oradministrator of the estate (or have it on file with the IRS).

Anyone else who files the return and claims the refund must file Form 1310.

Refund returns only. Form 1310 is relevant only for returns that show a re-fund on Form 1040 line 74a. It is accessible through the Road Map from theline below line 74a; two copies are available – one for each spouse.

IDENTITY OF DECEDENT. If the return is a joint return and both spouses aredeceased, you must file a separate Form 1310 for each spouse. Copy 1 ofForm 1310 is always for the principal taxpayer and copy 2 is always for thattaxpayer’s spouse.

Decedent’s SSN. (auto-calc) Taken from Form 1040, this will be theprincipal taxpayer’s SSN if copy 1, and the spouse’s SSN if copy 2.

Is spouse the decedent. (auto-calc) Automatically No if copy 1, Yes ifcopy 2.

Tax year decedent due a refund. (auto-calc) Taken from the ControlForm, this is the tax year for the return for which a refund is beingclaimed.

Date of death (from 1040). (auto-calc) Taken from your entry on Form1040 for the appropriate spouse. CAUTION: Form 1310 will be re-jected by the IRS if no date appears here. You MUST enter the dateof death on screen 1 of Form 1040 (screen 2 if for spouse).


Form 1310

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IDENTITY OF CLAIMANT. You must supply the name and address where therefund check should be sent.

First name and initial. Enter your first name and initial in 15 charactersor less.

Last name. Enter last name in 25 characters or less.e-file name control. (auto-calc) Usually the first four characters of the

last name.Full name in e-file format. (auto-calc) Your name is reformatted into 35

characters or less in a format required for e-file. This entry will al-ways be used for the “in care of” line in the addess block of Form1040, page 1 (shown on screen 3 of our Form 1040, page 1), asrequired by the IRS.

Your social security number. Enter your 9-digit SSN.Home address. Enter address without Apt. No. in 35 characters or

less.Apt. no. Enter apartment number in 10 characters or less.City. Enter city in 25 characters or less.State. Enter the standard 2-character state code.ZIP code. Enter the ZIP code in 10 characters or less.

Special address indicator:APO/FPO Address. If you answer Yes, your preceding three entries

must be:City: APO or FPO,State: AA, AE, or AP, andZIP code: the ZIP code defined for your APO or FPO addressees.

Stateside Military Address. Answer Yes if stationed abroad but usinga U.S. address.

Do you have valid proof of death? If you answer Yes, the phrase “have validproof of death” will be printed on the official printed Form 1310 under box C,below, to reaffirm the death to the IRS. You should not file the proof withthe return, but rather retain it for future inquiry from the IRS. A Yes answeris mandatory for an e-file return.

PART I, CHECK THE BOX THAT APPLIES TO YOU. You must identify statuswith respect to the decedent:

A Surviving spouse seeking reissuance of refund check. If Yes, do notfile Form 1310 with the return. Instead, send the completed Form1310 along with the refund check to your local IRS office, or theIRS center where you filed the associated return. The IRS will thenissue a check for the refund in your name alone.

B Court-appointed or certified personal representative. If Yes, andyou are filing the original final return for the decedent, do not fileForm 1310 with the return because you only need proof of yourappointment by the court. However, if you are filing an amended re-turn (Form 1040X) or Form 843, do include Form 1310 along withthe court certificate.

HowardSoft

Form 1310

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If “Yes,” was court certificate previously filed with the IRS? If you pre-viously sent to the IRS a copy of the court certificate that showsyour appointment as the personal representative for the estate, youdo not need to do so again. Instead, if you answer Yes here thephrase “Certificate Previously Filed” will be printed near the bottomof the official printed Form 1310.

C Person other than A or B, claiming for decedent’s estate. All othersmust answer Yes here. If you answer Yes, you must proceed toPart II, below.

PART II, COMPLETE THIS PART ONLY IF YOU CHECKED BOX C ABOVE. Ifyou are neither the surviving spouse nor the personal representative, youmust justify your claim to the refund in your answers to the following ques-tions:

1 Did the decedent leave a will?2a Has a court appointed a personal representative?2b If “No,” will one be appointed?If “Yes” to 2a or 2b, personal representative must file. You are not eli-

gible to file for the refund.3 As person claiming refund, will you pay out refund according to laws

of state where decedent was legal resident? If not, you cannotclaim a refund until you submit proof to the satisfaction of the IRSthat you are entitled to it.

PART III, SIGNATURE AND VERIFICATION. For a paper return you must signand date the official printed Form 1310 and file it with the return. CAUTION:For e-file returns the jurat is displayed on the screen and you must completethe following two lines or else the return will be rejected by the IRS:

Signed by (enter full name). Technically, for an e-file return, the claim-ant should read the on-screen jurat and enter his or her name herein 35 characters or less. For an e-file return, this entry takes theplace of a signature, so it is not completed automatically eventhough it should be the same as the name entered on screen 1.

Date signed by claimant. Enter, in the standard mo/dy/yr format, thedate the preceding entry was made.


Form 2120

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Form 2120 / Multiple Support Declaration

Purpose. This form must be filed by those who claim a dependent for whomthey did not provide more than 50% of the dependent’s support unless thedependent is a qualifying child. You must have provided more than 10% ofthe support, no-one else can have provided more than 50% of the support,and you must have signed statements from all others who provided morethan 10% of the support relinquishing their claim to an exemption for the de-pendent in the current tax year.

Form 2120 no longer required for a qualifying child. Since tax year 2005, youdo not have to file this form for a dependent who is your “qualifying child” inaccordance with the current definition in the IRS Form 1040 Instructions. Bythis definition, a qualifying child is your son, daughter, stepchild, foster child,brother, sister, stepbrother, stepsister, or a descendent of any of them, whois under age 19 at year-end 2006 (or a student under 24, or a permanentlyand totally disabled person of any age), who does not provide over half of hisor her own support for 2006, and who lived with you more than half of2006. If the child is a qualifying child of more than one person and livedwith neither more than half the year, the IRS will apply the rules summarizedin the IRS Form 1040 Instructions, including giving the dependency to theparent with whom the child lived longer or, if lived with both the sameamount of time, the parent with the higher AGI. It is no longer up to the par-ents to decide which parent will claim the dependency.

Use a separate Form 2120 for each dependent. You must use each Form2120 for just one dependent. Five copies are provided by the software,which are accessible through the Road Map below line 6d of Form 1040.

During calendar year 2006, the eligible persons listed below EACH paid over10% of the support of:

First name of person supported. Enter the first name and initial of thedependent in 10 characters or less.

Last name of person supported. Enter the last name in 15 characters orless.

I have a signed statement from each eligible person waiving his or her rightto claim this person as a dependent for any tax year that began in 2006:

Eligible supporters (itemize). (Supported by the Eligible Person Work-sheet, Figure Prem-1.) The number of persons you properly identifyin the supporting worksheets for this line appears here

HowardSoft

Form 2120

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Eligible Person Worksheet, Figure Prem-1. You must identify ALL other per-sons who provided more than 10% of the support for the dependent namedon this form.

First Name. Enter in 10characters or less.

Last Name. Enter in 15characters or less.

Social security number.You MUST enter theperson’s SSN.

Address. Enter here theperson’s street ad-dress or P.O. box in30 characters or less.

City. Enter city in 25characters or less.

State. Enter the standard 2-letter state code.ZIP code. Enter the standard 5-digit or 9-digit (xxxxx-xxxx) ZIP code.Have a signed statement from him or her? You MUST have a signed

statement from the person stating that he or she will not claim thedependent on his or her return for the applicable year. Do NOTsend the statement to the IRS, but keep it with your records.

ELIGIBLE PERSON WORKSHEETELIGIBLE PERSON WORKSHEETELIGIBLE PERSON WORKSHEETELIGIBLE PERSON WORKSHEET First Name................. First Name................. First Name................. First Name................. Last Name.................. Last Name.................. Last Name.................. Last Name.................. Soc. Sec. no. ............. Soc. Sec. no. ............. Soc. Sec. no. ............. Soc. Sec. no. ............. Address....................: Address....................: Address....................: Address....................:

City............. City............. City............. City............. State...................... State...................... State...................... State...................... ZIP code................... ZIP code................... ZIP code................... ZIP code................... Have signed stmt from him/her? No Have signed stmt from him/her? No Have signed stmt from him/her? No Have signed stmt from him/her? No

Figure Prem-1. Eligible Person Worksheet


Form 2350

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Form 2350 / Application for Extension of Time to File U.S. In-come Tax Return

Purpose. In spite of the rather broad name of this form, this is a very special-ized kind of extension that is appropriate only for U.S. citizens and residentaliens living abroad who need extra time in order to meet residency tests forthe special tax treatment that is afforded them. The special treatment in-cludes the foreign earned income exclusion, the foreign housing exclusion,and the foreign housing deduction, all claimed through Form 2555. If yourrequest for an extension is approved, the IRS will generally grant an extensionto a date 30 days after you expect to meet either the bona fide residence testor the physical presence test (but see line 3, below, for an exception). If yourrequest is denied, you must file your return on time reporting all income fromboth U.S. and foreign sources and pay tax on that income without benefit ofthe special tax treatment. (“On time” in this context means by the due dateof your return, not including extensions. If your tax home and residence areoutside the U.S. and Puerto Rico on April 16, 2007, your due date is June15, 2007 instead of April 16, 2007.) If you later meet one of the residencytests, you can file an amended return (Form 1040X) to claim a refund,backed by a revised return that reflects a foreign earned income exclusionand/or foreign housing benefit. For more details, see IRS Pub. 54 (Tax Guidefor U.S. Citizens and Resident Aliens Abroad). Form 2350 is accessiblethrough the Road Map above line 69 of Form 1040.

Extension of time to file, not extension of time to pay. Like other extensionforms, Form 2350 does not grant you any extra time to pay any tax due.Therefore, to avoid penalties you must enter on this form the tax you expectto owe and pay it when you file the form (before the regular due date of thereturn). Note that the regular due date for this purpose is April 16, 2007,even when you are allowed until June 15, 2007 to file the return.

Extension for Gift or GST tax. The gift or generation-skipping transfer (GST)tax section of this form was eliminated by the IRS two years ago, but an ex-tension of time to file your U.S. Individual Income Tax Return (Form 1040)now also extends the time to file Form 709 (Gift or GST tax return). How-ever, you must use Form 8892 to pay any tax due for the Form 709 return.

EXTENSION REQUEST for FORM 1040 RETURNS.1 I request an extension of time until... Enter the date you expect to

meet one of the residency tests (plus 30 days) in the standardmo/dy/yr format.

...to file my income tax return for the calendar year 2006, or other taxyear ending... Usually, leave this line blank. An entry is appropriatehere only if your tax year is other than the calendar year, which israrely allowed.

HowardSoft

Form 2350

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...because my tax home is in a foreign country and I expect to qualifyfor special tax treatment by meeting the “bona fide residence test”or the “physical presence test.”

2 Were you previously granted an extension of time to file for this taxyear? Answer Yes if you were already granted an extension butnow need more time.

3 Will you need additional time to allocate moving expenses? If youmove early in the year all of your moving expenses are attributed toexcluded foreign earned income so that no moving expenses aredeductible. However, if you move within 120 days of the end of theyear you can allocate some of your moving expenses to U.S. earnedincome and some to excluded foreign earned income. If you mustallocate some of your moving expenses to excluded income and an-swer Yes here, the IRS may grant an extension to a date 90 daysafter the end of the year following the year of the move.

4a Date you first arrived in the foreign country. Enter the date in thestandard mo/dy/yr format.

4b Date qualifying period begins... The qualifying period is the periodduring which you meet the tax home test and either residency test.Enter the date in the standard mo/dy/yr format.

...and ends. The qualifying period ends when you no longer maintainyour tax home in the country or no longer meet either residencytest. Enter the date in the standard mo/dy/yr format.

4c Your foreign home address. Try first to enter the complete addressin the provided 35 character data entry line. If you need more room,use the 15-character data entry line that follows it. The two entriesare concatenated into a single 50-character line on the official print-out.

4d Date you expect to return to the United States. Enter the date in thestandard mo/dy/yr format.

Estimate of Amount You Owe. (auto-calc) Computed from Form 1040as the total tax on line 63 of Form 1040, less the total payments online 72 of Form 1040 (excluding any amount from Form 2350), plusthe estimated tax penalty on line 77 of Form 1040, but no less thanzero.

5 Amount of income tax paid with this form. Using the preceding line asyour guide, enter the amount you want to pay when you file thisform. CAUTION: If the return you file later has a higher tax liabilitythan you pay here, you may owe a penalty when you file your re-turn.

SIGNATURE AND VERIFICATION. The form must be signed, but the IRS pro-vides some flexibility. Usually the taxpayer would acknowledge the jurat onthe official printed Form 2350 by signing and dating that form, and, if marriedfiling jointly, both spouses must generally sign. A person who prepared the


Form 2350

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form for you can sign instead of you if that person is an attorney, CPA, or en-rolled agent, or has a power of attorney from you.

If one spouse must sign for both spouses...Itemize HERE to explain why. The IRS allows one spouse to sign forboth if you provide a good reason for it. The reasons you provide ina supporting statement for this line will be cross-referenced on theprinted form and printed on a separate page.

RETURN LABEL. The bottom of the official form contains a notice that will bemailed to you once the IRS has made its decision on your request for an ex-tension. This notice also serves as a return label, so you must confirm theaddress to which you want the notice sent. To have the notice sent to thetaxpayer at the address on Form 1040, you need do nothing. The label willbe completed based on the information you supplied on Form 1040. How-ever, if you want the notice sent elsewhere, you can provide a different ad-dress here.

Do you want to the answer to your request for an extension sent to adifferent address? If you answer Yes, the notice will be sent to theaddress you supply below. (The taxpayer’s name always appears onthis label, but you can add an agent’s name later if this is the ad-dress for the agent. Note that the address on Form 1040 is alwaysused for the top of Form 2350, irrespective of what you enterhere.)

Number and street or P.O. Box. Enter the street address in 35 charac-ters or less.

City, state, country. Enter the city, state, and country in 35 charac-ters or less.

ZIP or postal code. Enter ZIP code or other postal code in 10 charac-ters or less.

If this is an agent’s address, enter the agent’s name here. By IRS rules,the taxpayer’s name will appear first on the label, but you can enterhere “In care of” or “c/o” and the agent’s name.

Extra line for personal memos. The supporting statement you create for thisline will not be printed as a part of the official return. This line is providedonly to allow you to make private notes or reminders.

HowardSoft

Form 2555/2555-EZ

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Form 2555 & 2555-EZ / Foreign Earned Income

Purpose. This form is used by U.S. citizens (or U.S. resident aliens) livingabroad to claim an exclusion for a limited portion of income earned abroadand to claim an exclusion for employer-paid housing included in income. Form2555 is accessible through the Road Map preceding lines 21 and 36 of Form1040; two copies are available, one for each spouse.

Form 2555-EZ included. The software also provides Form 2555-EZ as a partof its Form 2555. It automatically prints Form 2555-EZ in place of Form2555 when qualified, unless you elect (on the last screen of our Form 2555)NOT to use Form 2555-EZ. You are qualified to use From 2555-EZ if yousatisfy all of the following conditions:

(1) You meet the qualifications for 2555.(2) Your foreign earned income does not exceed $82,400.(3) You have no self-employment income.(4) You have no business or moving expenses.(5) You do not claim an exclusion or deduction for foreign housing.(6) All of your foreign earned income is reported on Form 1040, line 7.(7) You do not have a housing deduction carryover from the prior year.

Once you complete Form 2555, you must complete the last screen of ourForm 2555 if you want to file the return using Form 2555-EZ in place ofForm 2555. (Note that you cannot e-file a return for which you have chosento use Form 2555-EZ in our software.)

Social security number for this copy. (auto-calc) One copy of Form 2555 isavailable for each spouse. The social security number entered on Form 1040for the spouse whose copy you chose when you entered Form 2555 appearshere.

Is this spouse's copy (vs. you)? (auto-calc) This answer is also based on thecopy you chose.

For Use by U.S. Citizens and Resident Aliens Only. This form can be usedonly by citizens and resident aliens whose tax home is in a foreign countrythroughout the period used in meeting the Bona Fide Residence Test or thePhysical Presence Test, both of which are described later. If you are a resi-dent alien qualifying under the Bona Fide Residence Test, you must be a citi-zen of a country with which the United States has an income tax treaty in ef-fect (listed in IRS Pub. 901, U.S. Tax Treaties). Whether a citizen or a resi-dent alien, any time in a country on which the United States has imposedtravel restrictions (only Cuba in 2006) does not count in any of the timetests, and any income earned or housing expenses are not qualified.

QUALIFICATIONS:BONA FIDE RESIDENCE TEST:

Were you a bona fide resident of a foreign country for an uninter-rupted period that includes the entire tax year? The IRS is rather


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vague on what constitutes “bona fide” residency, but you are gen-erally considered a bona fide resident if you are in the foreign coun-try for an indefinite stay and make your home in the country. Bycontrast, you are not a bona fide resident if you go to the foreigncountry for a predefined temporary period and return to the UnitedStates when the period has ended. See the IRS instructions and IRSPub. 54 for more detail.

PHYSICAL PRESENCE TEST:Were you physically present in a foreign country for at least 330days in any continuous 12-month period? In determining your quali-fication, you can count only full 24-hours days (midnight to mid-night). See the IRS Pub. 54 for more detail.

WAIVER:If both answers above are No, do you qualify for a WAIVER of timerequirements? If so, you must answer Yes here and itemize this lineto provide a supporting statement explaining your reason. Valid rea-sons for a waiver include having to leave the country because ofwar, civil unrest, etc., but you must be able to show that couldhave met the time requirement had you not been required to leave.

Was your tax home in a foreign country for the entire period of bonafide residency or physical presence? You must be able to answerYes to use this form.

Was all the foreign earned income earned as an employee of the U.S.government? Income paid to you by the U.S. government as itsemployee does not qualify as foreign earned income, but is taxed asif you lived in the United States. Consequently, if you answer Yeshere, you do not qualify to use Form 2555.

QUALIFIED so far to use Form 2555? (auto-calc) Computed as Yes onlyif you answer Yes to one of the first three question but answer Noto the last question.

PART I, GENERAL INFORMATION. You must identify your employer here andanswer questions about yourself and your residency.

1 Your foreign address. Enter the street address in the first two 25-character entry lines provided; the city, state or province, and coun-try in the next three 25-character entry lines; and the postal code inthe following 15-character entry line.

Country Code (for e-file). For an e-file return you must also identifythe country by an IRS-defined 2-character country code. The coun-try codes are shown in Attachment 10 for IRS Pub. 1346 for taxyear 2006. If you do not have this publication, you can download itfrom the IRS forms and publications web site, which is accessiblefrom the Downloads page of our public web site (howardsoft.com).

2 Your occupation. Enter your occupation in 25 characters or less.3 Employer’s name. Enter the name of the employer who pays you for

your work in a foreign country in 25 characters or less.

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4a Employer’s U.S. address. Enter the U.S. address, if any, of the em-ployer, in this set of lines. Enter the street address in the first two25-character entry lines provided; the city in the next 25-characterentry line; the state in the standard 2-character code; and the ZIPcode in the following 10-character entry line.

4b Employer’s foreign address. Enter the foreign address of the em-ployer in the next set of lines. Enter the street address in the firsttwo 25-character entry lines provided; the city, state or province,and country in the next three 25-character entry lines; and thepostal code in the following 15-character entry line.

5 Employer is (answer Yes to all that apply):a A foreign entity?b A U.S. company?c Self?d A foreign affiliate of a U.S. company?e Other?Specify if e. You must make an entry here if you answered Yes toline e, above. A 25-character entry line is provided, but only thefirst 16 characters will appear on a printed Form 2555. (The full 25-character entry is accommodated for e-file.)

6a If, after 1981, you filed Form 2555 or 2555-EZ, enter the last year youfiled the form. Enter zero if the entry does not apply.

6b If not, skip to line 7. If you entered a year on line 6a, you must con-tinue to line 6c. Otherwise, the box for line 6b on the printed Form2555 will be checked and you must skip to line 7.

6c Have you ever revoked either of the exclusions? If Yes, you mustcontinue to line 6d. Otherwise, you must skip to line 7.

6d If you answered “Yes,” enter the type of exclusion and the tax yearfor which the revocation was effective. You must supply the re-quired information in a supporting statement for this line, using thetext column to describe the type (in 30 characters or less) and theamount column to enter the year (as a 4-digit number).

7 Of what country are you a citizen/national? Enter the country of citi-zenship in 35 characters or less.

8a Did you maintain a separate foreign residence for your family be-cause of adverse living conditions at your tax home? You can an-swer Yes if the living conditions at your foreign tax home weredangerous, unhealthful, or otherwise adverse. If so, you can includethe costs for both homes in your entry for housing expenses at line28.

8b If “Yes,” enter the city and country of the separate foreign residenceand the number of days during the tax year that you maintainedthat residence. You must supply the required information in a sup-porting statement for this line, using the text column to enter thecity and country (in 30 characters or less) and the amount columnto enter the number of days (as a 3-digit number, 365 or less).


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9 List your tax home(s) during your tax year and date(s) established.(Supported by the Tax Home Worksheet, Figure Prem-2.) You mustsupply the required information in the supporting worksheet pro-vided, which is detailed next.

Tax Home Worksheet.(Figure Prem-2; supportsline 9 of Form 2555) Usea separate worksheet foreach separate tax home.

Tax home (identi-fy). Describethe tax home in30 characters or less.

Date established. Enter the date in the standard xx/xx/xxxx format.

PART II, TAXPAYERS QUALIFYING UNDER BONA FIDE RESIDENCE TEST.You can use this part only if you claimed on screen 1 that you meet this test.

Qualified to use this part? (auto-calc) Answered Yes only If youclaimed on screen 1 that you meet the Bona Fide Residence Testand you are otherwise qualified to use Form 2555.

10 Date bona fide residence began. Enter the date in the standardxx/xx/xxxx format.

...and ended. Enter the date in the standard xx/xx/xxxx format.11 Kind of living quarters in foreign country:

a Purchased house?b Rented house or apartment?c Rented room?d Quarters furnished by employer?

12a Did any of your family live with you abroad during any part of thetax year? If no, skip to line 13a.

12b If “Yes,” who and for what period? You must enter the relationshipand the period of residency for each related party in a supportingstatement for this line. For an e-file return you must enter the in-formation strictly in the following format: relationship in the first 11characters of the text field and period in the remaining 19 charac-ters of the text field, using a separate line for each family member.(The only valid entries for relationship for an e-file return are child,son, daughter, fosterchild, grandchild, parent, grandparent, sister,brother, niece, nephew, aunt, uncle, spouse, none, and other.)

13a Have you submitted a statement to the authorities of the foreigncountry where you claim bona fide residence that you are not aresident of that country? If you answer Yes and the foreign countrydetermines that you are exempt from their income tax laws becauseof your statement (or has not yet made a determination), you arenot qualified as a bona fide resident.

13b Are you required to pay income tax to the country where you claimbona fide residence? If you answer Yes to 13a and No here, you

TAX HOME WORKSHEETTAX HOME WORKSHEETTAX HOME WORKSHEETTAX HOME WORKSHEET Tax home (identify) : Tax home (identify) : Tax home (identify) : Tax home (identify) :

Date established.......... Date established.......... Date established.......... Date established.......... (Enter date as mo/dy/year) (Enter date as mo/dy/year) (Enter date as mo/dy/year) (Enter date as mo/dy/year)

Figure Prem-2. Tax Home Worksheet

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are not qualified as a bona fide resident and should not completethe rest of Part II.

14 If you were present in the U.S. or its possessions during the taxyear, itemize income earned in the U.S. on business. (Supported bythe U.S. Income Worksheet, Figure Prem-3.) If in the U.S. anytimeduring the year, supply the information on the supporting work-sheet, using a separate worksheet for each separate period of pres-ence in the U.S.

* Itemize computations here. You must show in a supporting statementfor this line how you computed the U.S. income you entered in lined of the worksheets for line 14. You must include this income onForm 1040 (such as line 7 for wages, line 12 for non-farm self-employment, etc.), but must not include it in any entries in Part IVof this form (which is intended only for foreign income).

15a List any contractual terms or other conditions relating to the lengthof your employment abroad. Two 35-character lines are providedfor your entries for this line. (For e-file, supporting statements forthis line are not recognized by the IRS.)

15b Enter the type of visa under which you entered the foreign country.Enter the type in 25 characters or less.

15c Did the visa limit the length of your stay or employment in a for-eign country? If “Yes,” you must provide an explanation in a sup-porting statement for this line.

15d Did you maintain a home in the U.S. while living abroad? If Yes,provide details at the next line.

15e If “Yes,” itemize here to supply the address of your home, whetherit was rented, the names of the occupants, and their relationship toyou. (Supported by the U.S. Home Maintained Worksheet, FigurePrem-4.) You must supply all required information on the supportingworksheet for this line. (The number shown on this line is thenumber of homes identified in the support.)

U.S. Income Work-sheet. (Figure Prem-3;supports line 14 ofForm 2555) Use aseparate worksheet foreach separate visit tothe United States dur-ing the tax year.

a Date arrived in U.S. Enter the arrival date in the standard xx/xx/xxxxformat.

b Date left U.S. Enter the departure date in the standard xx/xx/xxxxformat.

c Number of days in U.S. on business. Enter the number of days withinthe period from line a to line b that you were in the U.S. for a busi-ness purpose.

U.S. INCOME WORKSHEETU.S. INCOME WORKSHEETU.S. INCOME WORKSHEETU.S. INCOME WORKSHEET a Date arrived in U.S. ..... a Date arrived in U.S. ..... a Date arrived in U.S. ..... a Date arrived in U.S. ..... b Date left U.S. ........... b Date left U.S. ........... b Date left U.S. ........... b Date left U.S. ........... c No. days in US on business 0 c No. days in US on business 0 c No. days in US on business 0 c No. days in US on business 0 d Inc. earned in US on busin 0 d Inc. earned in US on busin 0 d Inc. earned in US on busin 0 d Inc. earned in US on busin 0

Figure Prem-3. U.S. Income Worksheet


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d Income earned in U.S. on business. Enter income earned for the daysin line c. You must show how you computed this entry in a separatesupporting statement at the line below line 14, above. CAUTION:You must include this income on Form 1040 but not Part IV ofForm 2555.

U.S. Home MaintainedWorksheet. (Figure Prem-4; supports line 15e ofForm 2555) Use a sepa-rate worksheet for eachseparate home main-tained in the U.S.

Address of homemaintained.Two entry linesof 30 charac-ters each areprovided for you to enter the address of the U.S. home you main-tained while living abroad.

Was the home rented? Answer Yes if appropriate.Rental status. (auto-calc) The word “RENTED” appears here if you an-

swered Yes to the preceding question. Otherwise, blank. (This entryis used in printouts and e-file output to conform with IRS specifica-tions for this form.

Occupant’s name. Enter the name in 35 characters or less.Occupant’s relationship. Valid entries are child, son, daughter, foster-

child, grandchild, parent, grandparent, sister, brother, niece,nephew, aunt, uncle, spouse, none, and other.

PART III, TAXPAYERS QUALIFYING UNDER PHYSICAL PRESENCE TEST. Youcan use this part only if you claimed on screen 1 that you meet this test.

Qualified to use this part? (auto-calc) Answered Yes only If youclaimed on screen 1 that you meet the Physical Presence Test andyou are otherwise qualified to use Form 2555.

16 The physical presence test is based on the 12-month period from...Enter the starting date in the standard xx/xx/xxxx format.

...through. Enter the ending date in the standard xx/xx/xxxx format,which should be exactly one year later than the first date.

17 Enter your principal country of employment during your tax year. IfEnter the country in 35 characters or less.

18 If you traveled abroad during the 12-month period entered on line16, complete the worksheet below (on the 2nd line below). Other-wise, supply the required statement in a supporting statement forthe next line.

U. S. HOME MAINTAINEDU. S. HOME MAINTAINEDU. S. HOME MAINTAINEDU. S. HOME MAINTAINED Address of home maintained: Address of home maintained: Address of home maintained: Address of home maintained:

(continuation)............: (continuation)............: (continuation)............: (continuation)............:

Was this home rented......? No Was this home rented......? No Was this home rented......? No Was this home rented......? No Rental status............. Rental status............. Rental status............. Rental status............. Occupant's name...........: Occupant's name...........: Occupant's name...........: Occupant's name...........:

Occupant's relationship... Occupant's relationship... Occupant's relationship... Occupant's relationship...

Figure Prem-4. U.S. Home Maintained Worksheet

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If NO travel, itemize here. If you did NOT travel during the test pe-riod, you must itemize this line and enter “Physically present in aforeign country or countries for the entire 12-month period.”

If travel, itemize here. (Supported by the Travel Abroad Worksheet,Figure Prem-5.) If you DID travel during the test period, you mustprovide details on the worksheets that support this line.

* Itemize computations here. You must show in a supporting statementfor this line how you computed the U.S. income you entered in linef of the worksheets for line 18. You must include this income onForm 1040 (such as line 7 for wages, line 12 for non-farm self-employment, etc.), but must not include it in any entries in Part IVof this form (which is intended only for foreign income).

Travel Abroad Work-sheet. (Figure Prem-5;supports line 18 ofForm 2555) Use aseparate worksheet foreach separate trip. Youcan exclude travel forless than 24 hours thatdid not involve travelover international wa-

ters or the United States.a Name of country. Enter the name in 25 characters or less. Do not ex-

clude travel to the United States.b Date arrived. Enter the arrival date in the standard xx/xx/xxxx format.c Date left. Enter the departure date in the standard xx/xx/xxxx format.d Full days present in country. Enter the number of full days within the

period from line b to line c that you were in the country.e Number of days in U.S. on business. If your entry for line a was the

United States, enter the number of days within the period from lineb to li ne c that you were in the U.S. for a business purpose.

f Income earned in U.S. on business. Enter income earned for the daysin line e. You must show how you computed this entry in a separatesupporting statement at the line below line 18, above. CAUTION:You must include this income on Form 1040 but not Part IV ofForm 2555.

PART IV, ALL TAXPAYERS.2006 Foreign Earned Income. Your 2006 foreign earned income is reported inthis part, which must be completed no matter what makes you eligible to useForm 2555 or 2555-EZ. You must enter here all 2006 income earned forservices performed in a foreign country, and must not include an incomeearned in the U.S. (as reported on the worksheets for lines 14 and 18).

19 Total wages, salaries, bonuses, commissions, etc. Enter all incomeearned in a foreign country as an employee.

20 Allocable share of income for personal services performed:

TRAVEL ABROAD DURING LN 16TRAVEL ABROAD DURING LN 16TRAVEL ABROAD DURING LN 16TRAVEL ABROAD DURING LN 16 a Name country.... a Name country.... a Name country.... a Name country.... b Date arrived.............. b Date arrived.............. b Date arrived.............. b Date arrived.............. c Date left................. c Date left................. c Date left................. c Date left................. d Full days in country...... 0 d Full days in country...... 0 d Full days in country...... 0 d Full days in country...... 0 e Days in U.S. on business.. 0 e Days in U.S. on business.. 0 e Days in U.S. on business.. 0 e Days in U.S. on business.. 0 f Inc. earned in US on busin 0 f Inc. earned in US on busin 0 f Inc. earned in US on busin 0 f Inc. earned in US on busin 0

Figure Prem-5. Travel Abroad Worksheet


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20a In a business or profession. Enter all self-employment incomeearned in a foreign country as an individual.

20b In a partnership. Enter all self-employment income earned in aforeign country as a member of a partnership.

21 Noncash income (market value of property or facilities furnished byemployer):

21a Home (lodging). Show how market value was determined in asupporting statement for this line.

21b Meals. Show how the value was determined in a supportingstatement for this line.

21c Car. Show how market value was determined in a supportingstatement for this line.

21d Other property or facilities. (List type and amount.) When youitemize this line you must follow an IRS-specified format by enteringthe type or category in the 30-character text column of the supportand the market value for that type in the amount column.

22 Allowances, reimbursements, or expenses paid on your behalf forservices you performed:

22a Cost of living and overseas differential. No supporting statementis required for lines 22a through 22e.

22b Family.22c Education.22d Home leave.22e Quarters.22f For any other purpose. (List type and amount.) You must itemizethis line and enter the type in the 30-character text column of thesupport and the value in the amount column.

22g Add lines 22a through 22f. (auto-calc) Computed as indicated.23 Other foreign earned income. (List type and amount.) You must

itemize this line and enter the type in the 30-character text columnof the support and the value in the amount column.

24 Add lines 19 through 21d, line 22g, and line 23. (auto-calc) Computedas indicated.

25 Total amount of meals and lodging included on line 24 that is ex-cludable. Examples include meals and lodging that were provided toyou for your employer’s convenience and on your employer’s busi-ness premises. See IRS instructions for this line and IRS Pub. 54(the section entitled Exclusion of Meals and Lodging).

26 2006 FOREIGN EARNED INCOME. (auto-calc) Computed as line 24less line 25.

PART V, ALL TAXPAYERS.27 Enter amount from line 26. (auto-calc) Taken from the result in Part

IV, as indicated.The check boxes below line 27 on the IRS Form are automatically completedbased on your entries in the next two sections.

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PART VI, TAXPAYERS CLAIMING THE HOUSING EXCLUSION AND/ORDEDUCTION. The tentative housing exclusion is figured in this part. If youcomplete this part, Form 2555 will always be used to make the claim be-cause Form 2555-EZ cannot be used to claim housing expenses.

28 Qualified housing expenses for the tax year. Enter the total reason-able expenses paid or incurred, either by you or on your behalf, forhousing. You can include the expenses for a second foreign house-hold if you answered Yes to line 8a. See page 3 of the IRS Instruc-tions for a detailed explanation of what else qualifies.

29a Enter location where housing expenses incurred. Enter the city andcountry ONLY if it appears in the IRS table of Limits on Housing Ex-penses. You must use the 4-page table in the latest version of 2006IRS Instructions for Form 2555, which was not released until March3, 2007. The table lists foreign cities for which the IRS allows morethan the normal $24,720 limit for 2006. If your city is not listed inthis table, do not make an entry here; you cannot claim more thanthe $24,720 limit in this case.

Number of days in your qualifying period that fall within your 2006tax year. Enter the number of days as indicated, which is limited to365 for 2006. You must make an entry here whether or not youwere allowed to make an entry on line 29a.

Full-year housing expense limit. If you made no entry at line 29a, theentry at this line is automatically $24,720, which is the amount al-lowed for cities not listed in the IRS table of Limits on Housing Ex-penses. If you made an entry at line 29a, you can enter an amountbetween $24,720 and $114,300 (the highest amount in the table,which applies to Hong Kong). The amount you enter must be theamount in the IRS table of Limits on Housing Expenses for the cityand country you entered in line 29a. If you lived in more than oneforeign location during the qualifying period, you must prorate theamount in accordance with the amount of time spent in each loca-tion, using $24,720 for locations not listed in the IRS table. (TIP:Prior to release 2007.01i, this line was an auto-calc line with theamount always set to $24,720, because the IRS table was not yetavailable. Therefore, if you lived in a city listed in the IRS table, youmust update to 2007.0i or later in order to make an entry here.)

29b Limit on housing expenses. (auto-calc) Computed as the precedinglimit times your entry, above, for number of days within 2006 di-vided by the number of days in a year (365 for 2006).

30 Smaller of line 28 or line 29b. (auto-calc) Computed as indicated.31 Number of days in your qualifying period that fall within your 2006

tax year. (auto-calc) Taken from your prior entry, above, for num-ber of days within 2006.

32 Multiply $36.12 by the number of days on line 31. (auto-calc) Com-puted as indicated except when line 31 is 365, for which$13,184.00 is used in accordance with IRS instructions.


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33 Subtract line 32 from line 30. (auto-calc) Computed as indicated, butno less than zero.

34 Enter employer-provided amounts. Enter the total amount of wages,rent, housing expenses, and fair-market-value of property in kindthat your employer provided to you or on your behalf. This amountshould be included in gross income on your Form 1040. If self-employed and all your foreign earned income is from your self-employment, enter zero here; you cannot take the housing exclusioncomputed in this part of the form, but you may be able to take thehousing deduction in Part IX.

35 Divide line 34 by line 27. (auto-calc) Computed as indicated, but nomore than 1.0. (We carry the result to four places, one place moreaccurate than the IRS requires.)

36 HOUSING EXCLUSION. (auto-calc) Computed as line 33 multipliedby line 35, but no more than line 34.

The result on line 36 is used in all remaining parts of the form to determinethe amount to either be excluded at Form 1040, line 21, and/or deducted atForm 1040, line 36.

PART VII, TAXPAYERS CLAIMING THE FOREIGN EARNED INCOMEEXCLUSION. The tentative foreign earned income exclusion is figured in thispart. If you completed Part VI then this part is fully automatic. Otherwiseyou must make an entry for line 38 in order to figure the exclusion.

Elect OUT of this exclusion? If you elect NOT to claim the foreignearned income exclusion, lines 38 through 42 will be forced to zero.Otherwise, these lines are computed as described below.

37 Maximum foreign earned income exclusion. (auto-calc) Computedas $82,400 for tax year 2006, this is the maximum exclusion al-lowed.

38 Number of days in your qualifying period that fall within your 2006tax year. If you completed Part VI, your entry for line 31 is usedhere automatically. Otherwise, you must enter the number of dayswithin the tax year that you meet both the tax home test and thebona fide residence or physical presence test. (Up to 365 days canbe entered for tax year 2006.)

39 Divide line 38 by the number of days in your 2006 tax year. (auto-calc) Computed as indicated, but no more than 1.0. (We carry theresult to four places, one place more accurate than the IRS re-quires.)

40 Multiply line 37 by line 39. (auto-calc) Computed as indicated.41 Subtract line 36 from line 27. (auto-calc) Computed as indicated.42 FOREIGN EARNED INCOME EXCLUSION. (auto-calc) Computed as

the smaller of line 40 or line 41.The result on line 42 is used in the next parts of the form to determine theamount to be excluded at Form 1040, line 21.

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PART VIII, TAXPAYERS CLAIMING THE HOUSING EXCLUSION, FOREIGNEARNED INCOME EXCLUSION, OR BOTH. The exclusion to be taken at Form1040, line 21, is figured here.

43 Add lines 36 and 42. (auto-calc) Computed as indicated.44 Deductions allowed in figuring your adjusted gross income (Form

1040, line 38) that are allocable to the excluded income. You mustitemize this line to enter deductions you entered throughout the re-turn that relate to the foreign earned income for which an exclusionis claimed and to explain your computation. (The deductions areused in full elsewhere on the return, but are taken back here whenyou claim the exclusion so that you do not get credit for the sameamount twice.) See the IRS instructions for details.

45 FOREIGN EARNED INCOME EXCLUSION. (auto-calc) Computed asline 43 less line 44.

Itemized deductions you couldn’t claim because they were related toexcluded foreign earned income. If your taxable income would havebeen lower had you been allowed to claim itemized deductions re-lated to excluded foreign earned income, enter the disallowed item-ized deductions here. (This entry is used solely for the purposes ofthe new Foreign Earned Income Tax Worksheet for line 44 of Form1040.)

Adjusted exclusion for Foreign Earned Income Tax Worksheet line 6.(auto-calc) Computed as line 45 less the preceding entry, but noless than zero, this result is used for line 6 of the Foreign Earned In-come Tax Worksheet for line 44 of Form 1040.

The result on line 45 is posted to the Form 2555 (or 2555-EZ) component ofForm 1040, line 21, as a negative number, thereby excluding the amountfrom the income computed at Form 1040, line 22.

PART IX, TAXPAYERS CLAIMING THE HOUSING EXCLUSION. If the tentativehousing exclusion in line 36 is not fully reflected in line 45, you may be ableto take a deduction at Form 1040, line 36, as figured here. (A deduction willresult only if line 33 is more than line 36 and line 27 is more than line 43.)

46 Subtract line 36 from line 33. (auto-calc) Computed as indicated.47 Subtract line 43 from line 27. (auto-calc) Computed as indicated.48 Enter the smaller of line 46 or line 47. (auto-calc) Computed as indi-

cated.49 Housing deduction carryover from 2005. If line 47 is more than line

46 and you could not deduct all of your 2005 housing deductionbecause of the 2005 limit, see IRS instructions for the amount toenter here. (If line 46 is more than line 47 you may be able to de-duct some or all of the excess on your return for tax year 2007.)

50 HOUSING DEDUCTION. (auto-calc) Computed as the sum of lines48 and 49..

The result on line 50 is posted to the Form 2555 component of Form 1040,line 36, thereby deducting the amount from adjusted gross income computedfor Form 1040, line 38.


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FORM 2555-EZ QUALIFICATION. The simpler Form 2555-EZ can be used inplace of Form 2555 under certain conditions so that you do not have to pro-vide all the detail required on Form 2555. Qualification for Form 2555-EZ isdetermined in this section, using the entries you have made for Form 2555.

Do you meet a time test or claim a waiver? (auto-calc) You cannot useForm 2555-EZ if “No” appears here.

Elect NOT to use Form 2555-EZ? If you want to provide the IRS with allthe detail you must supply for Form 2555, you can choose to haveForm 2555 printed with the return even when you qualify to useForm 2555-EZ by answering “Yes” here.

Will this return be e-filed? If “Yes,” Form 2555 will be used in the elec-tronic filing output even when qualified to use Form 2555-EZ.

Is foreign earned income more than $82,400? (auto-calc) Computed as“Yes” only if the amount on line 27 exceeds $82,400. If “Yes,” youcannot use Form 2555-EZ.

Do you have any self-employment income on your return? If “Yes,” youcannot use Form 2555-EZ.

Are you claiming any business expenses on your return? If “Yes,” youcannot use Form 2555-EZ.

Have you made an entry on Form 2555, line 44? If any deductions al-lowed to reduce adjusted gross income are allocable to excluded in-come, you must have entered the amount on line 44 of Form 2555,and are not allowed to use Form 2555-EZ.

Are you claiming any moving expenses on your return? (auto-calc)Computed as “Yes” if an amount appears on Form 1040, line 26.

Are you claiming the housing exclusion? (auto-calc) Computed as“Yes” if an amount appears on Form 2555, line 36.

Are you claiming the housing deduction? (auto-calc) Computed as“Yes” if an amount appears on Form 2555, line 50.

FORM 2555-EZ WILL BE USED. (auto-calc) Computed as “Yes” only ifthe first answer above is “Yes” and all the rest are “No.” If “Yes,”Form 2555-EZ will be printed in place of Form 2555 in an officialprintout of the return. Otherwise, Form 2555 will be printed withthe return.

Form 2555-EZ, line 10d, uses Form 2555, line 6d OR enter the tax yearof revocation here. If you enter a single year in a supporting state-ment for line 6d, that year will appear here. Otherwise, enter theyear here yourself.


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Form 2848

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Form 2848 / Power of Attorney & Declaration of RepresentativePurpose. This form is used to authorize a qualifying individual to representyou before the IRS. To qualify, this individual must be eligible to practice be-fore the IRS. Form 2848 must NOT be filed with the taxpayer’s return. In-stead, you must send the form to one of the special locations listed in the IRSinstructions or, if completed for a specific use, to the office handling the spe-cific matter. Because of its stand-alone nature, Form 2848 is accessible onlyfrom the Forms Menu, and not through the Road Map.

Representatives you appoint must be qualified. Form 2848 requires that therepresentative to whom you give the power of attorney be one of a selectgroup of individuals, such as an attorney, CPA, enrolled agent, or other per-son qualified to represent you before the IRS. You identify this person in PartI, but that person must complete and sign Part II to declare qualification asyour representative. BOTH PARTS MUST BE COMPLETED, SIGNED, ANDDATED or the IRS will not accept the Form 2848 you file.

PART I, POWER OF ATTORNEY. This part of the form is completed and signedby the taxpayer. The representatives to whom you want to give the power ofattorney are identified here along with the powers you want to give to them.

1 Taxpayer information. The information in this section is printed at thetop of the official printed form.

Employer ID number. For Form 1040 software: enter an Employer IDnumber here only if you are giving power of attorney over an em-ployment return for your self-employed business. (Enter EIN in thestandard xx-xxxxxxx format.) For Form 1065 software: this entry isautomatically taken from your entry for the partnership’s EIN onForm 1065, page 1.

Plan number. This entry is not applicable to individuals, but appliesonly to employee plans that file a Form 2848 for the plan.

Address, city, state, ZIP code. (auto-calc) Taken from the completeaddress you enter on the main form for the return.

Daytime telephone number. Enter the daytime contact. (This entry isautomatic for Form 1040 software.)

Spouse SSN if joint. (1040 software only) (auto-calc) Your entry forspouse’s SSN on Form 1040 appears here only if married filing jointly.

2 Representative(s). You must fully identify the representatives you appoint.The form provides space for only three representatives, but you can ap-point more in a supporting statement for a special line that follows theseentries. Note that the first representative carries a special importancebecause that person will ordinarily receive a copy of notices and com-munications sent to you by the IRS. See line 7 for details. For each rep-resentative you must supply the following information:

Name. Enter the full name in 35 characters or less.Address. Enter the street address or P.O. box in 35 characters or less.


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City, state, and ZIP code. Enter the city, state, and ZIP in 35 charac-ters or less.

CAF Number. The IRS maintains a Centralized Authorization File(CAF) to keep track of appointed representatives and the tax mat-ters and periods for which they have been given power of attorney.The first time a representative is appointed by anyone, he or she isassigned a lifetime 9-digit CAF number, and uses this number there-after as identification to the IRS. If no such number has yet beenassigned to a representative you choose, enter None here and theIRS will assign a number for the future.

Telephone number. Enter the representative’s daytime phone numberin 15 characters or less.

Fax number. Enter the representative’s fax number in 15 charactersor less.

Answer Yes if any are new. Answer Yes for each of the following thatare different on this form from the entries in the CAF. Answer Yesto all that apply.

Address. Answer Yes only if changed from current CAF entry.Telephone number. Answer Yes only if changed from current CAFentry.

Fax number. Answer Yes only if changed from current CAF entry.If more than three:

Itemize HERE to identify others. Use this line to supply the same in-formation as above for additional representatives you appoint.

3 Tax matters. You must identify the type of tax or penalty for whichyou are giving the representative(s) the power of attorney, includingthe related form number and the specific years (or other period) forwhich you want to grant the power of attorney. For each categoryyou must supply the following information:

Type of tax or civil penalty. Enter here the type of return to whichthe representation applies, such as an individual income tax returnor an employment return.

Tax form Number. Enter the related form number, such as Form 1040or Form 941.

Years or periods. Enter range of years (or other period) for which youwant to grant the power of attorney.

If more than three:Itemize HERE for others. Use this line to supply the same informationas above for additional categories.

4 Specific use not recorded on CAF. Some uses of the power of attor-ney are not recorded on the CAF, such as requests for private rul-ings or requests to change accounting methods. Answer Yes hereONLY if the use is such that the CAF does not apply. See IRS in-structions for details. If you answer Yes, you should send Form2848 to the office handling the specific matter rather than one ofthe addresses in the IRS instructions.

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5 Acts authorized. The IRS Form 2848 (and our graphic printouts) listspecific acts that are automatically authorized by the power of at-torney unless you modify that list here.

List additions or deletions. Eight 25-character entry lines are pro-vided for you to supply an explanation that fits on the form.

Itemize HERE for others. If the space on the form is insufficient, providemore changes to authorized acts in a supporting statement for this line.

6 Receipt of refund checks. By entering a name below you can author-ize a representative identified in line 2 to receive a refund check forthe return(s) listed in line 3. You must also initial by hand the spaceprovided at line 6 to confirm your intent.

Name of representative to receive refund checks. The person musthave been listed in line 2. This person will not have the right to en-dorse or cash the refund check, but only to receive it for you.

7 Notices and communications. Normally both you and the first repre-sentative listed in line 2 will be sent notices and communicationsrelated to the tax matters listed in line 3. However, you can modifythis practice by your answers to the following questions:

a Do you also want the second representative to receive notices andcommunications? If you answer Yes, you and the first two repre-sentatives will all received the notices and communications.

b Do you not want any notices and communications sent to repre-sentatives? If you answer Yes, only you will receive the notices andcommunications.

8 Retention/revocation of prior power(s) of attorney. Normally the IRSwill revoke a prior power of attorney when they receive this form ifit applies to the same tax matters and periods as listed in line 3.However, you can modify this practice as follows:

Do you not want to revoke a prior power of attorney? If you answerYes, the prior power(s) of attorney will not be revoked.

9 Signature of taxpayer(s). The form must be hand signed by the tax-payer(s) identified in line 1, including spouse if married filing jointly.(You can provide a PIN number for use by a representative in futureelectronic filing. Although the IRS implies that Form 2848 can nowbe filed electronically, that is not yet possible.)

PART II, DECLARATION OF REPRESENTATIVE. This part of the form must becompleted by hand and signed by all representatives listed in line 2. Once youcomplete Form 2848, the representatives must complete, by hand, the bot-tom of Form 2848 page 2, using the information on the official form and thedetailed IRS instructions for Part II.



Form 4136

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Form 4136 / Credit for Federal Tax Paid on Fuels

Purpose. This form is traditionally used to claim a refundable credit for taxespaid on fuel used for nontaxable purposes, or fuel sold tax-free to a buyerwho uses the fuel for nontaxable purposes. Nontaxable uses include use on afarm (for farming purposes), off-highway business use, export, for a boatused for commercial fishing, etc. This form is now also used to claim creditfor the production, sale, or use of certain favored fuels. The form must be at-tached to your Form 1040 return to claim the credit. The IRS instructions forForm 4136 are brief and provide little help in defining the various categories.You should therefore consult IRS Pub. 510 (Excise Taxes for 2006) if youneed more information on nontaxable uses and definition of terms. Also seeIRS Pub. 225 (Farmer’s Tax Guide) for information on fuels applicable tofarmers. Form 4136 is accessible through the Road Map at line 70b of Form1040.

An alternative to Form 4136. Instead of waiting to file Form 4136 when youfile your annual tax return, you can get payment for the credits on this formearlier if you use Form 8849 (Claim for Refund of Excise Tax) or Form 720(Quarterly Federal Excise Tax Return). Form 8849 lets you claim a periodic re-fund, and Form 720 lets you claim a credit against the fuel taxes you owe. Ifyou use either of these forms, you must not claim credit on Form 4136 forany amounts you already claimed on Form 8849 or Schedule C of Form 720.

Major changes throughout the form … again! Another redesign of the formfor tax year 2006 reflects several new categories. In fact, the former 2-pageform has now grown into a 4-page form. Complexities still reign, with instruc-tions that sometimes require you to use rates different from those on the pre-printed form. A number of other changes and subtleties exist, so we highlyrecommend that you carefully read IRS Instructions for the latest release of2006 Form 4136, which was revised at the end of January, 2007.

All lines have similar format. All lines of this form use a multi-column formatthat shows the creditable tax rate, the gallons used, the amount of credit,and the CRN. For most lines you need only enter the total gallons used forthe IRS-defined category for that line. However some lines require additionalinformation, as indicated by worksheets that support those lines as flaggedby a “w” or “i" beside the line:

Fuel Use Worksheet (Figure Prem-6). This worksheet must be used forall lines that require you to provide an IRS-defined code for the typeof use for the fuel. It therefore supports lines 1c, 2b, 3a, 4a, 8d,8e, 9a, 9b, 11c, 14a through 14g, and 17a. You must enter theapplicable Type of Use code an annual total gallons for that type oneach worksheet you complete. The software will recognize your en-try for gallons only if you enter a Type of Use code that is allowedby the IRS for that line. (Type of use codes are shown in TablePrem-1, later in this section. Note that the table contains severalnew types and modified definitions for some of the older types.)

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Fuel Sale Worksheet (Figure Prem-7). This worksheet must be used forlines that require you to identify the buyer by name and taxpayeridentification number (TIN), as identified in the IRS Instructions forForm 4136. It therefore supports lines 6a and 7a.

We provide details for these worksheets later in this section. CAUTION:When a worksheet is provided for a line (indicated by a “w” or an “i"), youMUST use the worksheet to claim ANY credit on that line because the work-sheet collects additional information required by the IRS for those lines.

A word about nomenclature: a vs. (a). Throughout these details, letters thatrepresent columns of the IRS Form 4136 are enclosed by parentheses,whereas letters that represent line numbers (rows) have no parentheses.

CAUTION: If you are claiming credit for fuel you purchased, you must havethe name and address of the person who sold you the fuel. Furthermore, forclaims on lines 3d, 4c, 5, and 9, you must not have waived the right to makethe claim. For claims for Type of Use 13 or 14 on lines 1c and 2b, you mustnot have waived the right to make the claim and must certify that a certifi-cate has not been provided to the credit card issuer.

1 Nontaxable Use of Gasoline. The ultimate purchaser of the gasoline is theonly person eligible to claim the credit on this line.

a Off-highway business use.(c) Gallons. Enter the total number of gallons used for the year. Only

Type of Use 2 is allowed for this line, so no itemizing is required.b Use on a farm for farming purposes.

(c) Gallons. Enter the total number of gallons used for the year. OnlyType of Use 1 is allowed for this line, so no itemizing is required.

c Other nontaxable use.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for other non-taxable uses of gasoline, using a separate worksheet for each typeof use. Allowed Types of Use for this line are 4, 5, 7, 11, 13, 14,or 15. (See the CAUTION above for Type of Use 13 or 14.)

1a-1c:(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered for lines 1a(c), 1b(c), and 1c(c) times 18.3 centsper gallon.

d Exported.(c) Gallons. Enter the total number of gallons exported for the year.

Only Type of Use 3 is allowed for this line, so no itemizing is re-quired. You must have proof of exportation in your records.

(d) Amount of credit. (auto-calc) Computed as the total number ofgallons entered on the preceding line times 18.4 cents per gallon.

2 Nontaxable Use of Aviation Gasoline. The ultimate purchaser of the avia-tion gasoline is the only person eligible to claim the credit on this line.

a Use in commercial aviation (other than foreign trade).


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(c) Gallons. Enter the total number of gallons used for the year. Noitemizing is required.

(d) Amount of credit. (auto-calc) Computed as the total number ofgallons entered on the preceding line times 15 cents per gallon.

b Other nontaxable use.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for other non-taxable uses of aviation gasoline, using a separate worksheet foreach type of use. Allowed Types of Use for this line are 1, 10, 11,13, 14, or 15. (For Type of Use 13 or 14, see the CAUTION on theprevious page.)


c Exported.(c) Gallons. Enter the total number of gallons exported for the year.



3 Nontaxable Use of Undyed Diesel Fuel. The ultimate purchaser of the dieselfuel is the only person eligible to claim the credit on this line.

Did any of the diesel fuel included in this claim contain visible evidenceof dye? If Yes, you must provide a detailed explanation in a sup-porting statement for this line. If No, you are certifying that none ofthe diesel fuel contained any visible evidence of dye.

a Nontaxable use.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for nontaxableuses of undyed diesel fuel, using a separate worksheet for eachtype of use. Allowed Types of Use for this line are 2, 6, 7, 8, 11,13, 14, or 15.

b Use on a farm for farming purposes.(c) Gallons. Enter the total number of gallons used for the year. Only

Type of Use 1 is allowed for this line, so no itemizing is required.3a-3b:

(d) Amount of credit. (auto-calc) Computed as the total number ofgallons entered for lines 3a(c) and 3b(c) times 24.3 cents per gal-lon.

c Use in trains.(c) Gallons. Enter the total number of gallons used for the year. No

itemizing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times 22 cents per gallon.d Use in certain intercity and local buses.

(c) Gallons. Enter the total number of gallons used for the year. OnlyType of Use 5 is allowed for this line, so no itemizing is required.

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e Exported.(c) Gallons. Enter the total number of gallons exported for the year.



4 Nontaxable Use of Undyed Kerosene (Other Than Kerosene Used in Avia-tion) . The ultimate purchaser of the kerosene is the only person eligible toclaim the credit on this line.

Did any of the kerosene included in this claim contain visible evidence ofdye? If you answer Yes, you must provide a detailed explanation ina supporting statement for this line. If No, you are certifying thatnone of the kerosene contained any visible evidence of dye.


Prem-6.) You must use the supporting worksheets for nontaxableuses of undyed diesel fuel, using a separate worksheet for eachtype of use. Allowed Types of Use for this line are 2, 6, 7, 8, 11,13, 14, or 15.

b Use on a farm for farming purposes.(c) Gallons. Enter the total number of gallons used for the year. Only

Type of Use 1 is allowed for this line, so no itemizing is required.(CAUTION: Use line 9 for kerosene used in aviation for farming pur-poses, not this line.)

4a-4b:(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered for lines 4a(c) and 4b(c) times 24.3 cents per gal-lon.

c Use in certain intercity and local buses.(c) Gallons. Enter the total number of gallons used for the year. Only

Type of Use 5 is allowed for this line, so no itemizing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times 17 cents per gallon.d Exported.

(c) Gallons. Enter the total number of gallons exported for the year.Only Type of Use 3 is allowed for this line, so no itemizing is re-quired. You must have proof of exportation in your records.



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Fuel Use Worksheet.(Figure Prem-6) Thisworksheet must be usedfor any claims on lines1c, 2b, 3a, 4a, 8d, 8e,9a, 9b, 11c, 14a through14g, and 17a, all ofwhich require you toidentify a particular typeof use. Use a separateworksheet for each sepa-rate type of use.

a. Type of use. En-ter the IRS code for the Type of Use as shown in Table Prem-1,below. Refer to the details for each supported line to see if there areany restrictions on the Type of Use that can be claimed on that line.

b. Rate is shown on Form 4136. No rates are shown on the worksheets.All appropriate rates are reflected in the credit computations andappear in column (b) of the official printed Form 4136.

Gallons used or sold. For the use you entered in line a, enter the to-tal number of gallons used for the year.

c. Gallons. (auto-calc) Taken as the preceding entry if a type allowedfor the line itemized is entered in line a. Otherwise, zero.

FUEL USE WORKSHEETFUEL USE WORKSHEETFUEL USE WORKSHEETFUEL USE WORKSHEET a. Type of use............... 0 a. Type of use............... 0 a. Type of use............... 0 a. Type of use............... 0 b. Rate is shown on Form 4136 b. Rate is shown on Form 4136 b. Rate is shown on Form 4136 b. Rate is shown on Form 4136 Gallons used or sold...... Gallons used or sold...... Gallons used or sold...... Gallons used or sold...... c. Gallons for types allowed c. Gallons for types allowed c. Gallons for types allowed c. Gallons for types allowed▒ 0▒ 0▒ 0▒ 0

Enter �Type� as no. from 1 to Enter �Type� as no. from 1 to Enter �Type� as no. from 1 to Enter �Type� as no. from 1 to 17 from IRS Type of Use Table. 17 from IRS Type of Use Table. 17 from IRS Type of Use Table. 17 from IRS Type of Use Table. Type 5 (certain intercity and Type 5 (certain intercity and Type 5 (certain intercity and Type 5 (certain intercity and local buses) gives lower rates local buses) gives lower rates local buses) gives lower rates local buses) gives lower rates for lines 14a to 14g and 17a. for lines 14a to 14g and 17a. for lines 14a to 14g and 17a. for lines 14a to 14g and 17a. Types 13 & 14 have special re- Types 13 & 14 have special re- Types 13 & 14 have special re- Types 13 & 14 have special requirements to qualify. See IRS quirements to qualify. See IRS quirements to qualify. See IRS quirements to qualify. See IRS instructions for details. instructions for details. instructions for details. instructions for details.

Figure Prem-6. Fuel Use Worksheet

Table Prem-1. Type of Use for Nontaxable Uses of Fuel CODE TYPE OF USE* 1 On a farm for farming purposes 2 Off-highway business use (for business use other than a highway vehicle registered or required to be registered for highway use), other than use in mobile machinery 3 Export 4 In a boat engaged in commercial fishing 5 In certain intercity and local buses 6 In a qualified local bus 7 In a bus transporting students and employees of schools (school buses) 8 For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use) 9 In foreign trade 10 Certain helicopter and fixed-wing aircraft uses 11 Exclusive use by a qualified blood collector organization (after December 31, 2006) 12 In a highway vehicle owned by the United States that is not used on a highway 13 Exclusive use by a nonprofit educational organization 14 Exclusive use by a state, a political subdivision of a state, or the District of Columbia 15 In an aircraft or vehicle owned by an aircraft museum 16 In military aircraft 17 For use in the production of alternative fuel *See line details for restrictions on Type of Use for each line.

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5 Kerosene Used in Commercial Aviation (Other Than Foreign Trade) . Theultimate purchaser of the kerosene is the only person eligible to claim thecredit on this line.

a Kerosene taxed at $.244.(c) Gallons. Enter the total number of gallons used for the year. No


gallons entered on the preceding line times 20 cents per gallon.b Kerosene taxed at $.219.



6 Sales by Registered Ultimate Vendors of Undyed Diesel Fuel. For a claim inthis section you must have sold the diesel fuel at a tax-excluded price, repaidthe tax to the buyer, or obtained written consent from the buyer to take thisclaim. You must also have obtained the required certificate from the buyerand have no reason to believe it contains any false information.

Registration Number: (MANDATORY). For a claim on line 6a or 6b, enteryour UV registration number here (UV followed by up to 9 digits). Ifyou make no entry here, no credit will be computed for line 6a or 6b.

Did any of the diesel fuel included in this claim contain visible evidenceof dye? If you answer Yes, you must provide a detailed explanationin a supporting statement for this line. If No, you are certifying thatnone of the diesel fuel contained any visible evidence of dye.

a Use by a state or local government.(c) Gallons (itemize). (Supported by the Fuel Sale Worksheet, Figure

Prem-7.) You must use the supporting worksheets to identify thebuyer for each annual total entered.


b Use in certain intercity and local buses.(c) Gallons. Enter the total number of gallons used for the year. Only


gallons entered on the preceding line times 17 cents per gallon.

7 Sales by Registered Ultimate Vendors of Undyed Kerosene (Other ThanKerosene Used in Aviation). For a claim in this section you must have soldthe kerosene at a tax-excluded price, repaid the tax to the buyer, or obtainedwritten consent from the buyer to take this claim.

Registration Number: (MANDATORY). For a claim on line 7a, 7b, or 7c,enter your UV registration number (UV followed by up to 9 digits) oryour UP registration number (UP followed by up to 9 digits). If youmake no entry here, no credit will be computed for line 7a, 7b, or 7c.

Did any of the kerosene included in this claim contain visible evidence ofdye? If you answer Yes, you must provide a detailed explanation in


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a supporting statement for this line. If No, you are certifying thatnone of the kerosene contained any visible evidence of dye.

a Use by a state or local government.(c) Gallons (itemize). (Supported by the Fuel Sale Worksheet, Figure

Prem-7.) You must use the supporting worksheets to identify thebuyer for each annual total entered.

b Sales from a blocked pump.(c) Gallons. Enter the total number of gallons used for the year. No

itemizing is required. For a claim on this line you must have theRegulations section 48.6427-10(e)(4) statement in your records, ifrequired, which shows the date of sale, buyer’s name and address,and number of gallons sold.

7a-7b:(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered for lines 7a(c) and 7b(c) times 24.3 cents per gal-lon.

c Use in certain intercity and local buses.(c) Gallons. Enter the total number of gallons used for the year. Only


gallons entered on the preceding line times 17 cents per gallon.

Fuel Sale Worksheet.(Figure Prem-7) Use aseparate worksheet foreach separate buyer.This worksheet mustbe used for any claimson lines 6a and 7a,both of which requireyou to identify the buyer.

Identify buyer and amount bought.a. Name of buyer. Enter the name in 30 characters or less. The buyer

must have purchased the fuel for use by a state or local government(including essential government use by an Indian tribal government).

b. Buyer’s Tax ID Number. Enter in the applicable standard format: xxx-xx-xxxx for SSN or xx-xxxxxxx for EIN.

c. Gallons sold. Enter total gallons sold to this buyer for the year, forthe type of fuel corresponding to the line itemized.

8 Sales by Registered Ultimate Vendors of Kerosene For Use in Aviation. Fora claim in this section you must have sold the kerosene at a tax-excludedprice, repaid the tax to the buyer, or obtained written consent from the buyerto take this claim.

Registration Number: (MANDATORY). For a claim on line 8a or 8b, enteryour UA registration number here (UA followed by up to 9 digits).For a claim on line 8c, 8d, or 8e, enter your UA registration numberor, if type of use 14, your UV registration number (UV followed by

FUEL SALE WORKSHEETFUEL SALE WORKSHEETFUEL SALE WORKSHEETFUEL SALE WORKSHEET Identify buyer and amt. bought Identify buyer and amt. bought Identify buyer and amt. bought Identify buyer and amt. bought a. Name of buyer.............: a. Name of buyer.............: a. Name of buyer.............: a. Name of buyer.............:

b. Buyer�s Tax ID Number... b. Buyer�s Tax ID Number... b. Buyer�s Tax ID Number... b. Buyer�s Tax ID Number... c. Gallons sold ............ 0 c. Gallons sold ............ 0 c. Gallons sold ............ 0 c. Gallons sold ............ 0

Figure Prem-7. Fuel Sale Worksheet

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up to 9 digits). If you make no entry here, no credit will be computedfor line 8a, 8b, 8c, 8d, or 8e.

a Use in commercial aviation (other than foreign trade) taxed at $.219.(c) Gallons. Enter the total number of gallons used for the year. No


gallons entered on the preceding line times 17.5 cents per gallon.b Use in commercial aviation (other than foreign trade) taxed at $.244.



c Nonexempt use in noncommercial aviation.(c) Gallons. Enter the total number of gallons used for the year. No


gallons entered on the preceding line times 2.5 cents per gallon.d Other nontaxable uses taxed at $.244.

(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, FigurePrem-6.) You must use the supporting worksheets for other non-taxable uses of aviation gasoline, using a separate worksheet foreach type of use. Allowed Types of Use for this line are 1, 9, 10,11, 13, 14, or 15.


e Other nontaxable uses taxed at $.219.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for other non-taxable uses of aviation gasoline, using a separate worksheet foreach type of use. Allowed Types of Use for this line are 1, 9, 10,11, 13, 14, or 15.


9 Nontaxable Use of Kerosene Used in Noncommercial Aviation. The ultimatepurchaser of the kerosene is the only person eligible to claim the credit onthis line.

a Nontaxable use (other than state) taxed at $.244.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for other non-taxable uses of aviation gasoline, using a separate worksheet foreach type of use. Allowed Types of Use for this line are 1, 9, 10,11, 13, 15, or 16.


b Nontaxable use (other than state) taxed at $.219.


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(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, FigurePrem-6.) You must use the supporting worksheets for other non-taxable uses of aviation gasoline, using a separate worksheet foreach type of use. Allowed Types of Use for this line are 1, 9, 10,11, 13, 15, or 16.


10 Reserved for Future Use.

11 Nontaxable Use of Liquified Petroleum Gas (LPG) (before October 1, 2006).The ultimate purchaser of the gasoline is the only person eligible to claim thecredit on this line. For purchases after September 30, 2006, use line 14a.

a Use in certain intercity and local buses.(c) Gallons. Enter the total number of gallons used for the year. No


gallons entered on the preceding line times 6.2 cents per gallon.b Use in qualified local buses or school buses.



c Other nontaxable use.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for other nontax-able uses of LPG, using a separate worksheet for each type of use.Allowed Types of Use for this line are 1, 2, 4, 7, 13, 14, or 15.


12 Alcohol Fuel Mixture Credit. For a claim in this section you must have pro-duced an alcohol fuel mixture by mixing taxable fuel with alcohol. The resultmust have either been used by the claimant as a fuel or sold for use as a fuel.

Registration Number. Enter your registration number here (including prefix)if any amount claimed below was for a mixture sold for use as a fuel.

a Alcohol fuel mixtures containing ethanol.(c) Gallons. Enter the total number of gallons of alcohol in the mixture

used for the year. No itemizing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times 51 cents per gallon.b Alcohol fuel mixtures containing alcohol (other than ethanol).

(c) Gallons. Enter the total number of gallons of alcohol in the mixtureused for the year. No itemizing is required.


13 Biodiesel or Renewable Diesel Mixture Credit. For a claim in this sectionyou must have produced a fuel mixture by mixing diesel fuel with biodiesel or

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renewable diesel fuel. The result must have either been used by the claimantas a fuel or sold for use as a fuel.

Registration Number. Enter your registration number here if any amountclaimed below was for a mixture sold for use as a fuel.

Itemize statement in lieu of certificate. The first claim you make for thebiodiesel credit must be accompanied by the associated Certificatefor Biodiesel (and Certificate of Biodiesel Reseller, if applicable). Insubsequent years you must itemize this line to provide a supportingstatement that includes the certificate identification number, totalgallons of biodiesel on the certificate, and total gallons claimed onSchedule 3 of Form 8849 and/or Schedule C of Form 720.

a Biodiesel (other than agri-biodiesel) mixtures.(c) Gallons. Enter the total number of gallons of biodiesel in the mix-

ture used for the year. No itemizing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times 50 cents per gallon.b Agri-biodiesel mixtures.

(c) Gallons. Enter the total number of gallons of biodiesel in the mix-ture used for the year. No itemizing is required.

(d) Amount of credit. (auto-calc) Computed as the total number ofgallons entered on the preceding line times $1.00 per gallon.

c Renewable diesel mixtures.(c) Gallons. Enter the total number of gallons of renewable diesel in

the mixture used for the year. No itemizing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times $1.00 per gallon.

14 Nontaxable Use of Alternative Fuel (after September 30, 2006). The ulti-mate purchaser of the taxed alternative fuel is the only person eligible toclaim the credit on this line. All entries for line 14 are supported by the FuelUse Worksheet. The alternative fuel must have been used after September30, 2006 for Type of Use 1, 2, 4, 5, 6, 7, 11, 13, 14, or 15.Special handling for BUSES. If you identify the fuel for a worksheet for line14 as Type of Use 5 (certain intercity and local buses), a lower rate than ap-pears on the preprinted IRS form is computed for the gallons entered for thatworksheet (in accordance with IRS instructions). This special handling is indi-cated on the official printout of Form 4136 by the printing of the word “BUS”on the line to which the worksheet applies, and the preprinted rate is crossedout with the applicable lower rate printed next to it.

a Liquified petroleum gas (LPG).(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for this entry,using a separate worksheet for each type of use. Allowed Types ofUse for this line are 1, 2, 4, 5, 6, 7, 11, 13, 14, or 15. (For pur-chases of LPG before October 1, 2006, see line 11.)Part for city BUS. (Supported by the Fuel Use Worksheet, FigurePrem-6.) This line is supported by the same set of worksheets as


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the preceding line. The total gallons for Type of Use 5 that you en-tered on the worksheets appears here, which leads to the “Specialhandling for BUSES” described previously.

(d) Amount of credit. (auto-calc) Computed as “Part for city BUS”times 10.9 cents per gallon plus the remainder (line (c) less “Part forcity BUS”) times 18.3 cents per gallon.

b “P series” fuels.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for this entry,using a separate worksheet for each type of use. Allowed Types ofUse for this line are 1, 2, 4, 5, 6, 7, 11, 13, 14, or 15.Part for city BUS. (Supported by the Fuel Use Worksheet, FigurePrem-6.) This line is supported by the same set of worksheets asthe preceding line. The total gallons for Type of Use 5 that you en-tered on the worksheets appears here, which leads to the “Specialhandling for BUSES” described previously.

(d) Amount of credit. (auto-calc) Computed as “Part for city BUS”times 11 cents per gallon plus the remainder (line (c) less “Part forcity BUS”) times 18.3 cents per gallon.

c Compressed natural gas (CNG)).(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure

Prem-6.) You must use the supporting worksheets for this entry,using a separate worksheet for each type of use. Allowed Types ofUse for this line are 1, 2, 4, 5, 6, 7, 11, 13, 14, or 15. For this lineyou must use the gasoline gallon equivalent (GGE) in your entry forgallons. (The GGE for this line is 126.67 cu. ft.)Part for city BUS. (Supported by the Fuel Use Worksheet, FigurePrem-6.) This line is supported by the same set of worksheets asthe preceding line. The total gallons for Type of Use 5 that you en-tered on the worksheets appears here, which leads to the “Specialhandling for BUSES” described previously.

(d) Amount of credit. (auto-calc) Computed as “Part for city BUS”times 10.9 cents per GGE plus the remainder (line (c) less “Part forcity BUS”) times 18.3 cents per gallon.

d Liquified hydrogen.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure


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Form 4136

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e Any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process.

(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, FigurePrem-6.) You must use the supporting worksheets for this entry,using a separate worksheet for each type of use. Allowed Types ofUse for this line are 1, 2, 4, 5, 6, 7, 11, 13, 14, or 15.Part for city BUS. (Supported by the Fuel Use Worksheet, FigurePrem-6.) This line is supported by the same set of worksheets asthe preceding line. The total gallons for Type of Use 5 that you en-tered on the worksheets appears here, which leads to the “Specialhandling for BUSES” described previously.


f Liquid hydrocarbons derived from biomass.(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure



g Liquified natural gas (LNG).(c) Gallons (itemize). (Supported by the Fuel Use Worksheet, Figure



15 Alternative Fuel Credit and Alternative Fuel Mixture Credit (after Septem-ber 30, 2006). Two separate credits, each with their own set of requirements,are reported together in this line. The “alternative fuel credit” requires that


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you used the fuel, or sold it for use, in a motor vehicle or motorboat. The “al-ternative fuel mixture credit” requires that you either produced and sold thefuel or used it in your trade or business. (You are not required to identify onForm 4136 which set of requirements you meet.)

Registration Number. Enter your registration number here (including prefix).a Liquified petroleum gas (LPG).

(c) Gallons. Enter the total number of gallons used or sold after Sep-tember 30, 2006. If qualifying under the “alternative fuel mixturecredit,” enter only the gallons of alternative fuel in the mixture.


b “P series” fuels.(c) Gallons. Enter the total number of gallons used or sold after Sep-

tember 30, 2006. If qualifying under the “alternative fuel mixturecredit,” enter only the gallons of alternative fuel in the mixture.


c Compressed natural gas (CNG)).(c) Gallons. Enter the total number of gallons used or sold after Sep-

tember 30, 2006. For this line you must use the gasoline gallonequivalent (GGE) in your entry for gallons. (The GGE for this line is121 cu. ft.) If qualifying under the “alternative fuel mixture credit,”enter only the GGE of alternative fuel in the mixture.


d Liquified hydrogen.(c) Gallons. Enter the total number of gallons used or sold after Sep-



e Any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process.



f Liquid hydrocarbons derived from biomass.(c) Gallons. Enter the total number of gallons used or sold after Sep-



g Liquified natural gas (LNG).

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16 Registered Credit Card Issuers. The registered credit card issuer mustmeet specific requirements listed in the IRS Instructions for Form 4136 in or-der to make this claim. Otherwise, the purchaser must make the claim basedon tax paid to the credit card issuer. See IRS instructions for detailed re-quirements. The fuel must be sold for the exclusive use of a state or localgovernment to qualify for this credit.

Registration Number. Enter your registration number, including the CC prefix.a Diesel fuel sold for the exclusive use of a state or local government.

(c) Gallons. Enter the total number of gallons used or sold. No itemiz-ing is required.


b Kerosene sold for the exclusive use of a state or local government.(c) Gallons. Enter the total number of gallons used or sold. No itemiz-

ing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times 24.3 cents per gallon.c Kerosene for use in aviation sold for the exclusive use of a state or lo-

cal government.(c) Gallons. Enter the total number of gallons used or sold. No itemiz-

ing is required.Part taxed at $.244. Enter the amount included in the preceding en-try that was taxed at $.244. This amount qualifies for a credit rateof $.243 instead of $.218. This special handling is indicated on theofficial printout of Form 4136 by the printing of the phrase “Parttaxed at .244” on line 16c, and the preprinted rate ($.218) iscrossed out with the higher rate ($.243) printed next to it.

(d) Amount of credit. (auto-calc) Computed as “Part taxed at $.244”times 24.3 cents per gallon plus the remainder (line (c) less “Parttaxed at $.244”) times 21.8 cents per gallon.

17 Nontaxable Use of a Diesel-Water Fuel Emulsion. The ultimate purchaser of thediesel-water fuel emulsion is the only person eligible to claim the credit on this line.


Prem-6.) You must use the supporting worksheets for this line, us-ing a separate worksheet for each type of use. Allowed Types ofUse for this line are 1, 2, 5, 6, 7, 8, 11, 13, 14, or 15.Part for city BUS. (Supported by the Fuel Use Worksheet, FigurePrem-6.) This line is supported by the same set of worksheets asthe preceding line. The total gallons for Type of Use 5 that you en-


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tered on the worksheets appears here, which leads to the “Specialhandling for BUSES” described in our details for line 14.


d Exported.(c) Gallons. Enter the total number of gallons used for the year. Only

Type of Use 3 is allowed for this line, so no itemizing is required.You must have proof of exportation in your records.


18 Diesel-Water Fuel Emulsion Blending. The person who produced and soldor used the diesel-water fuel emulsion is the only person eligible to claim thecredit on this line.

Registration Number. Enter your registration number (including the M prefix).Itemize required statement. You must itemize this line to create a sup-

porting statement that confirms the mixture, registration, tax rate,and use. See IRS instructions for line 18 for details.

Blender credit.(c) Gallons. Enter the total number of gallons used or sold. No itemiz-

ing is required.(d) Amount of credit. (auto-calc) Computed as the total number of

gallons entered on the preceding line times 4.6 cents per gallon.

19 Exported Dyed Fuels. The person who exported the fuel during the periodof claim is the only person eligible to claim the credit on this line.

a Exported dyed diesel fuel.(c) Gallons. Enter the total number of gallons exported for the year.



b Exported dyed kerosene.(c) Gallons. Enter the total number of gallons exported for the year.



Total Tax Credit Claimed:20 TOTAL INCOME TAX CREDIT CLAIMED. (auto-calc) Computed as the sumof amounts in column (d) of this form for all lines combined, this is the totalcredit posted to line 70b of Form 1040.

Other information for the IRS (itemize). Use this line to supply any additional in-formation to the IRS. Use this support only to supply information not availablefrom the Fuel Use Worksheets and Fuel Sale Worksheets that we provide.

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Form 4137

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Form 4137 / Social Security & Medicare Tax on Unreorted TipIncome

Purpose. This form is used to figure the social security and Medicare tax youowe on tips not reported to your employer, and therefore not already taxed,including any allocated tips shown on any Form W-2 you receive. You are re-quired to file Form 4137 if you received tips of $20 or more in any month inthe tax year and did not report all of those tips to your employer. Form 4137is accessible through the Road Map above line 59 of Form 1040; two copiesare available, one for each spouse.

Form 4137 mandatory for some people. You are required to file Form 4137 ifeither of the following is true:(1) You received tips of $20 or more in any month in the tax year and did

not report all of those tips to your employer, or(2) A Form W-2 you received for the tax year shows an amount in box 8

(allocated tips).However, Form 4137 is not applicable for work covered by the Railroad Re-tirement Tax Act instead of social security. Tips for that work must alwaysbe reported to the employer.

CAUTION: You must also include any tip income you report here on your W-2Worksheets for line 7a or 7b. This form is used ONLY to figure the social se-curity and Medicare tax on the tip income, not income tax. Therefore, youmust include the tip income in your totals for line 7 of Form 1040. Our W-2Worksheets for lines 7a and 7b provide for this at line 8 of the worksheets.The total tip income that will be reflected in the total for line 7 of Form 1040is the amount on W-2 Worksheet line 8 (Allocated tips) plus the adjustmentthat follows it. This total must match the amount on line 3 of Form 4137 forthe corresponding spouse. In other words, if the allocated tips in box 8 of theW-2 do not accurately reflect the tips as reported here, you must enter anegative or positive amount in the adjustment line that, when added to theamount in box 8, will properly reflect the taxable tip income. If you enter anegative adjustment you must be able to prove through detailed records thatthe amount in box 8 exceeds your actual tip income.

Employee to whom applies:Social security number for this copy. (auto-calc) One copy of Form

4137 is available for each spouse. The social security number en-tered on Form 1040 for the spouse whose copy you chose whenyou entered Form 4137 appears here.

Is this spouse's copy (vs. you)? (auto-calc) This answer is also based onthe copy you chose.


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Name of employer(s) to whom you were required to, but did not, report your tips:Itemize here to enter names. Enter in a supporting statement for this

line the names of all applicable employers. Use one 30-characterline per employer. If you enter 3 or less employers, they will all beprinted directly on the official Form 4137. Otherwise, a supportingstatement cross-reference will be printed on the form and all nameswill be printed in the cross-referenced supporting statement instead.

Breakdown of tip income:Tips NOT reported to employer on time. You must report both cash

and charge tips in all of the following entries:Tips required to be reported to employer. Include both tips reportedafter the 10th of the following month and tips not reported to youremployer at all. You may be charged a penalty on these tips by theIRS (up to 50% of the tax you owe) unless you can show reason-able cause. To claim reasonable cause, itemize this line and explainin a supporting statement for this line. The statement will be in-cluded with the official printout of the return and cross-referencedat line 1 of Form 4137. TIP: You are not required to report your tipsin any month that you receive a total of less than $20 in tips; donot report those tips on this line.

Tips received but NOT required to be reported to your employer. En-ter only the tips that you were not required to report because youreceived them in a month when the total of all your tips was lessthan $20.

Allocated tips in Form(s) W-2 box 8. Enter the amount shown in box8 of all Form(s) W-2 that you received. This is generally the mini-mum amount of tips that you must report. However, if the sum ofthe preceding two amounts is less than this amount and you canprove the lesser amount, enter that in a supporting statement forthis line with a justifying explanation.

Total taxable unreported tips. (auto-calc) Computed as the greater ofthe sum of the two “tips received” lines or the “Allocated tips onForm(s) W-2 box 8,” this is the amount that must be reported as in-come on your return. This amount must be included in line 7 ofForm 1040. To ensure this, if this result differs from the total forbox 8 (Allocated tips) of all your W-2 Worksheets (which supportForm 1040 line 7a or 7b), you must enter an adjustment on yourW-2 Worksheet(s) on the line “Adjust to 8 for 1040” such that thesum of your adjustment and box 8 (for all W-2 Worksheets com-bined) matches the amount that appears here.

Total tips reported to your employer. Enter only the tips reported toyour employer on time (that is, by the 10th of the month after themonth you received the tips). This amount is already included in box1 of the Form W-2 you receive from the employer.

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Form 4137

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COMPUTATION OF TAX. The tax is computed based on the income you re-port here and the income you reported on the W-2 Worksheets for Form1040 line 7 for the appropriate spouse.

1 Total cash and charge tips you RECEIVED in 2006. (auto-calc) Com-puted as the sum of “Total taxable unreported tips” and “Total tipsreported to your employer.”

2 Total cash and charge tips you REPORTED to your employer in 2006.(auto-calc) Taken from your entry for “Total tips reported to youremployer.” This is the amount your employer included in box 1 ofyour Form W-2 and was therefore already subjected to social secu-rity and Medicare tax.

3 Subtract line 2 from line 1. (auto-calc) Computed as indicated, this re-sult should match the prior result for “Total taxable unreportedtips.”

4 Cash and charge tips you received but did not report to your em-ployer because the total was less than $20 in a calendar month.(auto-calc) Taken from your entry for “Tips received but NOT re-quired to be reported to your employer.” You owe income tax butnot social security and Medicare tax on this amount.

5 Unreported tips subject to Medicare tax. (auto-calc) Computed as line3 less line 4, this is the amount that will be subject to the 1.45%Medicare tax on this form. The amount on this line is also reportedto the Social Security Administration on line 2 of the Schedule Ucoupon that is printed below Form 4137 on the official printout forthe IRS.

Part of line 5 for tips received as a government employee. Enter anamount here only for work you performed as a Federal, state, or lo-cal government employee and your pay was subject only to the1.45% Medicare tax as a result. This amount will not be subject tothe social security tax on this form, and this adjustment will beflagged to the IRS at line 9 on the official printout with the phrase“1.45% tips” and this amount printed on the dotted line.

6 Maximum amount of wages (including tips) subject to social securitytax. (auto-calc) For tax year 2006 this amount is $94,200.

7 Total social security wages and social security tips or railroad re-tirement (tier 1) compensation. (auto-calc) Taken from the W-2Worksheets you completed for Form 1040 line 7a or 7b, this is thesum of lines 3 and 7 of all the W-2 Worksheets for the appropriatespouse combined. It is the amount already taxed for social securityby your employer.

8 Subtract line 7 from line 6. (auto-calc) Computed as indicated, but noless than zero.

9 Unreported tips subject to social security tax. (auto-calc) Computedas the smaller of line 5 (as adjusted for government employees) orline 8, this is the amount that will be subject to the 6.2% social se-curity tax on this form. The amount on this line is also reported tothe Social Security Administration on line 1 of the Schedule U cou-


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pon that is printed below Form 4137 on the official printout for theIRS.

10 Multiply line 9 by .062. (auto-calc) Computed as indicated, this is thesocial security tax imposed by this Form 4137.

11 Multiply line 5 by .0145. (auto-calc) Computed as indicated, this isthe Medicare tax imposed by this Form 4137.

12 Add lines 10 and 11. (auto-calc) Computed as indicated, this is thetotal tax to be posted to line 59 of Form 1040.

SCHEDULE U – U. S. SCHEDULE OF UNREPORTED TIP INCOME. The IRS willsend this completed schedule to the Social Security Administration so thatyour social security record includes the unreported tips taxed here.

1 Unreported tips subject to social security tax. (auto-calc) Taken fromline 9 of Form 4137, you will be given credit for this amount of in-come for purposes of social security benefits.

2 Unreported tips subject to Medicare tax. (auto-calc) Taken from line 5of Form 4137, you will be given credit for this amount of incomefor purposes of Medicare benefits.


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Form 4255

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Form 4255 / Recapture of Investment CreditPurpose. This form is used to figure the additional tax due to the recapture ofa previously claimed Investment Tax Credit (ITC) originally claimed via Form3468. Recapture arises if you, within 5 years of the date placed in service,you dispose of the property, change its use to a nonqualified use, returnedleased property, reduce ownership or business use below acceptable limits,etc. See the IRS Form 4255 Instructions for a complete list of actions thatrequire recapture and exceptions that forgive you from it. Form 4255 is ac-cessible through the Road Map at the ICR line above line 63 Form 1040.

ORIGINAL INVESTMENT CREDIT. All information for this section (lines 1through 6) plus lines 7 and 8 of the next section is entered on the supportingworksheets accessed from line 3, below.

1 Original rate credit. See supporting worksheet.2 Cost or other basis. See supporting worksheet.3 Original credit. (Supported by the ITC Recapture Worksheet, Figure

Prem-8.) All information for this form must be entered on the sup-porting worksheets. Although the sum of original credits on theworksheets appears here, only information on the individual work-sheets is printed on the official Form 4255, in accordance with theIRS design of the form.

4 Date placed in service. See supporting worksheet.5 Date ceased qualification. See supporting worksheet.6 Number of full years between the date on line 4 and the date on line

5. See supporting worksheet.

ITC Recapture Work-sheet. (Figure Prem-8)You must identify eachproperty and the detailsof the previouslyclaimed credit for each.

Type of property(rehab, ener-gy, etc.) De-scribe theproperty inthe two 30character en-try lines pro-

vided, and identify whether the property is rehabilitation, energy, re-forestation, or transition property.

1 Original rate of credit (%). Enter the credit percentage from theoriginal Form 3468 used to claim the credit, whether or not all thecredit has been claimed.

2 Cost or other basis. Enter the basis used to figure the credit from theoriginal Form 3468 used to claim the credit.

ITC RECAPTURE WORKSHEETITC RECAPTURE WORKSHEETITC RECAPTURE WORKSHEETITC RECAPTURE WORKSHEET Type of property..........: Type of property..........: Type of property..........: Type of property..........:

(rehab,energy,etc.).......: (rehab,energy,etc.).......: (rehab,energy,etc.).......: (rehab,energy,etc.).......:

1 Original rate of credit(%) 0 1 Original rate of credit(%) 0 1 Original rate of credit(%) 0 1 Original rate of credit(%) 0 2 Cost or other basis....... 0 2 Cost or other basis....... 0 2 Cost or other basis....... 0 2 Cost or other basis....... 0 3 Original credit........... 3 Original credit........... 3 Original credit........... 3 Original credit...........▒ 0▒ 0▒ 0▒ 0 4 Date placed in service.... 4 Date placed in service.... 4 Date placed in service.... 4 Date placed in service.... 5 Date ceased qualification. 5 Date ceased qualification. 5 Date ceased qualification. 5 Date ceased qualification. 6 No.full yrs.btwn 4 & 5.... 6 No.full yrs.btwn 4 & 5.... 6 No.full yrs.btwn 4 & 5.... 6 No.full yrs.btwn 4 & 5....▒ 0▒ 0▒ 0▒ 0 7 Recapture percentage...... 7 Recapture percentage...... 7 Recapture percentage...... 7 Recapture percentage......▒ 100.▒ 100.▒ 100.▒ 100. 8 Tentative recapture tax... 8 Tentative recapture tax... 8 Tentative recapture tax... 8 Tentative recapture tax...▒ 0▒ 0▒ 0▒ 0

Figure Prem-8. ITC Recapture Worksheet


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3 Original credit. (auto-calc) Computed line 2 times the percentage online 1, this is the original allowed credit allowed.

4 Date property was placed in service. Enter the date in the standardmm/dd/yyyy format.

5 Date property ceased to be qualified investment credit property. En-ter the date in the standard mm/dd/yyyy format.

6 Number of full years between dates on lines 4 and 5. (auto-calc)Computed as indicated. You are liable for no recapture if this num-ber is 5 or more, and you should remove the worksheet for suchproperty.

7 Recapture percentage. (auto-calc) The recapture percentage is 100%if the line 5 is less than a year from line 4, and drops by 20% forevery full year thereafter.

8 Tentative recapture tax. (auto-calc) Computed as line 3 times thepercentage on line 7, this is the recapture tax for this property.

RECAPTURE TAX. The additional tax due to ITC recapture is figured herebased on totals from the worksheets and two adjustments.

7 Recapture percentage. See supporting worksheet.8 Tentative recapture tax. See supporting worksheet.9 Add all amounts on line 8. (auto-calc) Computed as the sum of line 8

from all supporting worksheets, for most taxpayers this is the re-capture tax due. However, special circumstances can increase orreduce the tax, as follows.

10 Recapture tax from property with an increase in nonqualified non-recourse financing. The basis of the property is limited to theamount at risk if you use “nonqualified nonrecourse financing.” In asupporting statement for this line, enter in the amount column therecapture tax due to an increase in nonqualified nonrecourse fi-nancing at year-end and explain the computation in the descriptioncolumn. See IRS section 49(b) for details.

11 Add lines 9 and 10. (auto-calc) Computed as indicated.12 Part of line 3 not used to offset tax in any year, plus any carryback

or carryforward you can now apply. If you could not claim the en-tire original credit in the tax year when the property was first placedin service or any subsequent year, you can reduce the recapture taxby the amount of credit not claimed. See IRS Form 4255 instruc-tions for details on this and the carryforwards and carrybacks thatapply. Your entry here is limited to no more than line 11.

13 Total increase in tax. (auto-calc) Computed as line 11 less line 12,this is the total recapture tax for which you are liable.

The amount on line 13 is posted to the ICR line above line 63 of Form 1040and is reflected in the total for line 63.


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Form 4970

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Form 4970 / Tax on Accumulation Distribution of Trusts

Purpose. This form is used by beneficiaries of certain domestic trusts to fig-ure a partial tax on “accumulation distributions” reported to them by thetrusts via Part IV of Schedule J (Form 1041). Form 4970 is accessiblethrough the Road Map at the ADT line above line 63 Form 1040. (This formis not applicable if the trust was created on March 1, 1984 or later.)

More than one trust. If you have an accumulation distribution from more thanone trust, you must complete a separate Form 4970 for each trust. However,the IRS allows only one Form 4970 as a part of an e-filed return, and onlyone Form 4970 is built into this software. Therefore, if you have an accu-mulation distribution from more than one trust you must prepare all but oneof the Forms 4970 independent of the Form 1040 return. Then, once allother Forms 4970 are complete, enter the total from line 28 of the otherForms 4970 at the end of this form. This procedure will ensure that theproper total is reflected in line 63 of Form 1040.

IDENTIFICATION.A & B are taken from Form 1040. These are the name(s) and primary

SSN entered on Form 1040.C Name of trust. Enter the name of the trust in 35 characters or less.

Street address of trust. Enter street address in 35 characters or less.City, State, and ZIP code. Enter the city or town, state, and ZIP codein 35 characters or less. (For e-file, only the first 33 characters arerecognized by the IRS.)

D Employer identification number. Enter the EIN of the trust in thestandard xx-xxxxxxx format.

E Type of trust (1=Domestic, 2=Foreign). If a foreign trust, this formshould not be completed as a part of your Form 1040 return. In-stead, you must file Form 3520 (Annual Return To Report Transac-tions With Foreign Trusts and Receipt of Certain Foreign Gifts) andpay the tax on the accumulation distribution as a part of that return.(You may have to attach a copy of Form 4970, but not one tied toa Form 1040 return.)

F Beneficiary’s date of birth. Enter the date of birth in the standardxx/xx/xxxx format. (This must be the birth date of you or, if filingjointly, your spouse, whichever is the beneficiary of the trust.)

G Number of trusts from which you received accumulation distribu-tions in this tax year. If you enter more than one you must enterthe result of other Forms 4970 on the last screen of this form. Seethe boxed paragraph, above, for details.


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PART I, AVERAGE INCOME AND DETERMINATION OF COMPUTATIONYEARS. The entries in this section require amounts from the Schedule J(Form 1041) that the trust provides you.

1 Amount of current distribution that is considered distributed in ear-lier tax years (from Schedule J (Form 1041), line 37, column (a)). En-ter as indicated.

2 Distributions of income accumulation before you were born orreached age 21. Enter the part of line 1 that represents the undis-tributed net income (UNI) of a domestic trust accumulation beforeyou reached age 21 (including before you were born).

3 Subtract line 2 from line 1. (auto-calc) Computed as indicated.4 Taxes imposed on the trust on amounts from line 3 (from Schedule J

(Form 1041), line 37, column (b)). Enter as indicated.5 Total (add lines 3 and 4). (auto-calc) Computed as indicated.6 Tax-exempt interest included on line 5 (from Schedule J (Form 1041),

line 37, column (c)). Enter as indicated.7 Taxable part of line 5 (subtract line 6 from line 5). (auto-calc) Com-

puted as indicated.8 Number of trust’s earlier tax years in which amounts on line 7 are

considered distributed. Enter the number of throwback years forwhich there are entries on lines 32 through 36 of Part IV of Sched-ule J (Form 1041). (Note that there can be more than 5 such years,as indicated through additional schedules from the trust.)

9 Average annual amount considered distributed. (auto-calc) Com-puted as line 3 divided by line 8.

10 Multiply line 9 by .25. (auto-calc) Computed as indicated.Number of years on line 8. (auto-calc) Computed as indicated.For amounts in Schedule J (Form 1041), Part IV, column (a), enter the

number of years they are less than line 10 above. In making thisdetermination you must look at all entries in column (a) for lines 32through 36 and any attached schedules for additional throwbackyears. Enter zero if all amounts in column (a) (excluding the totalline) are equal to or greater than line 10 above.

11 Number of earlier tax years to be taken into account. (auto-calc)Computed as the number on line 8 less the preceding entry.

12 Average amount for recomputing tax. (auto-calc) Computed as line 7divided by line 11.

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Form 4970

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Information from tax returns for the 5 immediately preceding tax years. Al-though the IRS requires only that taxable income for the preceding 5 years beshown on the form (line 13 columns (a) through (e)), you must provide addi-tional information in order for the software to properly compute the tax foryou at lines 17 and 18 of this form. You must therefore provide all informa-tion requested on the five screens for the immediately preceding 5 tax years.(Some screens differ greatly from others because the tax laws have changedseveral times in the last few years.)

INFORMATION FROM 2005 TAX RETURN. The following entries mustbe taken from the prior-year return. They are automatically translatedfrom the prior-year Form 1040, Schedule D, and Schedule D Tax Work-sheet as long as you translated the return as filed, with 2005 retainedas the tax year on the Control Form for that return.

13(a) Enter your taxable income before this distribution for tax year2005. Enter the taxable income shown on line 43 of your Form1040 for tax year 2005 (or a corrected amount, if applicable).

Filing status for 2005. Enter the filing status number you used on your returnfor tax year 2005, where 1=Single, 2=Married Filing Jointly, 3=MarriedFiling Separately, 4=Head of Household, 5=Qualifying Widow(er).

Capital gains and qualified dividends. If you did not prepare a ScheduleD and/or Schedule D Tax Worksheet for the year but you had capitalgains or qualified dividends, you should enter the amounts that wouldhave appeared on Schedule D and its worksheet had you prepared theschedule for the return. (Skip this section if you had neither capitalgains nor qualified dividends for the year.)

2005 Schedule D Tax Worksheet, line 9. Net long-term gain lesselected investment income from Form 4952.

2005 Schedule D, line 18. 28% rate gain.2005 Schedule D, line 19. Unrecaptured section 1250 gain.2005 Qualified dividends. Shown on 2005 Form 1040, line 9b.2005 Form 4952, line 4g. Excludable net capital gain included in in-vestment income.

2005 Form 4952, line 4e. Net capital gain excludable from investmentincome.

Tax computations. The amounts computed here will be used in Part IIif the taxable income entered for line 13(a) is neither the highest northe lowest taxable income for the 5 years used in line 13.

2005 tax on line 13(a). (auto-calc) The tax computed here should matchthe tax shown on line 44 of Form 1040 for tax year 2005 (as corrected,if applicable). This result will be used for one of the columns of line 18 ifthe taxable income entered for line 13(a) is neither the highest nor thelowest taxable income for the 5 years used in line 13.

2005 tax on line 13(a) plus line 12. (auto-calc) This is your 2005 taxrecomputed to include the appropriate portion of accumulation dis-tributions. This result will be used for one of the columns of line 17


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if the taxable income entered for line 13(a) is neither the highest northe lowest taxable income for the 5 years used in line 13.

INFORMATION FROM 2004 TAX RETURN. Make the following entriesbased on your return for tax year 2004. They are automatically trans-lated from the prior-year Form 4970 as long as you translated the re-turn as filed, with 2005 retained as the tax year on the Control Formfor that return.

13(b) Enter your taxable income before this distribution for tax year2004. Enter the taxable income shown on line 42 of your Form1040 for tax year 2004 (or a corrected amount, if applicable).




2004 Schedule D, line 18. 28% rate gain.2004 Schedule D, line 19. Unrecaptured section 1250 gain.2004 Qualified dividends. Shown on Form 1040, line 9b.2004 Form 4952, line 4g. Excludable net capital gain included in in-vestment income.


Tax computations. The amounts computed here will be used in Part IIif the taxable income entered for line 13(b) is neither the highest northe lowest taxable income for the 5 years used in line 13.

2004 tax on line 13(b). (auto-calc) The tax computed here should matchthe tax shown on line 43 of Form 1040 for tax year 2004 (as corrected,if applicable). This result will be used for one of the columns of line 18 ifthe taxable income entered for line 13(b) is neither the highest nor thelowest taxable income for the 5 years used in line 13.

2004 tax on line 13(b) plus line 12. (auto-calc) This is your 2004 taxrecomputed to include the appropriate portion of accumulation dis-tributions. This result will be used for one of the columns of line 17if the taxable income entered for line 13(b) is neither the highest northe lowest taxable income for the 5 years used in line 13.

INFORMATION FROM 2003 TAX RETURN. Make the following entriesbased on your return for tax year 2003. They are automatically trans-lated from the prior-year Form 4970 as long as you translated the re-

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turn as filed, with 2005 retained as the tax year on the Control Formfor that return.

13(c) Enter your taxable income before this distribution for tax year2003. Enter the taxable income shown on line 40 of your Form1040 for tax year 2003 (or a corrected amount, if applicable).




2003 Schedule D, line 20. 28% rate gain.2003 Schedule D, line 19. Unrecaptured section 1250 gain.2003 Schedule D, line 35. Qualified 5-year gain.2003 Schedule D, line 17b. Post May 5, 2003 gain.2003 Qualified dividends. These are shown on Form 1040, line 9b.2003 Form 4952, line 4g. Excludable net capital gain included in in-vestment income.


Tax computations. The amounts computed here will be used in Part IIif the taxable income entered for line 13(c) is neither the highest northe lowest taxable income for the 5 years used in line 13.

2003 tax on line 13(c). (auto-calc) The tax computed here should matchthe tax shown on line 41 of Form 1040 for tax year 2003 (as corrected,if applicable). This result will be used for one of the columns of line 18 ifthe taxable income entered for line 13(c) is neither the highest nor thelowest taxable income for the 5 years used in line 13.

2003 tax on line 13(c) plus line 12. (auto-calc) This is your 2003 taxrecomputed to include the appropriate portion of accumulation dis-tributions. This result will be used for one of the columns of line 17if the taxable income entered for line 13(c) is neither the highest northe lowest taxable income for the 5 years used in line 13.

INFORMATION FROM 2002 TAX RETURN. Make the following entriesbased on your return for tax year 2002. They are automatically trans-lated from the prior-year Form 4970 as long as you translated the re-turn as filed, with 2005 retained as the tax year on the Control Formfor that return.


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13(d) Enter your taxable income before this distribution for tax year2002. Enter the taxable income shown on line 41 of your Form1040 for tax year 2002 (or a corrected amount, if applicable).


Capital gains information. If you did not prepare a Schedule D and/orSchedule D Tax Worksheet for the year but you had capital gains,you should enter the amounts that would have appeared on Sched-ule D and its worksheet had you prepared the schedule for the re-turn. (Skip this section if you had no capital gains for the year.)


2002 Schedule D Tax Worksheet, line 6. 28% rate gain.2002 Schedule D, line 19. Unrecaptured section 1250 gain.2002 Schedule D, line 29. Qualified 5-year gain.

Tax computations. The amounts computed here will be used in Part IIif the taxable income entered for line 13(d) is neither the highest northe lowest taxable income for the 5 years used in line 13.

2002 tax on line 13(d). (auto-calc) The tax computed here should matchthe tax shown on line 42 of Form 1040 for tax year 2002 (as corrected,if applicable). This result will be used for one of the columns of line 18 ifthe taxable income entered for line 13(d) is neither the highest nor thelowest taxable income for the 5 years used in line 13.

2002 tax on line 13(d) plus line 12. (auto-calc) This is your 2002 taxrecomputed to include the appropriate portion of accumulation dis-tributions. This result will be used for one of the columns of line 17if the taxable income entered for line 13(d) is neither the highest northe lowest taxable income for the 5 years used in line 13.

INFORMATION FROM 2001 TAX RETURN. Make the following entries basedon your return for tax year 2001. They are automatically translated from theprior-year Form 4970 as long as you translated the return as filed, with2005 retained as the tax year on the Control Form for that return.

13(e) Enter your taxable income before this distribution for tax year2001. Enter the taxable income shown on line 39 of your Form1040 for tax year 2001 (or a corrected amount, if applicable).

Filing status for 2001. Enter the filing status number you used onyour return for tax year 2001, where 1=Single, 2=Married FilingJointly, 3=Married Filing Separately, 4=Head of Household,5=Qualifying Widow(er).

Capital gains information. If you did not prepare a Schedule D and/orSchedule D Tax Worksheet for the year but you had capital gains,you should enter the amounts that would have appeared on Sched-ule D had you prepared the schedule for the return. (Skip this sec-tion if you had no capital gains for the year.)

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Dependent of another in 2001? The answers to this and the nextquestion are required because of subtleties in the tax computationrelated to advance payments of the tax cut for 2001.

Received advance payment for 2001? See preceding line.2001 Schedule D Tax Worksheet, line 4. Net long-term gain lesselected investment income from Form 4952.

2001 Schedule D Tax Worksheet, line 6. 28% rate gain.2001 Schedule D, line 19. Unrecaptured section 1250 gain.2001 Schedule D, line 29. Qualified 5-year gain.

Tax computations. The amounts computed here will be used in Part IIif the taxable income entered for line 13(d) is neither the highest northe lowest taxable income for the 5 years used in line 13.

2001 tax on line 13(e). (auto-calc) The tax computed here should matchthe tax shown on line 40 of Form 1040 for tax year 2001 (as corrected,if applicable). This result will be used for one of the columns of line 18 ifthe taxable income entered for line 13(e) is neither the highest nor thelowest taxable income for the 5 years used in line 13.

2001 tax on line 13(e) plus line 12. (auto-calc) This is your 2001 taxrecomputed to include the appropriate portion of accumulation dis-tributions. This result will be used for one of the columns of line 17if the taxable income entered for line 13(e) is neither the highest northe lowest taxable income for the 5 years used in line 13.

PART II, TAX ATTRIBUTABLE TO THE ACCUMULATION DISTRIBUTION. In-formation for this part is taken from 3 of the 5 tax years that precede the taxyear of the current return. Among the 5 years, the ones with the highest andlowest taxable income entered on line 13 are eliminated. The remaining 3 areused for the 3 columns of lines 14 through 23. The determination of years touse and the tax computations are fully automatic based on the informationyou supplied for each tax year. However, you may have to make an adjust-ment at line 20 and/or line 22 for each year.

(a) First column:Tax year for this column. (auto-calc) Computed as the most recentyear not eliminated.

14 Enter the amounts from line 13. (auto-calc) Taken from the columnof line 13 or the above year.

15 Enter the amount from line 12 in each column. (auto-calc) Takenfrom line 12, as indicated.

16 Recomputed taxable income. (auto-calc) Computed as the sum oflines 14 and 15, this is the taxable income with an added amountfor the accumulation distribution.

17 Income tax on amounts on line 16. (auto-calc) Computed using thetax laws for the year shown above.

18 Income tax before credits on line 14 income. (auto-calc) Computedusing the tax laws for the year shown for column (a), this result


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should match the tax shown on your Form 1040 for the year above(or a corrected amount).

19 Additional tax before credits. (auto-calc) Computed as line 17 lessline 18, this is the additional tax for the above year stemming fromthe accumulation distribution for the year.

20 Tax credit adjustment. Because some credits are limited to tax li-ability, such as credits reported on Form 3800, you may be able todeduct more credit than shown on the original return. If so, refigurethe credits for the year based on the tax shown on line 17 and enterany resulting increase here. See IRS instructions for details, and at-tach the form(s) on which you refigured the credit.

21 Subtract line 20 from line 19. (auto-calc) Computed as indicated.22 Alternative minimum tax adjustments. If subject to the AMT for the

tax year you must recompute the AMT for the year (based on thetax on line 17 and the credit adjustment) and enter any changehere. (The IRS requires you to attach the AMT form for the yearshowing the refigured amounts.)

23 Combine lines 21 and 22. (auto-calc) Computed as indicated.

(b) Second column:Tax year for this column. (auto-calc) Computed as the middle yearnot eliminated.

14 through 23. Analogous to those for column (a).

(c) Third column:Tax year for this column. (auto-calc) Computed as the oldest year noteliminated.

14 through 23. Analogous to those for column (a).

Total tax:24 Add columns (a), (b), and (c), line 23. (auto-calc) As indicated.25 Divide the line 24 amount by 3. (auto-calc) Computed as indicated.26 Multiply the amount on line 25 by the number of years on line 11.

(auto-calc) Computed as indicated.27 Enter the amount from line 4. (auto-calc) Computed as indicated.28 Partial tax attributable to the accumulation distribution.. (auto-

calc) Computed as line 26 less line 27, but no less than zero.Line 28 of OTHER Forms 4970. If your entry for line G is greater than one,you must enter the result of all other Forms 4970 here so that Form1040 will reflect the tax on all Forms 4970 combined. See the boxedparagraph at the beginning of these Form 4970 instructions for details.An entry here will make the return unacceptable for e-file because theIRS supports only one copy of Form 4970 for e-file returns.

Total tax for Form 1040. (auto-calc) Computed as line 28 plus the precedingentry, this total is posted to the ADT line above line 63 of Form 1040.


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Form 4972 / Tax on Lump-Sum Distributions

Purpose. This form is used to figure a favorable tax on a total distribution ofthe entire balance from a qualified plan, including pension, profit-sharing, andstock bonus plans. (IRAs are not qualified.) The plan participant can be you oryour benefactor (upon death), but the plan participant must have been bornbefore January 2, 1936. Form 4272 is accessible through the Road Map atline 44b of Form 1040. (Each spouse who received a lump-sum distributionmust file a separate Form 4972, so two copies of Form 4972 are available –one for each spouse.)

What constitutes a lump-sum distribution? In general, a lump-sum distribu-tion is a total withdrawal of funds, including all earnings, from an employer’squalified plan, such as a pension, profit sharing, or stock bonus plan. How-ever, to qualify in the eyes of the IRS you must have withdrawn all fundsfrom all of the employer’s plans that are of the same kind, and all withdraw-als must have been in the same tax year. If you have lump-sum distributionsfrom more than one kind of plan during the year, you should combine all suchdistributions for use on this one Form 4972. Note, however, that you do nothave to withdraw amounts that you voluntarily contributed to the plan. SeeIRS Instructions for Form 4972 for a long list of distributions that do notqualify for use of this form.

Two types of favorable tax treatment. There are two ways that the lump-sumdistribution can be tax-favored through this form, and you can generally useether or both to reduce your tax on the gain.

20% Capital Gain Election. If the Form 1099-R you received for thedistribution has an amount in box 3, you can generally elect to havethat amount taxed at a 20% rate. This election is especially favor-able if your regular tax bracket is high because the amount in box 3does not received favorable treatment as a capital gain exceptthrough this form. The tax resulting from this election is figured inPart II.

10-Year Tax Option. This option is available for the taxable balance ofthe distribution not taxed through the 20% capital gain election (orfor the entire taxable amount if the election was not made). The taxon this amount is figured as if the lump-sum were income averagedover 10 years but the tax rate schedule used is not related to theactual tax rate schedules for the preceding 10 years. Therefore youshould determine your overall tax liability with and without this op-tion to determine which is best for you. The tax resulting from thisoption is figured in Part III.

The computations for this form can become very complex as indicated by themany special steps and worksheets in the IRS instructions. As a result, wegather much more information in Part I than does the IRS in order to fullyautomate Parts II and III.


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Where to report amounts on Form 1099-R. Your lump-sum distribution shouldbe reported to you on a Form 1099-R with the “Total distribution” box in line2b checked. Although amounts on Form 1099-R are normally reported atlines 15a through 16b of Form 1040, the involvement of Form 4972 deviatesfrom this rule. The IRS has defined three different ways to report theamounts on Form 1099-R other than IRAs, depending on the choices youmake here:

♦ If you choose not to compute any tax on the distribution using Form4972, you must report the entire amount in box 1 at line 16a of Form1040 and the amount in box 2a (or a recomputed amount) at line 16b.With Tax Preparer you must itemize line 16a and complete the Form1099-R worksheet so that it matches the entries on the Form 1099-Ryou received. You must answer “No” to the question that follows line 3of our 1099-R Worksheet, “Reporting box 3 on 4972?” (If a taxableamount is not shown in box 2a, or you question the accuracy of the cal-culation, you may need to use IRS Pub. 939 to determine the properamount to enter.)

♦ If you choose to use Form 4972 only to make the 20% capital gain elec-tion, and not the 10-year tax option, you must again report the distribu-tion at line 16a of Form 1040, but line 16b must have the capital gainpart of the taxable amount removed. With Tax Preparer you must itemizeline 16a and complete the Form 1099-R worksheet so that it matchesthe entries on the Form 1099-R you received. You must answer “Yes” tothe question that follows line 3 on our 1099-R Worksheet. The amountwill then be removed from line 2a before it is posted to line 16b of Form1040 because that amount will be treated on Form 4972 instead.

♦ If you choose to use Form 4972 in order to use the 10-year tax option,you must not enter any amounts from Form 1099-R of our 1099-Rworksheets for Form 1040. Instead, you must enter all amounts on Form4972, whether or not you also make the 20% capital gain election.

For more detail, see the IRS instructions for Form 4972 and for Form 1040lines 16a and 16b.

PART I, COMPLETE THIS PART TO SEE IF YOU CAN USE FORM 4972. Yourqualification to use Form 4972 is determined here.

Social security number for this copy. (auto-calc) One copy of Form4972 is available for each spouse. The social security number en-tered on Form 1040 for the spouse whose copy you chose whenyou entered Form 4972 appears here.

Is this spouse's copy (vs. you)? (auto-calc) This answer is also based onthe copy you chose.

1 Was this a distribution of a plan participant’s entire balance from allof an employer’s qualified plans of one kind? In answering thisquestion you can exclude deductible voluntary employee contribu-

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tions and certain forfeited amounts. If you must answer “No,” youcannot use this form.

2 Did you roll over any part of the distribution? If you must answer“Yes,” you cannot use this form.

3 Was the distribution paid to you as a beneficiary of a plan partici-pant who was born before January 2, 1936? In order to use thisform to figure the tax on an amount you received as a beneficiary,you must be able to answer “Yes.”

4 Were you:(a) the plan participant who received this distribution? If “Yes,” youmust answer (b) and (c) as well. (You will not be able to answer“Yes” here if you already answered “Yes” to line 3.)Age at year-end on Form 1040. (auto-calc) Taken from the age entryfor the appropriate spouse.

(b) born before January 2, 1936? (auto-calc) Answered “Yes” if thepreceding age is at least the tax year minus 1935 (71 for tax year2006).

(c) a participant in the plan for at least 5 years before the year of thedistribution? In order to use this form to figure the tax on a distri-bution from your own plan, you must be able to answer “Yes” to allthree parts of line 4.

5a Did you use Form 4972 after 1986 for a previous distribution fromyour own plan? You cannot use Form 4972 more than once after1986 for a distribution from your own plan. Therefore, if you an-swered “Yes” to lines 4(a), (b), and (c), a “Yes” answer here willdisqualify you from using the form.

5b If you are receiving this distribution as a beneficiary of a plan par-ticipant who died, did you use Form 4972 for a previous distributionreceived for that participant after 1986? You cannot use Form 4972more than once after 1986 for a distribution from the same bene-factor. Therefore, if you answered “Yes” to line 3, a “Yes” answerhere will disqualify you from using the form. (There is no limit to thenumber of benefactors you can have, using one Form 4972 in yourlifetime for each.)

QUALIFIED to use Form 4972? (auto-calc) Answered in accordance withthe explanations above for each line. If “No,” you cannot use thisform and all its results will be zero.

FORM 1099-R for this distribution. Information from the Form 1099-R you re-ceived is entered here for use in the remainder of the form.

Form 1099-R, box 2a – Taxable amount. Enter the full taxable amount,include both ordinary income and capital gains. If “Taxable amountnot determined” is checked in box 2b, you must figure the taxableamount yourself using IRS Pub. 939 as your guide.

Form 1099-R, box 3 – Capital gain. This is the part of line 2a that is eli-gible for the 20% capital gain election.


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Form 1099-R, box 6 – NUA in employer’s securities. This is the net unre-alized appreciation (NUA) in employer’s securities. When you havean entry here, the complexity of the computations on this form isgreatly increased. However, the software handles the complexitiesautomatically for accurate results in Parts II and III of this form.

Your share of current actuarial value of annuity, shown in Form 1099-R,box 8. This amount is used only in tax computations for the ordi-nary part of the distribution.

Your percentage shown in Form 1099-R, box 8. If a percentage appearsin box 8, enter your share as a percentage from 0 to 100. (No entryis taken as 100%.)

If shared, your percentage of the lump-sum distribution as shown inForm 1099-R, box 9a. If a percentage appears in box 9a, enter yourshare as a percentage from 0 to 100. (No entry is taken as 100%.)

When there are multiple recipients of the lump-sum distribution, as indicatedby percentages under 100% in boxes 8 and 9a, special procedures must befollowed, as detailed in the IRS instructions. These procedures are not intui-tive, but the software handles them automatically, including the printing of“MRD” at line 29, when applicable.

ELECTIONS (Choose all that apply). Except for an entry on line 18 of thisform, the rest of the form is automatic once you make the elections here.TIP: The tax laws are not simple, so it is not always clear which elections arebest in any particular case. You may therefore want to experiment with dif-ferent elections and compare results after a final recalculation of the returnfor the various options.

A 20% capital gain election? If you answer “Yes,” the tax on the capi-tal gain part of the distribution will be computed for you in Part II.

B 10-year tax option? If you answer “Yes,” a tax will be computed foryou in Part III, whether or not Part II is used. The tax will be com-puted for the entire distribution if Part II is not used. Otherwise,only the ordinary income part will be taxed.

C Include NUA in taxable income? Normally the net unrealized appre-ciation in employer securities is not taxable until the securities areactually sold. However, you can elect to include it in taxable incomecurrently in order to take advantage of the favorable treatment onForm 4972. If you make this election the complexity of the compu-tations increases considerably as a prorated portion of the apprecia-tion qualifies as capital gain. The software, however, handles allthe complexity automatically.

D Death benefit exclusion? You may qualify for an exclusion of up to$5,000 of the lump sum if received as a beneficiary of a plan par-ticipant who died before August 21, 1996. Answer “Yes” only ifyou qualify. See IRS instructions for details.

Note that the software automatically takes of a number of subtleties in thelaw, including the complications of multiple recipients and all combinations ofelections.

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NUA WORKSHEET. If you elected to include NUA in taxable income, the NUAWorksheet is automatically completed for you in order to determine the capi-tal gain portion of the NUA. All details of the IRS NUA Worksheet in the IRSinstructions for Form 4972 are satisfied, including the proper printing of“NUA” at line 6 and/or 8 of Form 4972.

DEATH BENEFIT WORKSHEET. If you elected to take advantage of the DeathBenefit Exclusion, the Death Benefit Worksheet is automatically completed foryou to determine a reduced tax at Form 4972 line 6. All details of the IRSDeath Benefit Worksheet in the IRS instructions for Form 4972 are satisfied.

PART II, COMPLETE THIS PART TO CHOOSE THE 20% CAPITAL GAINEXCLUSION. This part is automatically completed for you based on yourelections and details from Form 1099-R. If you did not also elect the 10-yeartax option, the result for this part (line 7) is posted to Form 1040, line 44b.

PART III, COMPLETE THIS PART TO CHOOSE THE 10-YEAR TAX OPTION.Except for one entry, described below, this part is also automatically com-pleted for you based on your elections and details from Form 1099-R. If the10-year tax option is used then the result of this part (line 30) is posted toForm 1040, line 44b, rather than the result of Part II because line 30 includesthe result on line 7.

18 Federal estate tax attributable to lump-sum distribution. An entry isrequired here only if this Form 4972 is being used to report a distri-bution because of a benefactor’s death. You must enter here anyfederal estate tax paid on the lump-sum distribution.

TAX POSTED TO FORM 1040, LINE 44B. (auto-calc) If no amount appears online 30 (the result of Part III), computed as line 7 (the result of Part II). Oth-erwise, computed as line 30 (which includes line 7).



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Form 5884 / Work Opportunity Credit

Purpose. This form is used by employers to claim credit for first-year wagesto certain targeted groups. In the Form 1040 software, Form 5884 is acces-sible through the Road Map at line 1b of Form 3800. (In the Form 1065software, Form 5884 is accessible through the Road Map at the componentof line 15f of Schedule K labeled “5884 Work opportunity credit.”)

No longer a stand-alone form. Starting tax year 2006, credit from Form 5884can no longer be reported directly on Form 1040. You must claim the creditat line 1b of Form 3800 even if this is the only credit you have to report onForm 3800. As a result, the section for applying a tax limitation to the creditis gone, and the limitation is now applied on Form 3800.

Certification required. In order to claim this credit you must have certificationfor each employee from the state employment security agency (SESA). Youeither must have received the certification for a particular employee by theemployee’s first day of work or must complete a Form 8850 by that date(signed by you and the employee) and file it by the 21st day after the em-ployee starts work. You can claim the credit only if the request on Form8850 is approved. If approved and later revoked, you can still generally claimthe credit for the days before the revocation. See the IRS Instructions forForm 5884 for details on this and other requirements for this credit.

Extended through December 31, 2007. The credit formerly applied only towages paid or incurred before 2006. However, the credit was retroactivelyreinstated to January 1, 2006 by the Tax Relief and Health Care Act of 2006and extended to the end of 2007. Furthermore, this credit will be integratedwith the Welfare-to-Work Credit for 2007, with a single form to cover bothcredits.

Hurricane Katrina employees still qualify. The credit still applies to wagespaid to employees whose main home was in the core disaster area on August28, 2005, for work within the core disaster area before August 28, 2007.Note that, unlike other qualified employees, Hurricane Katrina employees donot have to be certified as members of a targeted group.

1 Total qualified first-year wages paid or incurred during the tax year forservices of employees who began work for you before the applicable date,are certified (if required) as members of a targeted group, and:

a Worked for you at least 120 hours but fewer than 400 hours.:for Hurricane Katrina employees. Enter only wages paid or incurredafter August 28, 2005 but within the tax year. Do not includewages for work started outside the core disaster area after Decem-ber 31, 2006. (Wages after December 31, 2006 but before August28, 2007 will apply for next year’s return.)

for other qualified employees.. Enter only wages paid or incurred in2006 within the tax year of the return. Your entry here is forced to

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zero if the tax year does not include any days in 2006. CAUTION:Do not include wages reported on Form 8861 (Welfare-to-WorkCredit).X 25%...1a. (auto-calc) Computed as the sum of wages on the pre-ceding two lines times 0.25.

b Worked for you at least 400 hours. Employees who you retain in youremployment 400 hours or more qualify you for a higher credit.

for Hurricane Katrina employees. Enter only wages paid or incurredafter August 28, 2005 but within the tax year. Do not includewages for work started outside the core disaster area after Decem-ber 31, 2006. (Wages after December 31, 2006 but before August28, 2007 will apply for next year’s return.)

for other qualified employees.. Enter only wages paid or incurred in2006 within the tax year of the return. Your entry here is forced tozero if the tax year does not include any days in 2006. CAUTION:Do not include wages reported on Form 8861 (Welfare-to-WorkCredit).X 40%...1b. (auto-calc) Computed as the sum of wages on the pre-ceding two lines times 0.40.

2 Add lines 1a and 1b. (auto-calc) Computed as indicated. CAUTION: Youmust generally reduce your deduction for wages and salaries (such as line 26of Schedule C) by the amount on line 2. However, see the IRS Instructionsfor Form 5884 for exceptions.

ITEMIZE to explain exception. If an exception applies to reporting re-duced wages, itemize here to explain why you did not reduce yourdeduction by the full amount on line 2.

Special instructions for line 2 if a member of a controlled group. If claimingthe credit as a member of a controlled group, you must compute line 2 asyour prorated share of the credit. The credit must first be computed for thegroup as a whole, reflecting the calculations for lines 1a and 1b. Then eachgroup member must complete a Form 5884 for his or her own return by skip-ping lines 1a and 1b and entering on line 2 a prorated portion of the group to-tal. Prorationing of line 2 among group members must be in direct proportionto the amount of qualifying wages contributed by each member. To accom-plish this with the software while satisfying the IRS reporting requirements,press the Override Key (F8) to access line 2, then, in a supporting statementfor line 2, explain how the group credit was divided among the members, en-tering only your amount in the amount column. Your explanation will then beprinted with the return and cross-referenced on the official printout.

3 Work opportunity credit from partnerships, S corporations, cooperatives,estates, and trusts. Enter any work opportunity credit from a pass-throughentity identified as code H in box 13 of Schedule K-1 (Form 1120S), code Hin box 15 of Schedule K-1 (Form 1065), code F in box 13 of Schedule K-1(Form 1041), or a written statement from a cooperative.


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4 CURRENT YEAR CREDIT. (auto-calc) Computed as the sum of lines 2 and 3,this is the credit before any limitations are applied. In Form 1040 software,the amount on line 4 is posted to line 1b of Form 3800. In Form 1065 soft-ware, the amount on line 4 is posted to the credit component of line 15f ofSchedule K labeled “5884 Work opportunity.”

5 and 6 are for cooperatives, estates, and trusts only. Lines 5 and 6 of Form5884 are not shown in the software because they apply to neither Form1040 returns nor Form 1065 returns.


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Form 6198 / At-Risk LimitationsPurpose. This form is used to figure the amount of deductions or losses youcan claim for investments in which you are not at risk for the entire amountof your investment. Examples include investments that are

• financed by nonrecourse loans,• protected by stop-loss agreements or guarantees,• financed by loans from certain related parties,• financed by loans from persons who have an interest in the activity,• financed by cash or property which itself is financed in one of the pre-

ceding ways.You are generally not allowed to deduct a net loss any more than the amountyou have at risk, as reported on Form 6198. Only activities identified by the IRSas “at-risk activities” are subject to the at-risk limitations, but the IRS definitionsare so broad that most activities carried on as a trade or business or for theproduction of income are subject to these limitations when financed in a waythat makes you not fully at risk for the loans. A separate Form 6198 is used foreach separate activity for which you have a net loss for which you are not fullyat-risk, and the activity may have amounts reported on a number of differentforms for different aspects of the activity. As a result, Form 6198 is not tied toany particular form or schedule but is instead a stand-alone form, so no resultson this form are posted to any other form or schedule. Nevertheless, Form6198 is accessible through the Road Map from some of the forms that mayhave amounts not at risk: Schedule C (below line 32b), Schedule E (below line27), Schedule F (below line 37b), and Form 4835 (below line 33b).

More than one Form 6198 may be required. You must use a separate Form6198 for each separate activity. However, the IRS definition of “activity” de-pends on the particulars of the activity. For example, the leasing of propertiesby a partnership is subject to “aggregation rules” so that all leasing is consid-ered a single activity. Similarly, activities that constitute a trade or businessare generally subject to aggregation rules. By contrast, the leasing of propertyby an individual is generally subject to “separation rules” so that each lease isconsidered a separate activity. Similarly, each investment that is not a part ofa trade or business is treated as a separate activity. (Ten copies of Form6198 are built into the software for this purpose. However, since Form 6198is a stand-alone form, you can easily produce additional copies attached to anempty return with only your name(s) and SSN supplied on Form 1040.)

Form 6198 is primary, before any other limitations. Form 6198 holds a spe-cial place among forms that limit losses and deductions. It must always becompleted before any other limitations are applied. Accordingly, your entrieson other forms and schedules must reflect the limitations resulting from Form6198 so that other limitations, such as passive activity loss limitations, areapplied to amounts that have already been subjected to the at-risk limitations.


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Exception for real property. You do not have to file Form 6198 and are notsubject to the at-risk rules for real property if you acquired and placed it inservice before 1987. (This exception does not apply to mineral property.)

Description of activity. The IRS provides a wide space on the form to describe theactivity to which a particular Form 6198 relates. We therefore provide three 25-character entries, which are concatenated on the official printout. If the activitystems from your status as a partner in a partnership or a shareholder in an S cor-poration, also include the name and identifying number of the partnership or Scorporation. (See page 2 of the IRS Instructions for Form 6198 for details on whatconstitutes a single activity. A separate Form 6198 must be prepared for eachseparate activity unless the aggregate rules described by the IRS apply.)

PART I, CURRENT YEAR PROFIT (LOSS) FROM THE ACTIVITY, INCLUDINGPRIOR YEAR NONDEDUCTIBLE AMOUNTS. The overall profit or loss for theactivity is computed here, taking into account all transactions reportedthroughout the return for the activity. Losses disallowed from a prior-yearForm 6198 are included here as well. No other limitations, such as passiveloss limitations, are reflected here or anywhere else on Form 6198.

Loss carryover from prior Form 6198. This entry is solely an informationalline to help you complete the following entries. If you translated the re-turn from the prior year with the tax year on the prior return retained at2005, the excess of line 5 over line 21 of the prior-year Form 6198 willappear here if any loss was disallowed on the prior-year Form 6198.CAUTION: You must include this amount in your entries for lines 1through 4. The carryover is not automatically reflected in Part I becauseit must be allocated among your entries in accordance with its source.

Current Schedule K-1, line 1. If you are a partner in a partnership, en-ter the amount from line 1 of the 2006 Schedule K-1 (Form 1065)you receive or from line 1 or 2 of the 2006 Schedule K-1 (Form1065-B) you receive. If you are a shareholder in an S corporation,enter the amount from line 1 of the 2006 Schedule K-1 (Form1120S) you receive.

Prior Schedule K-1 loss disallowed. If any losses or deductions fromyour partnerships or S corporations were disallowed in the prior taxyear because of the at-risk limitations, enter the amount disallowedhere. This will generally be the prorated amount for this activity ofthe above “Loss carryover from prior Form 6198.”

Other ordinary profit or loss. Enter all other ordinary profit or lossfrom the activity for the 2006 tax year, but do not include gainsand losses from sales or other disposition of assets.

Prior other ordinary profit or loss. If any losses or deductions fromother than your partnerships or S corporations were disallowed inthe prior tax year because of the at-risk limitations, enter theamount disallowed for the 2005 tax year here. This will generally bethe prorated amount for this activity of the above “Loss carryoverfrom prior Form 6198.”

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1 Ordinary income (loss) from the activity. (auto-calc) Computed as thegain or loss on the first and third line above less the prior-year dis-allowed loss on the second an fourth lines.

2 Gain (loss) from the sale or other disposition of assets reported on:(including prior disallowed due to at-risk limitations). For amountsstemming from your interest in partnerships and S corporations, youmust deduct from the amounts reported to you by the entities for2006 any amounts disallowed for the 2005 tax year because of theat-risk limitations. For all other amounts the prior-year disallowedamounts should be reflected on the forms and schedules where youreport the current-year gains and losses. You must identify the formor schedule where each amount is reported on the return:

2a Schedule D. Enter here gains and losses that are reported onSchedule D. If more than one item is reported on Schedule D, de-scribe each item in a supporting statement for this line.

2b Form 4797. Enter here gains and losses that are reported on Form4797. If more than one item is reported on Form 4797, describeeach item in a supporting statement for this line. Do not includeamounts already reflected in line 2a.

2c Other form or schedule (itemize). Enter here gains and losses thatare reported elsewhere on the report. You must always reportamounts for this line in a supporting statement for the line, identi-fying the form or schedule for each item reported. Take particularcare not to duplicate any amount already included in line 2a or 2b.For example, amounts from Form 4684 may flow to Form 4797,but should be reported only on line 2b or line 2c, not both.

3 Other income and gains from the activity, from Schedule K-1. Enter allincome and gains not included in lines 1 through 2c from anySchedule K-1 (Form 1065), Schedule K-1 (Form 1065-B), andSchedule K-1 (Form 1120S) you receive.

4 Other deductions and losses from the activity. Enter as a positive numberall deductions and losses not included in lines 1 through 2c. The amountis surrounded by parentheses on the official printed form to indicate aloss, and the amount reduces the net profit or loss resulting for line 5.

5 Current year profit (loss) from the activity. (auto-calc) Computed asthe sum of lines 1 through 3 less line.

If the result on line 5 is a gain, the at-risk limitations do not apply and allamounts are reported in full on the appropriate forms and schedules. How-ever, if this amount is a loss, you must complete the rest of Form 6198 todetermine how much of this loss is allowable for the 2006 tax year.

PART II, SIMPLIFIED COMPUTATION OF AMOUNT AT RISK. If you alreadyknow your adjusted basis in the activity (or your interest in the activity), youcan use this part of Form 6198 to determine the amount at risk. Otherwiseyou must use Part III.

6 Adjusted basis in the activity on the first day of the tax year. Enteryou adjusted basis at the beginning of the tax year.


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7 Increases for the tax year. Enter here increases in your basis causedby events not reflected in lines 1 through 3, such as increases inthe value of property that secures a nonrecourse loan. See the IRSInstructions for this line for detailed examples.

8 Add lines 6 and 7. (auto-calc) Computed as indicated.9 Decreases for the tax year. Enter here decreases in your basis caused

by events not reflected in lines 1 through 4, such as additional non-recourse loans taken. See the IRS Instructions for this line for de-tailed examples.

10a Subtract line 9 from line 8. (auto-calc) Computed as indicated.10b If line 10a is more than zero, enter here. (auto-calc) Computed as

indicated, this is the amount at risk as computed in Part II.If an amount appears on line 10b, you can generally skip Part III and proceed toline 20 in Part IV. However, it may be to your benefit to complete Part III anywayfor a possibly larger amount at risk, and therefore a larger allowed deductible loss.

PART III, DETAILED COMPUTATION OF AMOUNT AT RISK. If you did notcomplete Part II, you must complete Part III or else your entire loss will bedisallowed. If you completed Part III of a 2005 Form 6198 for the activity,you can skip lines 11 through 14. For all entries below, see the IRS Instruc-tions for Form 6198 for important details and examples, especially the defini-tion of “effective date” that applies to your activity.

Completed Form 6198, Part III, for 2005? If “Yes,” make entries only onlines 15b, 16b, and 18b.

11 Investment in the activity at the effective date. If the activity stemsfrom your interest in a partnership or S corporation, enter your in-vestment in the at-risk portion of the entity as of the effective date.Otherwise, complete the Line 11 Worksheet in the IRS Instructionsfor Form 6198 to determine the amount to enter here.

12 Increases at effective date. Enter here increases, such as increasesin the value of property that secures a nonrecourse loan. See theIRS Instructions for Form 6198, line 12, for detailed examples and aspecial Line 12 Worksheet.

13 Add lines 11 and 12. (auto-calc) Computed as indicated.14 Decreases for the tax year. Enter here decreases, such as additional

nonrecourse loans taken. See the IRS Instructions for Form 6198,line 14, for detailed examples.

15 Amount at risk:.a At effective date. (auto-calc) Computed as line 13 less line 14, butno less than zero.

b From 2005 Form 6198, line 19b. Applicable only if you answered Yesto “Completed Form 6198, Part III, for 2005?”

16 Increases since:.a Effective date. Enter as detailed in the IRS Instructions for Form6198, line 16.

b End of your 2005 tax year. Applicable only if you answered Yes to“Completed Form 6198, Part III, for 2005?” Enter the increase as

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detailed in the IRS Instructions for Form 6198, line 16, but substi-tute the words “since the end of your 2005 tax year” in place of“since effective date” when reading those instructions.

17 Add lines 15 and 16. (auto-calc) Computed as indicated.18 Decreases since:

a Effective date. Enter as detailed in the IRS Instructions for this line.b End of your 2005 tax year. Applicable only if you answered Yes to“Completed Form 6198, Part III, for 2005?” Enter the increase asdetailed in the IRS Instructions for this line, but substitute the words“since the end of your 2005 tax year” in place of “since effectivedate” when reading those instructions.

19a Subtract line 18 from line 17. (auto-calc) Computed as indicated.19b If line 19a is more than zero, enter here. (auto-calc) Computed as

indicated, this is the amount at risk as computed in Part III.

PART IV, DEDUCTIBLE LOSS. The at-risk limitations are applied here, showingyou how much of your deductions or losses are allowable in the current tax year.

20 AMOUNT AT RISK. (auto-calc) Computed as the larger of line 10b orline 19b, this is the amount of your investment in the activity that isconsidered at risk for purposes of this form. Only losses for the ac-tivity up to this amount are deductible in full in the current year.

21 DEDUCTIBLE LOSS. (auto-calc) Computed as the smaller of any lossresulting at line 5 and the amount on line 20, this is the part of anyloss in line 5 that is deductible this year.

Loss carryover to next year. (auto-calc) If the amount on line 21 isless than any loss on line 5, the excess is shown here and is carriedover to the return for the next tax year.

% of loss allowed this year. (auto-calc) Computed as the amount online 21 divided by any loss amount on line 5, expressed as a per-centage. If 100% appears here, no limitation applies. However, ifless than 100% you should apply this percentage to all componentsof the loss when reporting it on various forms and schedules. Seethe IRS Instructions for line 21 for details.

CAUTION: If less than 100%, you must reduce your entries on appropriateforms and schedules. Because Form 6198 is a stand-alone form summarizingamounts reported throughout the return, no amounts are posted automaticallyto other forms and schedules. You must reflect the reduction indicated by thepreceding percentage in your entries on all appropriate forms and schedulesyourself before any other limitations are applied!



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Form 6478 / Credit for Alcohol Used as Fuel

Purpose. This form is used to claim three different credits: the alcohol mix-ture credit, the alcohol credit, and the small ethanol producer credit. In theForm 1040 software, Form 6478 is accessible through the Road Map at the6478 line for line 55c of Form 1040. (In the Form 1065 software, Form6478 is accessible through the Road Map at the credit component of line 15fof Schedule K labeled “6478 Alcohol used as fuel.”)

See IRS instructions for important details. The law is very specific aboutwhat specific kind of fuel is eligible for what specific credit, so a carefulreading of the IRS Instructions for Form 6478 is critical. The section titledDefinitions and Special Rules is especially helpful in understanding the mean-ing of the IRS labels for the lines of the form. Unfortunately, the form is notnearly as complete as the instructions and includes preprinted rates that applyonly to ethanol. However the software is designed to handle all types of eligi-ble fuel, with computations that involve many more rates than are visible onthe form. While the details are not evident on the IRS form because of itslimited design, the software shows all details on the screen for clarity. Fur-thermore, when a rate different from that shown on the form is used in thecalculations, the official printout will show the additional rate used instead ofor in addition to the preprinted rate. When there is a question about a calcula-tion you should therefore rely on the IRS instructions, not the IRS form.

CURRENT YEAR CREDIT. The full credit is computed in this part based ongallons sold or used, or credit from a pass-through entity.

1 Qualified ethanol fuel production:(a) Number of gallons sold or used. Report here only gallons of ethanol

produced by an eligible small ethanol producer, who, as defined inthe IRS instructions, cannot have more than 60 million gallons ofproductive capacity. Your entry is limited to no more than 15 milliongallons.

(b) Rate. (auto-calc) The rate is always 10 cents per gallon.(c) Column (a) X Column (b). (auto-calc) Computed as indicated, col-

umn (c) holds the computed credit for all lines of the form.

2 Alcohol 190 proof or greater and alcohol 190 proof or greater in fuelmixtures:

(a) Number of gallons from ethanol. Enter here the number of gallonsonly for alcohol from ethanol.Other than from ethanol. Enter here the number of gallons only foralcohol other than from ethanol.

(b) Rate for ethanol. (auto-calc) The rate for ethanol is 51 cents pergallon.Rate for other than ethanol. (auto-calc) The rate for other than etha-nol is 60 cents per gallon. This rate is printed on the official formabove the preprinted $.51 when an amount for “Other than fromethanol” is entered for column 2(a).

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ITEMIZE excise tax benefit received. The credit you claim for line 2 isreduced by any excise tax benefit you received for qualified metha-nol or ethanol fuel as reflected on Form 720.

(c) Column (a) X Column (b). (auto-calc) Computed as $.51 times thegallons for ethanol in column 2(a) plus $.60 times the gallons forother than ethanol in column 2(a) less the preceding excise taxbenefit received. This is the only number that is printed in column2(c) of the official form.

3 Alcohol less than 190 proof but at least 150 proof and alcohol lessthan 190 proof but at least 150 proof in fuel mixtures:

(a) Number of gallons from ethanol. Enter here the number of gallonsonly for alcohol from ethanol.Other than from ethanol. Enter here the number of gallons only foralcohol other than from ethanol.

(b) Rate from ethanol. (auto-calc) The rate for ethanol is 37.78 centsper gallon.Rate from other than ethanol. (auto-calc) The rate for other thanethanol is 45 cents per gallon. This rate is printed on the officialform above the preprinted $.3778 when an amount for “Other thanfrom ethanol” is entered for column 3(a).

ITEMIZE excise tax benefit received. The credit you claim for line 3 isreduced by any excise tax benefit you received for qualified metha-nol or ethanol fuel as reflected on Form 720.

(c) Column (a) X Column (b). (auto-calc) Computed as $.3778 timesthe gallons for ethanol in column 3(a) plus $.45 times the gallonsfor other than ethanol in column 3(a) less the preceding excise taxbenefit received. This is the only number that is printed in column3(c) of the official form.

4 Add amounts in column (c) on lines 1, 2, and 3. (auto-calc) Computedas the sum of credits resulting for lines 1, 2, and 3.

CAUTION: You must report line 4 as income on the return in order to qualifyfor the credit. The credit on Form 6478 is allowed only as an offset to in-come reported on the return for the claimed fuel. Therefore, you must be sureto include the amount on line 4 as income on the appropriate “other income”line of the appropriate form. For a Form 1040 return the amount may be re-ported on Schedule C, Schedule F, or line 21 of Form 1040. You must reportthe full amount of income even if you are not allowed the full credit later inFrom 6478 (or Form 8835) because of limitations to tax liability. (If you aresubject to the alternative minimum tax, you must enter the amount as anegative adjustment at line 26 of Form 6251 because this amount is not in-come for the purposes of the alternative minimum tax.)

From partnerships, S corporations, estates, or trusts:Small ethanol producer credit (itemize) If you have any small ethanolproducer credit from a pass-through entity, enter the amount in asupporting statement for this line. In the text column of the support


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provide the number of gallons for which the credit was claimed andthe productive capacity for alcohol. In the amount column enteronly the amount of small ethanol producer credit.

Allowed part of the above. (auto-calc) Computed as the lesser of thepreceding entry and $1,500,000. This limitation stems from thefact that the preceding amount is subject to the same limitations asapply to line 1(a) of this form. (Since no more than 15,000,000gallons can be claimed and the credit is 10 cents per gallon, thecredit can be no more than $1,500,000.)

Other alcohol fuel credits. Enter here all other alcohol fuel creditsfrom pass-through entities.

5 Alcohol fuel credit from a partnership, S corporation, estate, or trust.(auto-calc) Computed as the sum of the preceding two lines.

6 Add lines 4 and 5, column (c). (auto-calc) Computed as indicated.

7 Alcohol fuel credit included in line 6 from passive activities. If anycredit claimed above stems from a passive activity, you must useForm 8582-CR (not built into the software) to determine the amountallowed this year. Enter here the full claim for any credit from pas-sive activities (to be included on Form 8582-CR), and enter on line9, below, the amount allowed for 2006 (as determined by Form8582-CR).

8 Subtract line 7 from line 8. (auto-calc) Computed as indicated.

9 Alcohol fuel credit allowed for 2006 from a passive activity. Enter thepart of line 7 that is allowed for the current year, as determined us-ing Form 8582-CR. Your entry here can be no more than your entryon line 7.

Carryforward and carryback:Carryforward from 2005 of alcohol fuel credit. Enter any carryforwardfrom 2005 stemming from tax liability limitations applied in Part II ofyour 2005 Form 6478. (Carryforward of unallowed credit stemmingfrom passive activity limitations must be included on Form 8582-CR, not here. Unused carryforward of credit from years prior to2005 stemming from tax liability limitations must be included inyour entry for line 6 of Form 3800, not here.)

Carryback from 2007 of alcohol fuel credit. If this form is a part of anamended return prepared once the return for tax year 2007 is filed,enter here any carryback from tax year 2007 stemming from the taxliability limitations applied for the 2007 Form 6478. You are not al-lowed to make an entry here unless you have created a Form1040X for this return because this entry is only applicable toamended returns.

10 Carryforward from 2005 of alcohol fuel credit and carryback from2007 of alcohol fuel credit. (auto-calc) Computed as the sum of thepreceding two lines.

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11 Add lines 8 through 10. (auto-calc) Computed as indicated. For indi-viduals and partnerships, this is the current year credit (before anytax liability limitations applied for Form 1040 returns). Tax liabilitylimitations are applied in either Part II of this form or on Form 8835,as explained below (following line 13).

12 Amount allocated to patrons of the coorperative or beneficiaries ofthe estate or trust. (auto-calc) Computed as zero because this linenot relevant to Form 1040 or Form 1065 returns.

13 Coorperatives, estates, and trusts. Subtract line 12 from line 11(auto-calc) Computed as zero because this line not relevant to Form1040 or Form 1065 returns.

Have credit on Form 8835, Section B? (For Form 1040 returns only)Answer Yes if you have a credit in Section B of Form 8835, whichindicates credit for electricity or refined coal at qualified facilitiesplaced in service after October 22, 2004, or Indian coal produced atfacilities placed in service after August 8, 2005. If Yes, the creditfrom Form 6478 is included in line 30 of Form 8835 (not built intothe software), and is reflected in the net allowed credit at line 43 ofForm 8835, after applying tax limitations, which you would reportin a supporting statement for line 55c of Form 1040. If No, tax limi-tations are applied here and you must continue with your data entryfor this form; the result on line 24 will then be posted to the appro-priate part of line 55c of Form 1040.

Use Form 8835 to compute tax limitations? (For Form 1040 returnsonly; auto-calc) If Yes, Part II of this form is left blank and youmust include the amount on line 11 of this form in line 30 of Form8835. If No, the limitations are applied here and you must continuewith your data entry for this form; the result on line 24 will then beposted to the appropriate line for line 55c of Form 1040.

If the preceding answer is Yes, you must include the amount on line 11 inline 30 of Form 8835. If “No” for the Form 1040 software, the amount online 11 is posted to line 55c of Form 1040. (If “No” for the Form 1065 soft-ware, the amount on line 11 is posted to the credit component of line 15f ofSchedule K labeled “6478 Alcohol used as fuel.”)

ALLOWABLE CREDIT. The credit allowed for the current year is limited byyour tax liability for the year. It may be applied to the first $25,000 of ad-justed tax liability plus 75% of the excess above $25,000. This part will beblank if you indicated that you have a credit in Section B of Form 8835, andthe tax liability limitation will be determined on that form instead. (Part II isnot applicable to Form 1065 returns because the full credit on line 11 ispassed through to partners.)

14 Regular tax before credits. (auto-calc) From Form 1040, line 44.15 Alternative minimum tax. (auto-calc) From Form 6251, line 35.16 Add lines 14 and 15. (auto-calc) Computed as indicated.17a Foreign tax credit. (auto-calc) Taken from Form 1040, line 47.


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17b Credit from Form 1040, lines 48 through 54. (auto-calc) Taken fromForm 1040 as indicated.

17c Qualified electric vehicle credit (Form 8834, line 20). (auto-calc)Taken from the Form 8834 component of Form 1040, line 55c.

17d Alternative motor vehicle credit (Form 8910, line 18). (auto-calc)Taken from the Form 8910 component of Form 1040, line 55c, thisis the personal part of the credit.

17e Alternative fuel vehicle refueling property credit (Form 8911, line19. (auto-calc) Taken from the Form 8911 component of Form1040, line 55c, this is the personal part of the credit.

Other eligible credits. (Caution: This line is no longer a part of theofficial Form 6478, and should not be used unless specifically in-structed by the IRS to include any other credit in line 17f, below.)This line is provided for any other credits not listed above that canbe used to reduce regular tax before the credit on this form. Thesecredits should have been included in line 56 of Form 1040, but notall credits on that line can be used here. You must itemize any en-tries in a supporting statement for this line.

17f Add lines 17a through 17e (auto-calc) Computed as indicated plusthe above extra credit, this is generally the total credit on the returnexcluding the credit from this form.

18 Net income tax. (auto-calc) Computed as line 16 less line 17f.19 Net regular tax. (auto-calc) Computed as line 14 less 17f, but no

less than zero.Does spouse have credit too? Used only if married filing separately,your proper answer ensures the proper limitations at line 20.

Your % in a controlled group. The limitations are prorated amongmembers of a controlled group, so a member of a controlled groupmust enter his or her percent of ownership here.

20 25% of the excess of line 19 over $25,000. (auto-calc) Computed asindicated for most taxpayers. However, the $25,000 figure is re-duced to $12,500 if married filing separately and you answered Yesto the above question. The $25,000 is also multiplied by the abovepercentage if a nonzero percentage is entered above.


Credit on Form 3800, line 19. (auto-calc) Taken from line 55a of Form1040, this is the credit resulting on Form 3800 after tax liabilitylimitations.

Credit on Form 8844, line 24. (auto-calc) Taken from the Form 8844component of line 55c of Form 1040, this is the credit resulting onForm 8844 after tax liability limitations.

Other General Business Credit, if alone. Enter any other credit in-cluded in line 55c if the tax liability limitation is applied on the re-lated form rather than on Form 3800 or elsewhere.

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22 General business credit. (auto-calc) Computed as the sum of thepreceding three amounts.

23 Subtract line 22 from line 21. (auto-calc) Computed as indicated, butno less than zero, this is the credit limitation.

24 CREDIT ALLOWED FOR CURRENT YEAR. (auto-calc) Computed asthe smaller of line 11 or line 23.

Carryover. (auto-calc) Computed as line 11 less line 24, this balancecan be carried back 1 year and then forward up to 20 years.

The credit on line 24 is posted to the proper part of line 55c of Form 1040

Extra line for personal memos. The supporting statement you create for thisline will not be printed as a part of the official return. This line is providedonly to allow you to make private notes or reminders


Forms 6765

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Form 6765 / Credit for Increasing Research

Purpose. This form is used to claim credit for investment in technological re-search over and above what was invested in the prior year. In the Form 1040software, Form 6765 is accessible through the Road Map at line 1d of Form3800. (In the Form 1065 software, Form 6765 is accessible through theRoad Map at the credit component of line 15f of Schedule K labeled “6765Increasing research.”)

Extended to December 31, 2007. The research credit expired on December 31,2005, so research expenses paid or incurred after that date were not origi-nally eligible for the credit. However, the credit was retroactively reinstated inat the end of 2006 by the Tax Relief and Health Care Act of 2006. As a re-sult, it now applies to expenses paid or incurred before 2008, with additionalcredits added for tax year 2007. The tax bill also added, for tax years after2006, a third alternative for computing the credit, called the “AlternativeSimplified Credit another

No longer a stand-alone form. Starting tax year 2006, credit from Form 6765can no longer be reported directly on Form 1040. You must claim the creditat line 1d of Form 3800 even if this is the only credit you have to report onForm 3800. As a result, the section for applying a tax limitation to the creditis gone, and the limitation is now applied on Form 3800.

Entries for Sections A, B, and C. Three methods for computing the credit arenow available: a regular method (Section A), an alternative incrementalmethod (Section B), and, for tax years ending after December 31, 2006, analternative simplified method (Section C). The regular method is used untilyou elect one of the alternative method. Once you elect an alternativemethod, it must be used for all future tax years as well unless you receivewritten consent from the IRS to go back to the regular method (although youcan switch to the alternative incremental method to the alternative simplifiedmethod). While the computations for the three sections are quite different,information required for each section is nearly identical. Therefore, in order toavoid duplicate data entry and make it easy to compare the results of thethree methods, we collect the data for all sections here. CAUTION: The lawfor this credit is relatively narrow and applies only to the type of research de-fined in the IRS instructions. For example, research for customization of anexisting product, research for internally used software, research in social sci-ences, surveys, studies, and research into an existing product are all disal-lowed. You should therefore consult the IRS Instructions for Form 6765 fordetailed qualifications.

Wages for qualified services. Enter only wages related to qualified in-house research. Do not include any wages used in figuring the workopportunity credit (Form 5884).

Cost of supplies. Enter only the cost of supplies related to qualified in-house research.

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Rental or lease costs of computers. Enter only the amount paid or in-curred for the rental or lease of computers used in qualified re-search. CAUTION: Qualifications for this entry are very narrow.The computer you rent or lease must not be located on your prem-ises and cannot be operated by you or primarily used by you.

Contract research expenses. Enter the full amount paid or incurred forqualified outside research. This amount is reduced to 65% of yourentry when used in Section A, B, or C of Form 6765, unless youmake an entry on one of the following two lines.

Part for qualified energy research. Enter the part of “Contract re-search expenses” that was used for a qualified energy research byan eligible small business, university, or federal laboratory. Theamount you enter here is allowed in full when used in Section A, B,or C. See IRS instructions for Form 6765, line 8, for details.

Part to a qualified research consortium. Enter the part of “Contractresearch expenses” that was used for a qualified research consor-tium. The amount you enter here is subject to a reduction to 75%of your entry when used in Section A, B, or C. See IRS instructionsfor Form 6765, line 8, for details.

Fixed-based percentage. (Required only for Section A) If you will com-pute the credit by the Regular Method (Section A), you must makean entry here that reflects the history of the company and its pastresearch expenses. See the IRS Instructions for Form 6765, line 10,for details. Your entry here is rounded to the nearest .01% andcannot exceed 16%.

Average annual gross receipts. For the business to which the researchrelates, enter the average annual gross receipts (reduced by returnsand allowances) for the 4 tax years that precede the tax year of thereturn. This will generally be line 3 of the Schedule C for this busi-ness.

Taxable income for this activity. (For Form 1040 returns only) Youmust determine how much of the taxable income on line 43 of Form1040 relates to the business for which the research was conducted.The amount you enter here will be used in computing the taxableincome limit that applies to this credit. This limitation is computedat line 19 of Form 3800. CAUTION: If you are claiming the re-search credit for more than one business, you may have to overridethe adjustment to line 19 of Form 3800 because the limitation mustbe applied separately for each business. See our instructions forForm 3800 in the Tax Forms Guide 2007 Edition for details.

ELECTIONS. There are now three elections available, each of which has asignificant effect on the results of this form.

Section 280C election:Elect the reduced credit? When you claim the full credit you are re-

quired to reduce any deductions for research expenses on your re-turn (such as Schedule C) by the amount of this credit. However, if


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you elect the reduced credit, which is 65% of the full credit, youare not required to reduce your deductions at all. CAUTION: If youdo NOT elect the reduced credit, you must provide to the IRS, in asupporting statement for the line “Schedule of reduced deductions”on the last screen of our Form 6765, a schedule of the reduced de-ductions you implemented because of this rule.

Section B election:Elect Alternative Incremental Credit? If you want to elect the alterna-

tive incremental method, answer Yes here. Before deciding whetherto answer Yes or No, you may want to see the results for eachchoice by looking at the result on line 63 of this form for eachchoice. However, you should also consider the fact that the electionis generally a lifetime election. TIP: This election is relevant evenwhen you choose the Section C election because Section A or Bmust be completed whenever you elect Section C.

Elected section B in the past? The election to use the alternative in-cremental method of computing the credit is a lifetime election.Once you make the election you must use the method every taxyear thereafter unless you received consent from the IRS to revokeyour election. If you received such consent and now choose to useSection A, you must answer No here and attach a copy of the con-sent to your return. (Exception: For tax years ending after December31, 2006, you can switch to the new alternative simplified methodfor future years as your lifetime election.)

Section B to be used (vs. Section A). (auto-calc) Answered Yes if eitherof the preceding two answers is Yes. If Yes, Section B is used; oth-erwise Section A is used. CAUTION: If Section A is used, you mustenter a percentage for the line “Fixed-base percentage” describedpreviously.

Section C election:Elect Alternative Simplified Credit? (Available only for tax years ending

after December 31, 2006) If you want to elect the alternative sim-plified method, answer Yes here. You will not be able to answerYes for a Form 1040 return for tax year 2006 because the tax yearis the calendar year and the method starts January 1, 2007. How-ever, for a Form 1065 return with a fiscal year that starts afterJanuary 1, 2006, you will be able to elect this method and it will beused for the portion of the fiscal year that lies in calendar year2007. Before deciding whether to answer Yes or No, you may wantto see the results for each choice by looking at the result on line 63of this form for each choice. However, you should also consider thefact that the election is generally a lifetime election. TIP: Even whenyou choose the Section C election, Section A or B must be com-pleted.

2003, 2004, and 2005 qualified research expenses. When you choosethe alternative simplified method you must enter qualified research

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expenses claimed for the prior 3 years. Your entries are used in thecomputation of line 54 of this form.

Number of days of tax year in 2006. (auto-calc) Because Section C can-not be used for the portion of the tax year that lies in calendar year2006, the credit is computed using a prorated portion of Section Aor B and Section C. The number of days in the tax year that fallwithin calendar year 2006 is therefore important for the propercomputation of the credit. For a Form 1040 for tax year 2006, thisentry will always be 365. However, for a Form 1065 return the en-try will be less than 365 if the partnership’s fiscal year starts afterJanuary 1, 2006.

Special procedure for members of controlled groups or businesses undercommon control. For the cited cases you are required to enter the fullamounts for the entire business or group on lines 1 through 16, 18 through41, and 43 through 60, whichever applies, but report only your share on line17a, 42a, and 61, whichever applies. You are also required to explain howyou arrived at your share. To accomplish this with the software, enter the fullamounts on screen 1, note the computed credit at lines 17a, 42a, or 61,whichever applies, then use the Override Key to access line 17a, 42a, or 61,and itemize the line to report your share of the computed credit. In the de-scription column of the support describe how you computed your share,which should be a prorated amount based on the ratio of your share thequalified research expenses to the total qualified research expenses. The sup-porting statement will then be printed with the return and cross-referenced onthe dotted line for line 17a, 42a, or 61, whichever applies. CAUTION: If youmust follow this procedure you are not allowed to e-file the return.

Section A, Regular Credit. (Fully automatic; no manual entries required in thissection.) The regular credit is based on a simplified computation in which allresearch credits are combined and one rate is applied to the overall eligibleexpense. This version of the credit is computed unless you elected to useSection B instead (or elected Section B in the past). (Even if you elect to useSection C, Section A is required unless you use Section B.)

1 Certain amounts paid or incurred to energy consortia. (auto-calc)Taken from your prior entry for this category if Section A is used;otherwise zero.

2 Basic research payments paid or incurred to qualified organizations.(auto-calc) Automatically zero because this line relates only to cor-porations, not to individuals (for a Form 1040 return) nor partner-ships (for a Form 1065 return).

3 Qualified organization base period amount. (auto-calc) Automaticallyzero because this line relates only to corporations, not to individuals(for a Form 1040 return) nor partnerships (for a Form 1065 return).

4 Subtract line 3 from line 2. (auto-calc) Computed as indicated but noless than zero.


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5 Wages for qualified services. (auto-calc) Taken from your prior entryfor this category if Section A is used; otherwise zero.

6 Cost of supplies. (auto-calc) Taken from your prior entry for this cate-gory if Section A is used; otherwise zero.

7 Rental or lease costs of computers. (auto-calc) Taken from your priorentry for this category if Section A is used; otherwise zero.

8 Applicable percentage of contract research expenses. (auto-calc) IfSection A is used, computed from your prior entries for contract re-search expenses as 100% of your entry for “Part for qualified en-ergy research” plus 75% of your entry for “Part to a qualified re-search consortium” plus 65% of the balance (“Contract researchexpenses” less “Part for qualified energy research” less “Part to aqualified research consortium”).

8 Total qualified research expenses. (auto-calc) Computed as the sumof lines 5 through 8.

10 Fixed-base percentage. (auto-calc) Taken from your prior entry forthis category if Section A is used; otherwise zero.

11 Average annual gross receipts. (auto-calc) Taken from your priorentry for this category if Section A is used; otherwise zero.

12 Multiply line 11 by the percentage on line 10. (auto-calc) Computedas indicated.


14 Multiply line 9 by 50%. (auto-calc) Computed as indicated.15 Smaller of line 13 or line 14. (auto-calc) Computed as indicated.16 Add lines 1, 4, and 15. (auto-calc) Computed as indicated.17a Are you electing the reduced credit under Section 280C? (auto-

calc) Answered Yes if you elected the reduced credit by your priorentry. CAUTION: If No and you are using Section A, see Section Dfor the supporting statement you must supply.

Multiply line 16 by .13 or .20. (auto-calc) Computed as 20% of line 16if the preceding answer is No and 13% if the answer is Yes. This isthe Regular Credit.

17b If your tax year ended after December 31, 2006 and you are elect-ing the alternative simplified credit in Section C, multiply line 17aby the applicable 2006 percentage. (auto-calc) If you elected Sec-tion C and did not elect Section B, computed as line 17a times thepercentage of your tax year that lies in calendar year 2006. See IRSinstructions for details.

Section B, Alternative Incremental Credit. (Fully automatic; no manual entriesrequired in this section.) The alternative credit involves separate computationsfor various parts of the credit, and may result in more or less credit thancomputed in Section A. This version of the credit is used if you elected thisalternative on screen 2 (or elected it in any previous year). (Even if you electto use Section C, Section B is required unless you use Section A.)

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18 Certain amounts paid or incurred to energy consortia. (auto-calc)Taken from your prior entry for this category if Section B is used;otherwise zero.

19 Basic research payments paid or incurred to qualified organiza-tions. (auto-calc) Automatically zero because this line relates only tocorporations, not to individuals preparing a Form 1040 return norpartnerships preparing a Form 1065 return.

20 Qualified organization base period amount. (auto-calc) Automati-cally zero because this line relates only to corporations, not to indi-viduals preparing a Form 1040 return nor partnerships preparing aForm 1065 return.

21 Subtract line 20 from line 19. (auto-calc) Computed as indicated butno less than zero.

22 Add lines 18 and 21. (auto-calc) Computed as indicated.23 Multiply line 22 by 20%. (auto-calc) Computed as indicated.24 Wages for qualified services. (auto-calc) Taken from your prior entry

for this category if Section B is used; otherwise zero.25 Cost of supplies. (auto-calc) Taken from your prior entry for this

category if Section B is used; otherwise zero.26 Rental or lease costs of computers. (auto-calc) Taken from your prior

entry for this category if Section B is used; otherwise zero.27 Applicable percentage of contract research expenses. (auto-calc) If

Section B is used, computed from your prior entries for contract re-search expenses as 100% of your entry for “Part for qualified en-ergy research” plus 75% of your entry for “Part to a qualified re-search consortium” plus 65% of the balance (“Contract researchexpenses” less “Part for qualified energy research” less “Part to aqualified research consortium”).


29 Average annual gross receipts. (auto-calc) Taken from your priorentry for this category if Section B is used; otherwise zero.

30 Multiply line 29 by 1%. (auto-calc) Computed as indicated.31 Subtract line 30 from line 28. (auto-calc) Computed as indicated, but

no less than zero.32 Multiply line 29 by 1.5%. (auto-calc) Computed as indicated.33 Subtract line 32 from line 28. (auto-calc) Computed as indicated, but

no less than zero.34 Subtract line 33 from line 31. (auto-calc) Computed as indicated.35 Multiply line 29 by 2%. (auto-calc) Computed as indicated.36 Subtract line 35 from line 28. (auto-calc) Computed as indicated, but

no less than zero.37 Subtract line 36 from line 33. (auto-calc) Computed as indicated.38 Multiply line 34 by 2.65%. (auto-calc) Computed as indicated if your

tax year lies entirely within calendar year 2006 or you elected touse Section C. Otherwise, computed using a percentage between


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2.65% and 3.0% that is prorated by the amount of your tax yearthat lies outside of calendar year 2006. See IRS instructions for de-tails.

39 Multiply line 37 by 3.2%. (auto-calc) Computed as indicated if yourtax year lies entirely within calendar year 2006 or you elected touse Section C. Otherwise, computed using a percentage between3.2% and 4.0% that is prorated by the amount of your tax yearthat lies outside of calendar year 2006. See IRS instructions for de-tails.

40 Multiply line 36 by 3.75%. (auto-calc) Computed as indicated if yourtax year lies entirely within calendar year 2006 or you elected touse Section C. Otherwise, computed using a percentage between3.75% and 5.0% that is prorated by the amount of your tax yearthat lies outside of calendar year 2006. See IRS instructions for de-tails.

41 Add lines 23, 38, 39, and 40. (auto-calc) Computed as indicated.42a Are you electing the reduced credit under Section 280C? (auto-

calc) Answered Yes if you elected the reduced credit by your priorentry. CAUTION: If No and you are using Section B, see Section Dfor the supporting statement you must supply.

Line 41 or 65% of line 41. (auto-calc) Computed as 100% of line 41 ifthe preceding answer is No and 65% if the answer is Yes. This isthe Alternative Incremental Credit.

42b If your tax year ended after December 31, 2006 and you are elect-ing the alternative simplified credit in Section C, multiply line 17aby the applicable 2006 percentage. (auto-calc) If you elected Sec-tion C and did not elect Section B, computed as line 42a times thepercentage of your tax year that lies in calendar year 2006. See IRSinstructions for line 17b for details.

Section C, Alternative Simplified Credit. (Fully automatic; no manual entriesrequired in this section.) The alternative simplified credit is available startingJanuary 1, 2007, and is therefore not applicable to returns for which the taxyear lies entirely in calendar year 2006. When you elect to use this method,either Section A or Section B is still used to compute the credit for the por-tion of the tax year that lies within calendar year 2006.

43 Certain amounts paid or incurred to energy consortia. (auto-calc)Taken from your prior entry for this category if Section C is used;otherwise zero.

44 Basic research payments paid or incurred to qualified organiza-tions. (auto-calc) Automatically zero because this line relates only tocorporations, not to individuals preparing a Form 1040 return norpartnerships preparing a Form 1065 return.

45 Qualified organization base period amount. (auto-calc) Automati-cally zero because this line relates only to corporations, not to indi-viduals preparing a Form 1040 return nor partnerships preparing aForm 1065 return.

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46 Subtract line 45 from line 44. (auto-calc) Computed as indicated butno less than zero.

47 Add lines 43 and 46. (auto-calc) Computed as indicated.48 Multiply line 47 by 20%. (auto-calc) Computed as indicated.49 Wages for qualified services. (auto-calc) Taken from your prior entry

for this category if Section C is used; otherwise zero.50 Cost of supplies. (auto-calc) Taken from your prior entry for this

category if Section C is used; otherwise zero.51 Rental or lease costs of computers. (auto-calc) Taken from your prior

entry for this category if Section C is used; otherwise zero.52 Applicable percentage of contract research expenses. (auto-calc) If

Section C is used, computed from your prior entries for contract re-search expenses as 100% of your entry for “Part for qualified en-ergy research” plus 75% of your entry for “Part to a qualified re-search consortium” plus 65% of the balance (“Contract researchexpenses” less “Part for qualified energy research” less “Part to aqualified research consortium”).


54 Total qualified research expenses for the prior three years. (auto-calc) If Section C is used, computed as the sum of your entries for2003, 2004, and 2005 qualified research expenses. (If any of thosethree amounts is zero, lines 55 and 56 are skipped.)

55 Divide line 54 by 6.0. (auto-calc) Normally computed as indicated,but zero if any of the three amounts that contribute to line 54 iszero.

56 Subtract line 55 from line 53. (auto-calc) Normally computed as indi-cated, but no less than zero. However, computed as zero if any ofthe three amounts that contribute to line 54 is zero.

57 Multiply line 56 by 12% or line 53 by 6%. (auto-calc) Normally com-puted as 12% of line 56. However, computed as 5% of line 53 ifany of the three amounts that contribute to line 54 is zero.

58 Add lines 48 and 57. (auto-calc) Computed as indicated.59 Multiply line 58 by the applicable 2007 percentage. (auto-calc)

Computed as line 58 by the percentage of your tax year that liesoutside of calendar year 2006. See IRS instructions for details.

60 Add line 17b or line 42b (whichever applies) and line 59. (auto-calc)Computed as the sum of the credit for 2006 from Section A or Band the credit after 2006 from line 59.

61 Are you electing the reduced credit under Section 280C? (auto-calc)Answered Yes if you elected the reduced credit by your prior entry.CAUTION: If No and you are using Section C, see Section D for thesupporting statement you must supply.

Line 60 or 65% of line 60. (auto-calc) Computed as 100% of line 60 ifthe preceding answer is No and 65% if the answer is Yes. This isthe Alternative Simplified Credit.


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Section D, Summary. The full credit is summarized here.62 Credit for increasing research from partnerships, S corporations,

estates, and trusts. Enter any Form 6765 credits allocated to youfrom a pass-through entity as shown on Schedule K-1 (Form1120S) from an S corporation, Schedule K-1 (Form 1065) from apartnership, or Schedule K-1 (Form 1041) from an estate or trust.

Taxable income for the line 62 activity. (For Form 1040 returns only)You must determine how much of the taxable income on line 43 ofForm 1040 relates to the pass-through entity for which the researchwas conducted. The amount you enter here will be used in com-puting the taxable income limit that applies to this credit. This limi-tation is computed at line 19 of Form 3800. CAUTION: If you areclaiming the research credit for more than one business, you mayhave to override the adjustment above line 19 of Form 3800 be-cause the limitation must be applied separately for each business.

63 If you did not complete Section C, add line 17a or line 42a (which-ever applies) to line 62. If you completed Section C, add lines 6aand 62. (auto-calc) Computed as indicated, this is the total researchcredit to be claimed on the return. For a Form 1040 return, thisamount is posted to line 1d of Form 3800. For a Form 1065 return,this amount is posted to the Form 6765 component of line 15f ofSchedule K (Form 1065, page 3).

ITEMIZED REDUCTIONS REQUIRED?. (auto-calc) Answered No if youelected the reduced credit (via your prior Section 280C election).Otherwise, Yes. When you claim the full credit, you are required toreduce any deductions for research expenses on your return (suchas Schedule C) by the credit claimed on Form 6765 (excluding pass-through credits on line 62).

Your credit on line 63 (less line 62). (auto-calc) Computed as line 62less line 62, this is the amount by which you must reduce deduc-tions on your return if the preceding answer is Yes.

ITEMIZE HERE if Yes above:Schedule of reduced deductions. If the answer to “ITEMIZEDDEDUCTIONS REQUIRED” is Yes, you are required to attach aschedule showing in detail where you reduced your deductions. Youmust provide the schedule in a supporting statement for this line sothat it is printed with the return and cross-referenced on the officialprinted Form 6765. The total from your support appears on this lineand should match the amount on line 63 less line 62, even if thecredit is later limited at line 19 of Form 3800 by the tax liability limi-tations. Where the cross-reference is printed depends on the elec-tions made for Form 6765, as follows. (If the answer to “ITEMIZEDDEDUCTIONS REQUIRED” is No, any support you provide for thisline will be ignored and will not be made a part of the official print-out of Form 6765.)

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Schedule of reduced deductions is referenced in Section A. (auto-calc) “ITEMIZED DEDUCTIONS REQUIRED” is Yes and you did notelect to use Section B or Section C, the total from your “Scheduleof reduced deductions” appears here, and the support will be cross-referenced beside the line 17a amount on the official printout ofForm 6765. Otherwise, zero will appear here and no cross-referencewill be printed beside line 17a.

Schedule of reduced deductions is referenced in Section B. (auto-calc) “ITEMIZED DEDUCTIONS REQUIRED” is Yes and you electedto use Section B but not Section C, the total from your “Scheduleof reduced deductions” appears here, and the support will be cross-referenced beside the line 42a amount on the official printout ofForm 6765. Otherwise, zero will appear here and no cross-referencewill be printed beside line 42a.

Schedule of reduced deductions is referenced in Section C. (auto-calc) “ITEMIZED DEDUCTIONS REQUIRED” is Yes and you electedto use Section C, the total from your “Schedule of reduced deduc-tions” appears here, and the support will be cross-referenced besidethe line 61 amount on the official printout of Form 6765. Other-wise, zero will appear here and no cross-reference will be printedbeside line 61.

64 Amount allocated to the beneficiaries of the estate or trust. (auto-calc) Computed as zero because this line not relevant to Form 1040or Form 1065 returns.

65 Estates and trusts: subtract line 64 from line 63. (auto-calc) Com-puted as zero because this line not relevant to Form 1040 or Form1065 returns.



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Form 6781 / Gains and Losses from Section 1256 Contractsand Straddles

Purpose. This form is used to report gains and losses from individuals’ in-vestment in futures contracts and non-equity options, and from commoditydealers’ equity options and security contracts. In the Form 1040 software,Form 6781 is accessible through the Road Map from the Form 6781 linesabove lines 4 and 11 of Schedule D (In the Form 1065 software, Form 6781is accessible through the Road Map from the Form 6781 lines that precedelines 2 and 7 of Schedule D and the Code C component of line 11 of Sched-ule K on Form 1065, page 3.)

IRS instructions and IRS Pub. 550 are indispensable. The regulations for sec-tion 1256 contracts and straddles are complex and involve a number of spe-cial situations that require special reporting. Furthermore, the IRS has not de-signed Form 6781 to adequately handle all the reporting requirements, so theIRS instructions for Form 6781 indicate a number of places where separateschedules must be provided in addition to the information provided on theform. It is therefore very important that you read the IRS instructions care-fully and provide additional details in supporting statements for the additionallines that we provide, when appropriate. If there are terms in the instructionsthat you do not understand, we recommend the glossary at the end of IRSPub. 550 (Investment Income and Expenses). We also recommend that publi-cation for helpful examples in reporting straddles and section 1256 contracts.

Check applicable elections. You must identify here any elections you makefor special treatment.

A Mixed straddle election. Answer Yes if you are electing now, orelected in the past, to have the mark-to-market rules not apply tosection 1256 contracts that are part of a mixed straddle. Once youmake this election it is irrevocable and you must use Part II of Form6781, not Part I, of this form to report the section 1256 contractsin any mixed straddle. (A mixed straddle is one that includes section1256 contracts but is not comprised solely of section 1256 con-tracts.)

B Straddle-by-straddle identification election. Answer Yes if you areelecting now, or elected in the past, to report mixed straddles byidentifying each position by either the close of the day when themixed straddle was established or the time the position was dis-posed of, whichever is earlier. Use Part I of Form 6781 only if thenet gain or loss is attributable to a section 1256 position.

C Mixed straddle account election. Answer Yes to establish one ormore mixed straddle accounts for the year following the tax year ofthe return. Once you make the election, the annual net gain or lossfrom the account is reported in Part II of Form 6781. CAUTION:You must itemize this line and provide a statement as required bythe IRS Temporary Regulations section 1.1092(b)-4T(f).

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D Net Section 1256 Contracts Loss Election. Answer Yes to elect tocarry back 3 years any net loss from section 1256 contracts for thetax year. (Partnerships are not eligible for this election, so the an-swer will always be No in the Form 1065 software.)

Itemize here to supply required foreign currency contract information. Spe-cial rules apply to certain foreign currency contracts. If you make an electionunder IRS section 988(a)(1)(B) or 988(c)(1)(D), you must provide informationabout the contracts covered by the election(s) in a supporting statement forthis line. See IRS instructions for Form 6781 for details.

PART I, SECTION 1256 CONTRACTS MARKED TO MARKET. You must reporthere gains and losses for all section 1256 contracts open at the end of theyear or closed out during the year, unless an election you previously identifiedexempts you from using Part I.

1 Itemize to report contracts. (Supported by the Section 1256 ContractsWorksheet, Figure Prem-9.) You must identify all accounts in theworksheets that support this line, showing the gain or loss for each.

Itemize here to elaborate. Provide in a supporting statement for thisline any other information required by the IRS for the section 1256contracts reported in line 1.

2 Net gain or loss. Totals from the worksheets appear here:(b) Loss. (auto-calc) Computed as the sum of losses on line b of allworksheets combined.

(c) Gain. (auto-calc) Computed as the sum of gains on line c of allworksheets combined.

3 Net gain or loss. (auto-calc) Computed as line 2(c) less line 2(b), this isthe net gain or loss for section 1256 contracts before adjustments.

4 Form 1099-B adjustments. You may have to make an adjustment ifyou received a Form 1099-B with a straddle or hedging transaction.See IRS instructions to determine the adjustment to enter.

5 Combine lines 3 and 4. (auto-calc) Computed as indicated, this is theadjusted net gain or loss for section 1256 contracts.

For Form 1065 software only: Special handling provided for partnership re-turns. For partnership returns the amount on line 5 is posted to line 11 ofSchedule K (Form 1065). (It is one of many components of line 11, labeledon the screen as “Code C – Section 1256 contracts.” A partner’s share willappear in box 11 of the partner’s Schedule K-1 with the letter C beside thedollar amount.) Lines 6 through 9 are not applicable to partnership returnsand are therefore always zero for the 1065 software.

6 If you checked box D, enter amount of loss to be carried back. (ForForm 1040 returns ONLY) If have a “net section 1256 contractsloss” for the tax year, the election at line D, above, allows you tocarry back all or part of the loss to the previous three tax years. Youenter here the amount you choose to carry back, so that it will beremoved from the loss used in the current tax year, and file amend-ed returns for the prior years to include the elected carry back.


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However, the meaning of the IRS term “net section 1256 contractsloss” is not intuitive. You might think that it would be the amounton line 5, if a loss, but it is not! Instead, the appropriate loss is thelesser of (a) the loss remaining after adding $3,000 ($1,500 if mar-ried filing separately) to the net amount on line 5, and (b) theamount you would have figured as your loss carryover to the nexttax year if line 6 of Form 6781 were zero. In other words, you can-not carry back any amount if the net of all other amounts onSchedule D is a gain that is within $3,000 of the loss on line 5($1,500 if married filing separately). The software prevents youfrom entering on line 6 any more than the amount of loss defined in(a), but you must consider (b) as well when making your entry. (Theloss is represented here as a positive number.)

7 Combine lines 5 and 6. (auto-calc) Computed as the sum of lines 5and 6 for Form 1040 returns, but zero for Form 1065 returns.

8 Short-term capital gain or loss. (auto-calc) Computed as 40% of theamount on line 7. Note that 40% of the net gain or loss is consid-ered short-term gain or loss irrespective of the dates involved.

9 Long-term capital gain or loss. (auto-calc) Computed as 60% of theamount on line 7. Note that 60% of the net gain or loss is consid-ered short-term gain or loss irrespective of the dates involved.

The amounts on lines 8 and 9 are posted to the appropriate lines of ScheduleD (Form 1040), as summarized on the last screen of our Form 6781 for Form1040 returns. (Lines 8 and 9 are zero for Form 1065 returns.)

Section 1256 ContractsWorksheet. (FigurePrem-9) This worksheetsupports line 1 of Form6781, for reportinggains and losses, butall other details are en-tered in a separatesupporting statementfor the line that follows the access to this worksheet.

a. Identification of account. If you received a Form 1099-B for the ac-count, enter here “Form 1099-B” and the broker’s name. If you arereporting on an amended return a carryback from a year after 2006,enter “Loss carried back from” and the year. Otherwise, identify theaccount in 30 characters or less.

Gain or loss. Enter the net gain or loss for the year. If you received aForm 1099-B, this amount should be shown in box 11 of the form.

b. Loss. (auto-calc) If your entry was a loss, it is shown here as a posi-tive number. Otherwise, zero.

c. Gain. (auto-calc) If your entry was a gain, it is shown here. Other-wise, zero.

SECTION 1256 CONTRACTSSECTION 1256 CONTRACTSSECTION 1256 CONTRACTSSECTION 1256 CONTRACTS a. ID of account : a. ID of account : a. ID of account : a. ID of account :

Gain or loss.............. 0 Gain or loss.............. 0 Gain or loss.............. 0 Gain or loss.............. 0 b. Loss...................... b. Loss...................... b. Loss...................... b. Loss......................▒ 0▒ 0▒ 0▒ 0 c. Gain...................... c. Gain...................... c. Gain...................... c. Gain......................▒ 0▒ 0▒ 0▒ 0

Figure Prem-9. Section 1256 Contracts

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PART II, GAINS AND LOSSES FROM STRADDLES. You must report here allrecognized gains and losses from straddles for positions closed out or soldduring the tax year. You will also include section 1256 contracts if they arepart of a mixed straddle and you made the election described previously forbox C. All results are automatically posted to Schedule D except for the itemsdescribed in the following shaded paragraph.

CAUTION: Do not use the worksheets below for... (a) section 988 contractsthat are part of a mixed straddle or (b) any gain on termination of any posi-tion held as part of a conversion. Instead, report these transactions in genericsupporting statements for the special lines for Form 4797 provided below line11b, and report these amounts on Form 4797 in worksheets for line 10 ofthat form. (There is no automatic link between this form and Form 4797.You must create the appropriate worksheets on Form 4797 yourself.)

Itemize this line, listing each straddle and its components. The IRS re-quires you to fully define each straddle you report in Part II by listingall components that make up the straddle. The details you providein a supporting statement for this line are used only for purposes ofdefining each straddle, and not for determining any gain or loss.

Section A—Losses from Straddles. Report in this section only straddles, in-cluding mixed straddles, that result in a loss for the tax year.

10 Itemize losses from straddles. (Supported by the Losses from Strad-dles Worksheet, Figure Prem-10.) Report on the supporting work-sheets all straddles resulting in a loss except those to be reportedon Form 4797 (as described previously).

11a Short-term portion of losses from line 10(h). (auto-calc) Computedas the sum of line (h) from all worksheets for line 10 identified asshort-term losses.

11b Long-term portion of losses from line 10(h). (auto-calc) Computedas the sum of line (h) from all worksheets for line 10 identified asLong-term losses, this is the total loss recognized for the tax year.

28% rate loss in line 11b. (auto-calc) Computed as the sum of “Lossfrom collectibles” from all worksheets for line 10 identified as Long-term losses. This loss can offset gains that are taxed at a 28% rate.

Itemize losses for Form 4797 here and report on a worksheet at Form4797, line 10. You must separately report here losses that must bereported on Form 4797 instead of Schedule D, as detailed in theshaded paragraph above. You must also report the loss on a work-sheet for line 10 of Form 4797; posting to Form 4797 is not auto-matic.


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Losses from StraddlesWorksheet. (FigurePrem-10) This work-sheet supports line 10of Form 6781.

a. Description ofproperty. En-ter propertydescription,delivery date,and whetherit is a long orshort posi-tion. Althoughwe allow theentry of 35 characters here because it is accommodated by the IRSfor an e-filed return, the IRS provides space for only 18 characterson a paper Form 6781, so keep your entry short for a paper return.

b. Date entered into or acquired. Enter the date in the standardmo/dy/year format. The software will shorten it to a xx/xx/xx for-mat in order to fit on the printed form.

c. Date closed out or sold. Enter the date in the standard mo/dy/yearformat, as above.

Qualifies as long-term? Qualification for long-term treatment ofstraddles is not always clear from the dates. You must therefore de-termine qualification from IRS Pub. 550 and Temporary Regulationssection 1.1092(b)-2T and answer this question appropriately.

d. Gross sales price. Enter the closing price or sales price.Cost or other basis. Enter as indicated.Expense of sale. Enter expenses including commissions paid andnondeductible interest or carrying charges for personal property thatis part of a straddle.

e. Cost or other basis plus expense of sale. (auto-calc) Computed asthe sum of the preceding two lines.

Prior unallowed loss. Make an entry here for a loss not allowed in theprior year, only to the extent of the unrecognized gain for the position.

f. Loss. (auto-calc) Computed as (e) less (d), but no less than zero, plusthe prior loss on the preceding line.

g. Unrecognized gain on offsetting positions. Enter the unrecognizedgain on positions offsetting those reported on this worksheet. SeeIRS instructions for details.

h. Recognized loss. (auto-calc) Computed as (f) less (g), but no lessthan zero.

Loss from collectibles. Enter only the loss for collectibles, gains forwhich are taxed at a 28% tax rate.

LOSSES FROM STRADDLESLOSSES FROM STRADDLESLOSSES FROM STRADDLESLOSSES FROM STRADDLES a. Description of property.. a. Description of property.. a. Description of property.. a. Description of property..

(only 18 long if paper return) (only 18 long if paper return) (only 18 long if paper return) (only 18 long if paper return) b. Date entered into or acq b. Date entered into or acq b. Date entered into or acq b. Date entered into or acq c. Date closed out or sold c. Date closed out or sold c. Date closed out or sold c. Date closed out or sold Qualifies as long-term...? No Qualifies as long-term...? No Qualifies as long-term...? No Qualifies as long-term...? No d. Gross sales price........ 0 d. Gross sales price........ 0 d. Gross sales price........ 0 d. Gross sales price........ 0 Cost or other basis.. 0 Cost or other basis.. 0 Cost or other basis.. 0 Cost or other basis.. 0 Expense of sale...... 0 Expense of sale...... 0 Expense of sale...... 0 Expense of sale...... 0 e. Cost or other basis plus. e. Cost or other basis plus. e. Cost or other basis plus. e. Cost or other basis plus.▒ 0▒ 0▒ 0▒ 0 Prior unallowed loss. 0 Prior unallowed loss. 0 Prior unallowed loss. 0 Prior unallowed loss. 0 f. Loss..................... f. Loss..................... f. Loss..................... f. Loss.....................▒ 0▒ 0▒ 0▒ 0 g. Unrec gain on offset posn 0 g. Unrec gain on offset posn 0 g. Unrec gain on offset posn 0 g. Unrec gain on offset posn 0 h. Recognized loss.......... h. Recognized loss.......... h. Recognized loss.......... h. Recognized loss..........▒ 0▒ 0▒ 0▒ 0 Loss from collectibles 0 Loss from collectibles 0 Loss from collectibles 0 Loss from collectibles 0

Figure Prem-10. Losses from Straddles

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Forms 6781

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Section B—Gains from Straddles. Report in this section only straddles, in-cluding mixed straddles, that result in a gain for the tax year.

12 Itemize gains from straddles. (Supported by the Gains from Strad-dles Worksheet, Figure Prem-11.) Report on the supporting work-sheets all straddles resulting in a gain except those to be reportedon Form 4797 (as described previously).

13a Short-term portion of gains from line 12(f). (auto-calc) Computed asthe sum of line (f) from all worksheets for line 12 identified asshort-term gains.

13b Long-term portion of gains from line 12(f). (auto-calc) Computed asthe sum of line (f) from all worksheets for line 12 identified as Long-term gains, this is the total gain recognized for the tax year.

28% rate gain in line 13b. (auto-calc) Computed as the sum of “Gainfrom collectibles” from all worksheets for line 12 identified as Long-term gains. This gain is taxed at a 28% rate.

Itemize gains for Form 4797 here and report on a worksheet at Form4797, line 10. You must separately report here gains that must bereported on Form 4797 instead of Schedule D, as detailed in theshaded paragraph on the page before last. You must also report thegain on a worksheet for line 10 of Form 4797; posting to Form4797 is not automatic.

Gains from StraddlesWorksheet. (FigurePrem-11) This work-sheet supports line 12of Form 6781.

a. Description ofproperty. De-scribe thepropertyalong withthe deliverydate andwhether it isa long or

short position. CAUTION: We allow the entry of 35 characters herebecause it is accommodated by the IRS for an e-filed return. How-ever, the IRS provides space for only 18 characters on a paper Form6781, so you must keep your entry short for a paper return.

b. Date entered into or acquired. Enter the date in the standardmo/dy/year format. The software will shorten it to a xx/xx/xx for-mat in order to fit on the printed form.

c. Date closed out or sold. Enter the date in the standard mo/dy/yearformat, as above.

Qualifies as long-term? Unlike normal sales, qualification for long-term treatment is not always clear from your date entries. You must

GAINS FROM STRADDLESGAINS FROM STRADDLESGAINS FROM STRADDLESGAINS FROM STRADDLES a. Description of property.. a. Description of property.. a. Description of property.. a. Description of property..

(only 18 long if paper return) (only 18 long if paper return) (only 18 long if paper return) (only 18 long if paper return) b. Date entered into or acq b. Date entered into or acq b. Date entered into or acq b. Date entered into or acq c. Date closed out or sold c. Date closed out or sold c. Date closed out or sold c. Date closed out or sold Qualifies as long-term...? No Qualifies as long-term...? No Qualifies as long-term...? No Qualifies as long-term...? No d. Gross sales price........ 0 d. Gross sales price........ 0 d. Gross sales price........ 0 d. Gross sales price........ 0 Cost or other basis.. 0 Cost or other basis.. 0 Cost or other basis.. 0 Cost or other basis.. 0 Expense of sale...... 0 Expense of sale...... 0 Expense of sale...... 0 Expense of sale...... 0 e. Cost or other basis plus. e. Cost or other basis plus. e. Cost or other basis plus. e. Cost or other basis plus.▒ 0▒ 0▒ 0▒ 0 f. Gain..................... f. Gain..................... f. Gain..................... f. Gain.....................▒ 0▒ 0▒ 0▒ 0 Gain from collectibles 0 Gain from collectibles 0 Gain from collectibles 0 Gain from collectibles 0

Figure Prem-11. Gains from Straddles


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therefore determine qualification yourself and answer this questionappropriately. See IRS Pub. 550 and Temporary Regulations section1.1092(b)-2T for information on holding periods that qualify forlong-term treatment for straddles.

d. Gross sales price. Enter the closing price or sales price.Cost or other basis. Enter as indicated.Expense of sale. Enter expenses including commissions paid andnondeductible interest or carrying charges for personal property thatis part of a straddle.

e. Cost or other basis plus expense of sale. (auto-calc) Computed asthe sum of the preceding two lines.

f. Gain. (auto-calc) Computed as (d) less (e), but no less than zero.Gain from collectibles. Enter only the gain for collectibles, which aretaxed at a 28% tax rate.

PART III, UNRECOGNIZED GAINS FROM POSITIONS HELD ON LAST DAY OFTAX YEAR. The part is used as a memorandum to the IRS, and does not oth-erwise affect the return. You are required to use this part only if you have arecognized loss on some position (including regulated futures contracts).

14 Itemize unrecognized gains. (Supported by the Unrecognized GainsWorksheet, Figure Prem-12.) You must generally list all positions heldat the end of the tax year for which the fair market value (FMV) ex-ceeds your adjusted basis. See IRS instructions for exceptions.

Itemize here to file additional information. Itemize this line to pro-vide any other memorandum-type information to the IRS.

Unrecognized GainsWorksheet. (FigurePrem-12) Report onlyunrecognized gains forpositions held at year-end for which the FMVexceeds your basis.

a. Description ofproperty. De-scribe the po-sition in 25 characters or less.

b. Date acquired. Enter the date in the standard mo/dy/year format.The software will shorten it to a xx/xx/xx format in order to fit onthe printed form.

c. FMV on last business day of tax year. Enter the fair market value asindicated.

d. Cost or other basis as adjusted. Enter the adjusted basis for the po-sition.

e. Unrecognized gain. (auto-calc) Computed as (c) less (d), but no lessthan zero.

UNRECOGNIZED GAINSUNRECOGNIZED GAINSUNRECOGNIZED GAINSUNRECOGNIZED GAINS a. Description of property..: a. Description of property..: a. Description of property..: a. Description of property..:

(only 25 long if paper return) (only 25 long if paper return) (only 25 long if paper return) (only 25 long if paper return) b. Date entered into or acq b. Date entered into or acq b. Date entered into or acq b. Date entered into or acq c. FMV on last bus day of yr 0 c. FMV on last bus day of yr 0 c. FMV on last bus day of yr 0 c. FMV on last bus day of yr 0 d. Cost or other basis adj�d 0 d. Cost or other basis adj�d 0 d. Cost or other basis adj�d 0 d. Cost or other basis adj�d 0 e. Unrecognized gain......... e. Unrecognized gain......... e. Unrecognized gain......... e. Unrecognized gain.........▒ 0▒ 0▒ 0▒ 0

Figure Prem-12. Unrecognized Gains

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Posting to Schedule D. This section summarizes the automatic posting of re-sults on Form 6781 to Schedule D. Posting for Form 1065 returns differsfrom that for Form 1040 returns because of the special instructions for part-nerships in Part I of Form 6781.

Posting for Form 1040 returns:Amount from Parts I and II for Schedule D, line 4(f). (auto-calc) Com-

puted as the combination of lines 8, 11a(h), and 13a(f), this is thenet short-term gain or loss for the entire year.

Amount from Parts I and II for Schedule D, line 11(f). (auto-calc) Com-puted as the combination of lines 9, 11b(h), and 13b(f), this is thenet long-term gain or loss for the entire year.

28% rate amount for Schedule D, Part II. (auto-calc) Computed as thecombination of lines 11b(i), and 13b(g), this is the net 28% rategain or loss.

Posting for Form 1065 returns:Amount from Part I does not appear here. Part I, line 5 is posted direct-

ly to line 11 of Schedule K (Form 1065), and is not shown here.Amount from Part II for Schedule D, line 1(f). (auto-calc) Computed as

the combination of 11a(h) and 13a(f), this is the net short-term gainor loss for the entire year reported in Part II.

Amount from Part II for Schedule D, line 6(f). (auto-calc) Computed asthe combination of lines 11b(h) and 13b(f), this is the net long-termgain or loss for the entire year reported in Part II.

28% rate amount for Schedule D, Part II. (auto-calc) Computed as the“28% rate gain in line 13b” less “28% rate loss in line 11b,” this isthe net 28% rate gain or loss (collectibles gain or loss).



Form 8271

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Form 8271 / Investor Reporting of Tax Shelter RegistrationNumber

Purpose. This form is used to report the registration number of any tax shel-ters for which you are reporting any transactions on your return for the year..For Form 1040 software, Form 8271 is accessible through the Road Mapabove line 27 in Part II of Schedule E.

All information is supplied on supporting worksheets. The form is comprisedentirely of a table listing the tax shelters you are reporting. It is completedfrom information on worksheets you complete for the sole line on the form:

Number of shelters reporting. (Supported by the Tax Shelter Registra-tion Worksheet, Figure Prem-13.) The number of shelters you prop-erly identify in the supporting worksheets for this line appears here.

Tax Shelter Registration Worksheet, Figure Prem-13. You must identify ALLtax shelters on your return, whether or not you are reporting a loss.

a. Tax Shelter Name. En-ter the name in 30characters or less.

b. Tax Shelter RegistrationNumber (11-digit). Thetax shelter registrationnumber is an 11-digitnumber assigned by theIRS. If you have nonumber, skip this lineand see the questionsbelow line c.

c. Tax Shelter Identifying Number. This is the 9-digit tax ID number forthe shelter.

If no number for b, choose: There are only two allowed reasons for notentering the registration number.

No notification. Answer Yes if you have not been notified of the TaxShelter Registration Number. If you answer Yes, line b will be filledwith the phrase “No notification.”

Applied for. Answer Yes if you have been notified that the registra-tion number has been applied for but not yet received. If you an-swer Yes, line b will be filled with the phrase “Applied for” and youmust also complete the next line.

If applied for, by whom? Enter the name of the person who has ap-plied for the registration (in 30 characters or less). This name will beprinted on the official Form 8271 below column b of the chart underan appropriate heading.


TAX SHELTER REGISTRATIONTAX SHELTER REGISTRATIONTAX SHELTER REGISTRATIONTAX SHELTER REGISTRATION a. Tax Shelter Name..........: a. Tax Shelter Name..........: a. Tax Shelter Name..........: a. Tax Shelter Name..........:

b. Tax Shelter Reg.No(11-dig) b. Tax Shelter Reg.No(11-dig) b. Tax Shelter Reg.No(11-dig) b. Tax Shelter Reg.No(11-dig) c. Tax Shelter Identifying No c. Tax Shelter Identifying No c. Tax Shelter Identifying No c. Tax Shelter Identifying NoIf no number for b,choose:If no number for b,choose:If no number for b,choose:If no number for b,choose: No notification.........? No No notification.........? No No notification.........? No No notification.........? No Applied for.............? No Applied for.............? No Applied for.............? No Applied for.............? No If applied for, by whom?: If applied for, by whom?: If applied for, by whom?: If applied for, by whom?:

Figure Prem-13. Tax Shelter RegistrationWorksheet

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Form 8332

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Form 8332 / Release of Claim to Exemption for Child of Di-vorced or Separated Parents

Purpose. This form is used to justify a dependent exemption by a noncusto-dial parent (at line 6c of Form 1040). The noncustodial parent must file thisform, signed by the custodial parent, every year he or she claims the exemp-tion. (The noncustodial parent who claims the exemption must still meet allother requirements for an exemption; only the custody requirement is ex-cepted by this signed release.) Form 8332 is accessible through the RoadMap below line 6d of our Form 1040.

Paper Form 8453 required for e-file. For any return that requires the filing ofForm 8332, you must file a paper Form 8453 with the signed paper Form8332 attached. Electronic PIN signatures are not allowed in this case.

Copy number (1 through 5). (auto-calc) The is the copy you selected whenyou entered the form. Although you can use one Form 8332 for more thanone child, you must file a separate Form 8332 for each different custodialparent releasing a claim. Five copies of the form are built into the software.

Is spouse the claiming parent? For a joint return you must identify whichspouse is the parent of the child.

PART I, RELEASE OF CLAIM TO EXEMPTION FOR CURRENT YEAR. The cus-todial parent must sign this part of the form, whether or not Part II is used.

Name(s) of child (or children). Enter as many children as apply to thecustodial parent for this copy of Form 8332. Two 25-character en-try lines are provided to fill the 50-character space on the IRS form.

Itemize more names here. If the 50-character space on the form is not suf-ficient, itemize here to supply more names. The supporting statementwill be printed with the official return and cross-referenced on the form.

The release is for tax year.... (auto-calc) Taken from Form 1040, this isthe current year for the purposes of this form.

Custodial parent’s SSN. This is a required entry, which allows the IRSto confirm that the custodial parent has not taken the exemption.

Date signed. Enter the date the custodial parent is signing the officialprinted Form 8332. (You can leave this entry blank and let the cus-todial parent enter the date when he or she signs.)

PART II, RELEASE OF CLAIM TO EXEMPTION FOR FUTURE YEARS. The cus-todial parent need sign this section only if releasing the claim for the future.

Does the above apply to other years? If you answer Yes, Part II will befilled with the same information as above.

Applicable years. If you answered Yes to the preceding question, enterthe specific years here. If the release is granted for all future years,you can enter the phrase “all future years” instead.



Forms 8379

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Form 8379 / Injured Spouse Claim and Allocation

Purpose. This form is used by joint filers so that one of the filers can ensurethat his or her part of any refund is not applied to liabilities of the otherspouse. Liabilities that apply include past-due Federal debt, child support, ali-mony, or state income tax. Form 8379 is accessible only from the FormsMenu, and does not affect any results on the return.

When do you file Form 8379. For quickest relief you can file Form 8379 withthe original return to which it applies. If you do so, you should write “InjuredSpouse” on the upper-left corner of the Form 1040 that you file. You canalso file Form 8379 by itself after filing your return, sending it to the IRSService Center that applied when you filed the return. You should also fileForm 8379 anytime you file an amended return, so that any revised refund isproperly allocated among the spouses.

What is an injured spouse? In the context of this form the injured spouse isthe spouse whose refund would be applied (or expected to be applied) by theIRS to reduce the other spouse’s past-due debt if this form were not filed.However, unless you live in a community property state, at least some of thenet income and tax payments on the return must be attributable to you in or-der for any of the refund to be allocated to you. The portion of the refundthat is allocable to you is not offset by the other spouse’s past-due amountsif you file a properly completed Form 8379 with the return.

Answer for INJURED spouse. You will identify the injured spouse later, butyou must first determine your qualification to use this form.

Filing (or filed) a joint return? (auto-calc) Answer Yes only if the filingstatus you entered on Form 1040 is married filing jointly. You can-not file this form if the answer is No.

Required to pay past-due amounts? If Yes, you cannot file this form.Main home in any of the below states ANYTIME in the tax year? You

must answer Yes to all states that apply for tax year 2006:Arizona, AZ? Louisiana, LA? Texas, TX?California, CA? Nevada, NV? Washington, WA?Idaho, ID? New Mexico, NM? Wisconsin, WI?

IRS will allocate per State Law. (auto-calc) If you answered Yes to ANYof the above states, the IRS will allocate the refund in accordancewith state law. Otherwise you must supply a detailed allocation ofincome and payments in Part II of this form.

Reported income on the return? Unless living in a community propertystate, you must have contributed at least some income on the re-turn, such as wages or interest income.

Made and reported payments on the return? Unless living in a commu-nity property state, you must have contributed at least some pay-ments, such as withholding from wages or estimated tax payments,or claimed a refundable credits, below.

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Claimed any refundable credit? Refundable credits include the earnedincome and the additional child tax credit. Unless living in a com-munity property state, you must be able to answer Yes to this ques-tion or the preceding one.

Qualified for this form. (auto-calc) Joint filing is always required forqualification. Beyond that, if you answered Yes to any of the com-munity property sates, you only need to be able to answer No to“Required to pay past-due amounts.” But if no community propertystate applies, you must also be able to answer Yes to “Reported in-come on the return?” and at least one of the preceding two ques-tions. If the answer is No, you cannot use this form.

PART I, INFORMATION ABOUT THE JOINT RETURN FOR WHICH THIS CLAIMIS FILED. All taxpayers must complete this part, whether you live in a com-munity property state or not. You must identify the injured spouse here andsupply other information about the return.

1 Name of 1st spouse. (auto-calc) Taken from Form 1040, this is thename of the principal spouse (the spouse listed first on the return),reformatted for e-file when necessary.

Is this the injured spouse? Answer Yes only if this form is beingcompleted so that some of the refund will be allocated to thisspouse and will not be reduced by the other’s spouse’s past-duedebts. The remainder of the form is based on this answer.

Name of 2nd spouse. (auto-calc) Taken from Form 1040, this is thename of the secondary spouse, reformatted for e-file when neces-sary.

Is this the injured spouse? (auto-calc) Automatically the opposite ofthe answer for the other spouse.

Filing this form by itself? If you answer Yes, lines 2, 3 and 4 apply.Otherwise you can skip to line 5.

2 Tax year for this claim. (auto-calc) Taken from Form 1040, this is thecurrent tax year for the purposes of this form.

Current home different from return? Answer Yes and complete thefollowing lines if your current address is different from the one onyour tax return.

If so, enter new address. Your entries are required in this sectionwhen the preceding answer is Yes, and no other address will beprinted on the form.

3 Current home address. (auto-calc) If you are NOT filing this form byitself, this section will remain blank. Otherwise, if you answered Yesto “Current home different from return?” at line 2, the address willbe taken from your preceding entries; if you answered No the ad-dress will be taken from your entries on Form 1040.

4 Is the address on your joint return different from the address shownabove? (auto-calc) Answered Yes if you answered Yes to “Currenthome different from return?” at line 2 and are filing the form by itself.


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5 Are you divorced or separated from the spouse with whom you filedthe joint return and want your refund issued in your name only? Ifyou answer Yes, the IRS will issue separate refund checks for youand spouse, each in your own name.

6 Was your main home in a community property state at any time dur-ing the year? (auto-calc) Answered Yes if you answered Yes for anyof the community property states shown on the first screen of Form8332. If Yes, the IRS will allocate the refund in accordance withstate law. Otherwise you must supply a detailed allocation of in-come and payments in Part II of this form.

PART II, ALLOCATION BETWEEN SPOUSES OF ITEMS ON THE JOINT TAXRETURN. You need not complete this part if you live in a single communityproperty state all year because the IRS will allocate the refund based on statelaw. Otherwise you should make any adjustments that are necessary to makeaccurate the allocations of income and payments. IMPORTANT: In your dataentry for this section, keep in mind that the “2nd spouse” is always thespouse listed second on Form 1040 and line 1 of this form. The amounts willbe printed in the proper columns (“injured spouse” vs. “other spouse”) of theofficial Form 8332 irrespective of which spouse is consider “2nd" here.

7 Income. You must allocate all income you reported on lines 7 through 22 ofForm 1040. The software automatically allocates income for which thespouse’s part has already been identified on our Form 1040, but you mustallocate all other income here.

a Wages (Form 1040, line 7). (auto-calc) Taken from Form 1040 as indi-cated, this is the total wages reported on the return.Allocated to 2nd spouse. (auto-calc) This is the part of Form 1040,line 7, identified as “spouse’s” on the return.

b All other income. (auto-calc) Taken from Form 1040, this is the totalincome on line 22 of Form 1040 less the amount from line 7 ofForm 1040. IMPORTANT: This total must be allocated by categoryin the remaining lines of this screen.

Business and farm income. (auto-calc) Taken from Form 1040, this isthe sum of lines 12 and 18 of that form (income from Schedule Cand Schedule F).Allocated to 2nd spouse. (auto-calc) This is the part of the preced-ing amount identified as “spouse’s” on the return.

IRAs, pensions, and annuities. (auto-calc) Taken from Form 1040,this is the sum of lines 15b and 16b of that form (taxable amountof distributions from IRAs, pensions, and annuities).Allocated to 2nd spouse. (auto-calc) This is the part of the preced-ing amount identified as “spouse’s” on the return.

Remaining lines must allocate all other income. The remaining incometo be allocated is the total at line 7b, above, less the preceding totalsfor lines 12, 15b, 16b, and 18 of Form 1040. You must group this re-

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maining income into no more than four categorize in the four 3-line setsthat follow. Each 3-line set follows the same format:

Describe income. Describe the income for this category in 25 charac-ters or less. For a paper return you can supply additional details in asupporting statement for this line (which is accessible with the F10key), but this additional information is ignored in an e-file return.Total for this category. Enter the amount for this category. For thelast 3-line set, this line is an auto-calc line that reflects the remain-ing amount not previously allocated. You must therefore describe allremaining income on the last “Describe income” line.Allocated to 2nd spouse. Enter the part of the preceding total that isattributable to the 2nd spouse.

8 Adjustments to Income. You must allocate all adjustments you included inline 36 of Form 1040. The software automatically allocates adjustments forwhich spouse’s part has already been identified on the return, but you mustallocate all other adjustments in the sole data entry line for this section.

Half of self-employment tax (Form 1040, line 27). (auto-calc) Taken fromForm 1040 as indicated, this is the self-employment deduction foryou and spouse.Allocated to 2nd spouse. (auto-calc) This is the part of Form 1040,line 27, identified as “spouse’s” based on the Schedule(s) SE for thereturn.

Self-employed SEP, SIMPLE, etc. (Form 1040, line 28). (auto-calc) Takenfrom Form 1040 as indicated, this is the total deduction for contri-butions to self-employed SEPs, SIMPLEs, and qualified plans for youand spouse.Allocated to 2nd spouse. (auto-calc) This is the part of Form 1040,line 28, identified as “spouse’s” on the return.

IRA deduction (Form 1040, line 32). (auto-calc) Taken from Form 1040as indicated, this is the total IRA deduction for you and spouse.Allocated to 2nd spouse. (auto-calc) This is the part of Form 1040,line 32, identified as “spouse’s” on the return.

Other adjustments (Form 1040, line 23 through 36). (auto-calc) Takenfrom Form 1040, this is the total on line 36 of Form 1040 less theamounts already allocated, lines 27, 28, and 32.Allocated to 2nd spouse. Enter the part of Form 1040 lines 23through 26, 29 through 31a, and 33 through 35, and the “write-in”amounts for line 36 attributable to the 2nd spouse.

TOTAL ADJUSTMENTS FOR LINE 8. (auto-calc) Computed as the sum ofthe preceding four totals.

9 through 10, Deductions and Exemptions. You must allocate itemized deduc-tions, if applicable, and exemptions here.

9 Standard or itemized deduction. (auto-calc) Taken from Form 1040,line 40.

Itemized deductions used. (auto-calc) Answered Yes only if deduc-tions from Schedule A are used for Form 1040, line 40.


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If Yes, 2nd spouse’s part. If itemized deductions are used, you mustenter here the part of line 9 that is attributable to the 2nd spouse.Is spouse 65 or older? (auto-calc) Taken from Form 1040.Is spouse blind? (auto-calc) Taken from Form 1040.

Allocated to 2nd spouse. (auto-calc) If itemized deductions are usedthe preceding entry is used here. Otherwise the spouse’s part of thestandard deduction is computed as half the base standard deduction($5,300 for 2006) plus $1,000 each for any age or blind exemptionfor the spouse (shown on the preceding two lines).

10 Number of exemptions Itemized deductions. (auto-calc) Taken fromForm 1040, line 6d, this is the total number of exemptions claimed.Allocated to 2nd spouse. You must enter here as a whole numberthe part of line 10 that is attributable to the 2nd spouse. Fractionalamounts are not allowed, even when a child is parented by bothspouses. You should enter the number that would apply if you andspouse had filed separate returns.

11 Credits. You must allocate here the credits included in line 56 of Form1040 and the additional child tax credit on line 68 of Form 1040.

Child tax credit. (auto-calc) Taken from Form 1040, line 53.Allocated to 2nd spouse. You must enter here only the part of thepreceding total that is attributable to children for whom the 2ndspouse claimed the exemption in line 11.

Credit for child and dependent care expenses. (auto-calc) Taken fromForm 1040, line 48.Allocated to 2nd spouse. You must enter here only the amount at-tributable to dependents for whom the 2nd spouse claimed the ex-emption in line 11.

Business credits. (auto-calc) Taken from Form 1040, line 55.Allocated to 2nd spouse. Enter the part of Form 1040, line 55, at-tributable to businesses of the 2nd spouse.

Other credits in Form 1040, line 56. (auto-calc) Computed as Form1040, line 56, less the totals for lines 48, 53, and 55.Allocated to 2nd spouse. You must enter here the part of the pre-ceding balance attributable to the 2nd spouse.

Additional child tax credit. (auto-calc) Taken from Form 1040, line 68.Allocated to 2nd spouse. You must enter here the part of the pre-ceding total that is attributable to children claimed by the 2ndspouse. (For dependent children, the children must have been at-tributed to the 2nd spouse in the exemption claim at line 10.)

TOTAL CREDITS FOR LINE 11. (auto-calc) Computed as the sum of allpreceding totals for line 11, which is the sum of lines 56 and 68 ofForm 1040.

12 Other taxes. You must allocate here taxes other than the regular tax.Self-employment tax. (auto-calc) Taken from Form 1040, line 58.

Allocated to 2nd spouse. (auto-calc) This is the part of Form 1040,line 58, identified as “spouse’s” on the return.

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Alternative minimum tax. (auto-calc) Taken from Form 1040, line 45.Allocated to 2nd spouse. You must enter here the part of the pre-ceding AMT attributable to the 2nd spouse. The IRS provides noguidance for this entry, so you can allocate it as you determine.

Other taxes. Enter any other taxes that must be allocated.Allocated to 2nd spouse. Enter here the part of the preceding totalthat is attributable to the 2nd spouse.

TOTAL CREDITS FOR LINE 12. (auto-calc) Computed as the sum of thepreceding total self-employment tax, AMT, and other taxes.

13 Federal income tax withheld. You must allocate here withholding reportedthroughout the return.

Withholding on Forms W-2. (auto-calc) Taken from the W-2 Worksheetsfor lines 7a and 7b of Form 1040.Allocated to 2nd spouse. (auto-calc) Taken from the W-2 Work-sheets for line 7b of Form 1040.

Withholding on Forms W-2G. (auto-calc) Taken from the W-2G Work-sheets for line 21 of Form 1040.Allocated to 2nd spouse. Enter the amount on Forms W-2G for the2nd spouse.

Withholding on Forms 1099-R. (auto-calc) Taken from the 1099-RWorksheets for lines 15a and 16a of Form 1040.Allocated to 2nd spouse. Enter the amount on Forms 1099-R for the2nd spouse.

Withholding on Forms 1099-DIV and 1099-INT. (auto-calc) Taken fromthe 1099-INT and 1099-DIV Worksheets for lines 1 and 5 of Sche-dule B, respectively.Allocated to 2nd spouse. Enter the amount on Forms 1099-DIV and1099-INT for the 2nd spouse.

Withholding on Forms 1099-G. (auto-calc) Taken from the 1099-Gwithholding entered above line 19 of Form 1040.Allocated to 2nd spouse. Enter the amount on Forms 1099-G for the2nd spouse.

Withholding on Forms SSA-1099. (auto-calc) Taken from the SSA-1099withholding entered above line 20b of Form 1040.Allocated to 2nd spouse. Enter the withholding on Forms SSA-1099and RRB-1099 for the 2nd spouse.

Other withholding in Form 1040, line 64. (auto-calc) Taken from the line“Fed withholding not elsewhere” above line 64 of Form 1040.Allocated to 2nd spouse. Enter the part of the preceding line attrib-utable to the 2nd spouse.

Excess social security or RRTA tax. (auto-calc) Taken from Form 1040,line 67.Allocated to 2nd spouse. Enter the part of excess withholding forsocial security or tier 1 RRTA tax attributable to the 2nd spouse.

TOTAL WITHHOLDING FOR LINE 13. (auto-calc) Computed as the sum ofall preceding withholding (the sum of lines 64 and 67 of Form 1040).


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14 Payments. You must allocate here payments in line 72 of Form 1040 thathave not been allocated in the preceding lines.

Estimated tax payments. (auto-calc) Taken from Form 1040, line 65.Allocated to 2nd spouse. Enter the part of estimated tax paymentsmade based on income attributable to the 2nd spouse.

Other payments. You must generally include here only payments re-ported on Form 1040 lines 69, 70, 71, and the special line aboveline 72.Allocated to 2nd spouse. Enter the part of the preceding amount at-tributable to the 2nd spouse.

TOTAL PAYMENTS FOR LINE 15. (auto-calc) Computed as the sum ofthe preceding two totals for estimated tax and other payments.

Remainder of Part II is fully automatic. The remaining screens of Form 8379show how the preceding entries are reformatted for use in Part II of the offi-cial printed Form 8379:

7b categories for Summary. (auto-calc lines) The IRS Form 8379 pro-vides space for 8 categories for line 7b. The categories shown hereare based on the nonzero entries that appear on screen 4. They areprinted in Part II of Form 8379 to correspond with the amountsshown in the following two summaries. (The totals on screens 4through 8 of Form 8379, for lines 7 through 14 of the form, areprinted in column (a) of Part II of Form 8379.)

Summary for Injured Spouse. (auto-calc lines) The amounts you allo-cated to the injured spouse appear here, and are printed in column(b) of Part II of Form 8379. (You identified which spouse is the in-jured spouse on screen 1 of Form 8379.)

Summary for Other Spouse. (auto-calc lines) The amounts you allo-cated to the other spouse appear here, and are printed in column (c)of Part II of Form 8379.

PART III, SIGNATURE. The injured spouse and paid preparer need to sign theofficial printed Form 8379 only if the form is being filed by itself and not withthe joint return to which it relates.


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Form 8396

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Form 8396 / Mortgage Interest Credit

Purpose. This form is used to figure a credit for mortgage interest for thosewho were issued a qualified Mortgage Credit Certificate (MCC) by their stateor local government agency. The certificate is issued to low-income home-buyers under a program to help them afford home ownership. The federalcredit is a form of mortgage subsidy, which gives the homebuyer a substan-tial credit for interest paid during the year. The credit is nominally the creditrate on the certificate (from 10% to 50%) times the interest paid for the taxyear. However, the credit is limited to $2,000 if the rate on the certificateexceeds 20%. (You are subject to a recapture of the credit when you sell thehome. The recapture is figured on Form 8828, which is also built into thesoftware.) Form 8396 is accessible through the Road Map at line 54a ofForm 1040 as well as our special line above line 10 of Schedule A.

CAUTION: Federal certificates do not qualify. This credit is only for taxpay-ers who were issued a qualified Mortgage Credit Certificate (MCC) by theirstate or local government agency. Certificates issued by the Federal HousingAdministration, Department of Veteran Affairs, or Farmers Home Administra-tion do not qualify you for the credit, nor do Homestead Staff Exemption Cer-tificates.

Identification of the Home and Mortgage Credit Certificate. To qualify, thehome must be your main home and must be located in the jurisdiction of thestate or local government that issued the Mortgage Credit Certificate. If theaddress you entered on Form 1040 is a street address for the same home,you do not need to enter it again here. However, if the address on Form1040 is a P.O. box or a different location from the home to which the certifi-cate applies, you must enter the street address for the home below.

Address on Form 1040:Mailing address (auto-calc) Taken from your entry on Form 1040.City, State. (auto-calc) Taken from your entry on Form 1040.ZIP code. (auto-calc) Taken from your entry on Form 1040.

Enter below the address of your main home to which the qualifiedmortgage certificate relates ONLY if different from ABOVE:

Street address. If different from the address on Form 1040, enter thestreet address for the property here in 35 characters or less.

City. Enter the city in 25 characters or less. (For e-file, only the first22 characters are accepted by the IRS.)

State. Enter the 2-character state code.ZIP code. Enter the ZIP code in the standard xxxxx-xxxx format.

Mortgage Credit Certificate:Name of Issuer. Identify the issuing agency in 35 characters or less.Certificate number. Enter the number on the Mortgage Credit Certifi-cate, which should be no more than 25 characters in length.

Issue Date (mm-dd-yyyy). Enter the date of issue in the standardformat for dates.


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PART I, CURRENT YEAR MORTGAGE INTEREST CREDIT. The credit availablefor the current tax year is computed here, including carryovers from prioryears. (Only carryovers from the prior 3 years are allowable.)

1 Interest paid on certified indebtedness amount. You will generally en-ter the interest you paid during the tax year as shown in box 1 ofthe Form 1098 or similar statement you receive from the lender.However, if someone else (other than spouse, if filing jointly) holdsan interest in the property, you must enter only your share of inter-est paid. Moreover, if the loan amount on your MCC is less than theloan amount of your current mortgage, you must enter only the partof interest paid that relates to the lesser amount. See IRS Pub. 530for details.

2 Certificate credit rate shown on your mortgage credit certificate. En-ter the rate shown on your MCC. This is the credit rate for whichyou are eligible, not an interest rate, and will be no less than 10%and no more than 50%.

Special procedure for refinanced mortgage. If you refinanced the mortgageand were reissued an MCC that still qualifies you for the mortgage interestcredit (as detailed in the IRS Instructions for Form 8396), you must follow thespecial procedures outlined here:

For the year of the refinancing. If the reissued MCC carries a differentcertificate rate than the original MCC, you must leave lines 1 and 2 blank andinstead, in a supporting statement for our line “Explain special calc for line 3,”compute line 3 as the sum of two calculations: one for the part of the year towhich the original certificate applies and the other for the part of the year towhich the reissued certificate applies. The total you show in the supportingstatement is carried back to Form 8396 and appears at line 3 in place of anycalculation using lines 1 and 2 of the form.

For all years. Even though the reissued MCC cannot have a credit ratehigher than the original rate in order for you to still qualify for the credit, andeven if the interest rate on the refinanced mortgage is less than the interestrate on the original mortgage, it is possible that the credit you compute at line3 using the new rates could be higher than the credit you would have re-ceived under the original MCC. When this is the case you must override line3 and enter the lesser amount.

Explain special calc for line 3. Use this line only to provide a sup-porting statement in a year of refinancing, as detailed in the shadedbox on this page. When you itemize this line, the total in the sup-porting statement appears here and is used for line 3 in place of thenormal calculation for that line.

Interest held by others (%). If someone else (other than spouse, iffiling jointly) holds an interest in the property, you must enter herethe percentage interest held by all others. Your entry here is usedonly to apply the proper limitation at line 3 when the credit rate online 2 exceeds 20%.

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3 If line 2 is 20% or less, multiply line 1 by line 2. (auto-calc) Normallycomputed as indicated as long as line 2 is 20% or less. If line 2 ismore than 20%, the same computation is used but is limited to nomore than $2,000, or a prorated lesser amount if you made an entryon the line “Interest held by others (%).” However, if you itemized thespecial line “Explain special calc for line 3,” neither computation isused and the result here is taken from your supporting statement forthe special line. The amount of mortgage interest you claim as anitemized deduction on Schedule A cannot include the amount claimedhere. Therefore, the amount on this line is automatically posted aboveline 10 of Schedule A so that the amount you report on Schedule A,line 10 from box 1 of Form 1098 is automatically reduced by thisamount. However, if you deduct the interest you paid on Schedule A,line 11 instead of Schedule A, line 10, you must enter the amountfrom line 3 of Form 8396 on the line above line 11 yourself.

4 2003 credit carryforward from line 18 of your Form 2005 Form 8396.Enter as indicated from your prior-year Form 8396.



7 Add lines 3 through 6. (auto-calc) Computed as indicated.8 Amount from Form 1040, line 46. (auto-calc) Taken from Form 1040 as

indicated, this is your total tax before credits.Form 1040, line 47 through 51. (auto-calc) Taken from Form 1040 asindicated, this is the sum of all credits through Form 1040, line 51.

Credit on Form 1040, line 53*. (auto-calc) Normally taken from Form1040 as indicated, this is amount may be revised if necessary toensure that the sum of the child tax credit on Form 1040 and themortgage interest credit computed on this form is the greatest it canbe. See IRS Pub. 972 for the details of this computation, which thesoftware performs automatically.

Form 5695, line 12 (Form 1040, line 52a). (auto-calc) Taken from thepart of Form 1040, line 52, that stems from line 12 of Form 5695.The part that stems from line 29 of Form 5695 is not included.

9 Form 1040 filers: Total of amounts from Form 1040, lines 47 through51 and line 53 plus any credit from Form 5695, line 12. (auto-calc)Computed as the sum of the preceding three lines, this is the sumof credits that must be applied before the credit on Form 8396 canbe claimed.

10 Subtract line 9 from line 8. (auto-calc) Computed as indicated, this isthe maximum credit available this year.

11 CURRENT YEAR MORTGAGE INTEREST CREDIT. (auto-calc) Com-puted as the lesser of line 7 or line 10.

The result on line 11 is the total credit available this year and is automaticallyposted to line 54a of Form 1040.


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PART II, MORTGAGE INTEREST CREDIT CARRYFORWARD TO 2007. If line 11is less than line 7, you may have a carryforward to 2007.

Carryforward limit (if nonzero). (auto-calc) If the credit rate on line 2is more than 20%, you are subject to the same $2,000 limit (or pro-rated lesser amount) on carryforwards as you are for line 3. If so,the limit will appear here automatically, and the sum of carryoversresulting at lines 16, 18, and 19 is limited to this amount. If zeroappears here you are not subject to a limit. EXCEPTION: If youitemized the special line “Explain special calc for line 3,” no amountwill appear here so you must override this line to enter any limit thatapplies.

12 Add lines 3 and 4. (auto-calc) Computed as indicated.13 Amount from line 7. (auto-calc) Computed as indicated.14 Larger of line 11 or line 12. (auto-calc) Computed as indicated.15 Subtract line 14 from line 13. (auto-calc) Computed as indicated.16 2005 CREDIT CARRYFORWARD TO 2007. (auto-calc) Computed as

the smaller of line 6 or line 15, but no more than any limit shownon the line “Carryforward limit (if nonzero).”

17 Subtract line 16 from line 15. (auto-calc) Computed as indicated.18 2004 CREDIT CARRYFORWARD TO 2007. (auto-calc) Computed as

the smaller of line 5 or line 17, but no more than any limit shownon the line “Carryforward limit (if nonzero)” less the amount on line16.

19 2006 CREDIT CARRYFORWARD TO 2007. (auto-calc) Computed asline 3 less line 11, but no less than zero, but no more than any limitshown on the line “Carryforward limit (if nonzero)” less the amountson lines 16 and 18.

The sum of lines 16, 18, and 19 is the total carryforward to 2007, to be en-tered on lines 5, 4, and 6, respectively, of the 2007 Form 8396.


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Form 8586

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Form 8586 / Low-Income Housing Credit

Purpose. This form is used to claim credit for placing in service a new quali-fied low-income housing building. The credit is claimed over a 10-year period,amounting to as much as 70% of the building’s qualified basis over that time.(in current dollars). In the Form 1040 software, Form 8586 is accessiblethrough the Road Map at line 1e of Form 3800. (In the Form 1065 software,Form 8586 is accessible through the Road Map at a special access line belowline 13 of Schedule K.)

No longer a stand-alone form. Starting tax year 2006, credit from Form 8586can no longer be reported directly on Form 1040. You must claim the creditat line 1e of Form 3800 even if this is the only credit you have to report onForm 3800. As a result, the section for applying a tax limitation to the creditis gone, and the limitation is now applied on Form 3800. Under some circum-stances you may not be required to file Form 8586 to claim the credit: If theonly entries you have on Form 8586 are on lines 4 and 5, you do not have tofile Form 8586 but can instead enter directly on line 1e of Form 3800 theamount of credit and the EIN of the pass-through entity from which you re-ceived the credit you entered on line 4.

Recapture. You may have to pay a recapture tax in the future if, within 15years of the date placed in service, your ownership in the building changes,the basis of the building decreases, or the building fails to meet the minimumset-aside requirements. Recapture is reported on Form 8611, which is alsobuilt into the software.

e-file restricted. Because a copy of Form 8609-A, Annual Statement forLow-Income Housing Credit, must be attached to the return for each propertyclaimed in lines 1 through 3 of Form 8586, and Form 8609-A is not built intothe software, e-file is not allowed if there is any entry on lines 1 through 3. Ifyou must use lines 1 through 3 then you must file a paper return instead.

CURRENT YEAR CREDIT. The full credit is computed on this form before ap-plying any limitations. The tax liability limitations are now always applied onForm 3800, where this credit is claimed for Form 1040 returns. (For partner-ship Form 1065 returns, the credit is passed through to partners via ScheduleK-1, and partners report the credit on their own Form 8586. No tax limita-tions are applied at the partnership level.)

1 Number of Forms 8609-A attached. If you use lines 1 through 3 youmust attach copies of the associated Form 8609-A for each build-ing. You must have a Form 8609 signed by an authorized housingcredit agency official, which you must keep with your records for 3years after the 15-year compliance period ends.

Itemize if multi-building projects. If any Form 8609-A you attach is forbuildings that are part of a multiple building project, you must sup-ply certain information in a supporting statement for this line (not


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line 1). For each multiple building project you must provide thename and address of the project and the total credit claimed for theproject. For each building within the project you must enter itsname and address, building identification number (BIN), and theamount of credit allocated to the building.

2 Has there been a decrease in the qualified basis of any buildingssince the close of the preceding tax year? If Yes, you must enterthe building identification numbers (BINs) of any such buildings onthe following lines:

(i), (ii), (iii), (iv). Use these lines to supply the 9-digit BIN for up to fourbuildings. If you make an entry on any of these lines, the answer toline 2 is forced to be Yes.

Itemize to enter more BINs. If more than four buildings had a de-creased basis, itemize this line to supply the BINs for the buildings.

3 Current year credit from attached Form(s) 8609-A. Enter here the sumof credit on all Form(s) 8609-A that you attach to the return. (Thecredit is figured on these schedules.)

4 Low-income housing credits from pass-through entities. Enter hereany low-income housing credit from a pass-through entity (S corpo-ration, partnership, estate, or trust). If from only one such entity,enter the amount here and the EIN of the entity on the next line.However, if you have credits from more than one entity, enter all in-formation in a supporting statement for this line showing the EINand amount for each such entity. The appropriate amounts areshown as codes A and B in box 13 of Schedule K-1 (Form 1120S),codes A and B in box 15 of Schedule K-1 (Form 1065), box 8 ofSchedule K-1 (Form 1065-B), and code C in box 13 of Schedule K-1(Form 1041).

Part of line 4 under section 42(j)(5). (For Form 1065 returns only) Youmust enter here any amount on line 4 that is reported to you by asection 42(j)(5) partnership. The partnership should tell you with theSchedule K-1 (Form 1065) you receive whether it is a section42(j)(5) partnership. (A partnership is generally treated under sec-tion 42(j)(5) if it has 35 or more partners, where a husband andwife who are partners are together treated as one partner. How-ever, a partnership that exercised a special election within a shortperiod after the enactment of section 42(j)(5) late in 1988 is nottreated under section 42(j)(5).)

5 Add lines 3 and 4. (auto-calc) Computed as indicated, this is the totalcredit before any passive activity or tax limitations are applied.

Part of line 5 under section 42(j)(5). (For Form 1065 returns only;auto-calc) The proper amount is computed as the amount you en-tered for “Part of line 4 under section 42(j)(5)” plus, if the partner-ship for this return is a section 42(j)(5) partnership, the full amounton line 5 less the full amount on line 4. (This partnership is identi-fied below line I of Form 1065, page 1, as a section 42(j)(5) part-

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Form 8586

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nership if at least 35 Schedules K-1 are associated with this returnand the partnership did not elect out of treatment under section42(j)(5).)

Lines 6 and 7 are for estates and trusts only:6 Amount allocated to beneficiaries of the estate or trust.. (auto-calc)

Always zero because it applies only to estates and trusts, not indi-viduals or partnerships.

7 Estates and trusts. Subtract line 6 from line 5. (auto-calc) Always zerobecause it applies only to estates and trusts, not individuals or part-nerships.

In the Form 1040 software, the amount on line 5 is posted to line 1e of Form3800. In the Form 1065 software, the amount on the line “Part of line 6 un-der section 42(j)(5)” is posted to line 15a of Schedule K (Form 1065), andthe remainder of line 6 is posted to line 15b of Schedule K (Form 1065). Ifany of the credit is attributable to additions to qualified basis property placedin service before 1990, you must separately identify the amount attributableto that property, and the amount attributable to property placed in service af-ter 1989, in a supporting statement for line 15a or 15b of each partner’sSchedule K-1. (You cannot add support for these lines at Schedule K becausethese are Road Map lines that access Form 8586.)



Form 8594

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Form 8594 / Asset Acquisition Statement Under Section 1060

Purpose. This form is used to satisfy a reporting requirement when there is atransfer of a group of assets that make up a trade or business and the pur-chaser’s basis in such assets is determined wholly by the amount paid for theassets. In this context, a group of assets makes up a trade or business ifgoodwill or going concern value could attach to such assets. Form 8594must be filed by both the purchaser and the seller with their returns for theyear in which the sale occurred. It must also be filed in any subsequent yearin which there is a change in the purchaser’s cost of the assets or a changein the amount realized by the seller. Although Form 8594 is generally filedwith the tax return of the individuals or entities involved, it is not tied to anyform in the return and does not affect any calculations. It is therefore acces-sible only from the Forms Menu and not through the Road Map.

Classes of assets. The assets that comprise the sale are reported in sevenIRS-defined classes. Common assets that fall into each class are referencedin our instructions that follow, but you should read the IRS Instructions forForm 8594 for more detailed definitions and examples. For the year of thesale you must report in Part II of Form 8594 the part of the sales price thatrelates to each class. In any subsequent year you must report in Part III ofForm 8594 any subsequent change in these allocations.

Identify your role. You must identify your role in the transaction reported onthis form. Answer the first question below and the second question is auto-matically the opposite:

Purchaser. Answer Yes if you are the buyer, No if you are the seller.Seller. (auto-calc) Automatically the opposite of the preceding answer.

PART I, GENERAL INFORMATION. All filers must complete this part. Youmust identify here the sale and the other party in the transaction:

1 Name of other party to the transaction. Enter the name of the otherparty in 35 characters or less.

Other party’s identifying number. If an individual, enter the SSN ofthe individual in the standard xxx-xx-xxxx format. Otherwise enterthe EIN in the standard xx-xxxxxxx format.

Address (number, street, and room or suite no.). Enter the address ofthe other party in 35 characters or less.

City or town. Enter the city or town in 25 characters or less. (For e-file, only the first 22 characters are recognized by the IRS.)


2 Date of sale. Enter the sale date in the standard mo/dy/year format.3 Total sales price. Enter the total consideration transferred for the as-

sets.

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PART II, ASSETS TRANSFERRED. Complete this part only for the first Form8594 that you file for this group of assets.

4 Assets by Class. For each class of assets you must report both thefair market value (FMV) on the sale date and your “allocation ofsales price” (the dollar amount you actually attribute to these assetsin arriving at the total sales price on line 3). The total for “allocationof sales price” should match the total you entered on line 3.

Class I. This class is comprised solely of cash and deposits, but ex-cludes certificates of deposit.

Actual amount. For this class you enter the actual dollar amount be-cause the FMV of cash is always the dollar amount because FMV ismeasured in dollars.

Allocation of sales price. Enter the part of the sales price on line 3that you attribute to assets in this class.

Class II. This class includes actively traded personal property and cer-tificates of deposit. See IRS instructions for examples.

Aggregate FMV. Enter the fair market value on the date of sale for allassets in this class combined.


Class III. This class is comprised of assets that are periodically (at leastannually) marked-to-market by the taxpayer. However, see IRS instruc-tions for details on exclusion of debts to related parties and contingentdebt.



Class IV. This class is comprised of stock in trade and other propertyincludable in inventory.



Class V. The class is comprised of all assets that don’t fall into any ofthe other classes.



Classes VI and VII. These classes comprise intangibles – goodwill andgoing concern value for Class VII and all other intangibles for Class VI.

Aggregate FMV. Enter here the fair market value on the date of salefor all intangible assets combined.

Allocation of sales price. Enter the part of the sales price on line 3that you attribute to intangibles.


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Total Aggregate FMV (actual amount for I). (auto-calc) Computed asthe sum of aggregate FMV for all seven classes combined.

Total Allocation of sales price. (auto-calc) Computed as the sum of al-location of sales price or all seven classes combined, this totalshould match the total you entered for line 3.

Discrepancy with line 3. (auto-calc) Computed as the preceding resultless the amount you entered for “Total sales price” on line 3. A dis-crepancy means that you failed to allocate all sales in line 3 amongthe classes in line 4 and must correct this omission.

5 Did the purchaser and seller provide for an allocation of the salesprice in the sales contract or in another written document signedby both parties? If you answer Yes, you must also answer thesecond question for line 5.

If “Yes,” are the aggregate fair market values (FMV) listed for eachof asset Classes I, II, III, IV, V, VI, and VII the amounts agreed uponin your sales contract or in a separate written document? Your an-swer is printed on the form only if you answered Yes to the firstquestion for line 5.

6 In the purchase of the group of assets (or stock), did the purchaseralso purchase a license or a covenant not to compete, or enter intoa lease agreement, employment contract, management contract, orsimilar arrangement with the seller (or managers, directors, own-ers, or employees of the seller)? Both the purchaser and the sellermust answer this question on their respective Form 8594. See IRSinstructions for details. If you answer Yes, you must itemize thenext line.

If “Yes,” attach a schedule that specifies (a) the type of agreementand (b) the maximum amount of consideration (not including inter-est) paid or to be paid under the agreement. To provide such aschedule itemize this line and enter (a) in the description column and(b) in the amount column for each type of agreement.

PART III, SUPPLEMENTAL STATEMENT. Complete this part only for yearsAFTER the first Form 8594 that you file in order to amend the last Form8594 filed for this group of assets because of a change in consideration.

7 Tax year and tax return form number with which the original Form8594 and any supplemental statements were filed. If you filed onlyone prior Form 8594 for this group of assets, enter the year andform number on this line in the format, such as “1999 Form 1040”or “2003 Form 1065.” If you filed more than one Form 8594 in thepast, list the prior years in the same format in a supporting state-ment for this line, accessing the line with the F10 or ctrl-Y key(since you cannot you cannot use the i-key to access support on atext line).

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8 Assets by Class. For each class of assets you must show the alloca-tion of sales price last reported, the change to be made, and the re-sulting new allocation of sales price.

Class I.Allocation of sales price as previously reported. Enter the amountshown on the last Form 8594 for filed for this group of assets.

Increase or decrease. Enter the change to be reported as a positiveor negative amount.

Redetermined allocation of sales price. (auto-calc) Computed as theprevious allocation plus your entry on the preceding line.

Classes II through VII. The entries for the other classes follow thesame 3-line format as Class I.

Total Allocation as previously reported. (auto-calc) Computed as thesum of previously reported allocations for all seven classes com-bined, this total should match the total reported on the last Form8594 you filed.

Total Redetermined allocation. (auto-calc) Computed as the sum of re-determined allocation for all seven classes combined.

9 Reason(s) for increase or decrease. If you use Part III of Form 8594you must itemize this line and explain your reasons for the changesin consideration.



Form 8611

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Form 8611 / Recapture of Low-Income Housing Credit

Purpose. This form is used to figure a recapture tax for previously claimedlow-income housing credit. The credit is subject to recapture when, within 15years of the date placed in service, your ownership in the building changes,the basis of the building decreases, or the building fails to meet the minimumset-aside requirements. However, you can often avoid the current payment ofthe recapture tax by posting a bond through Form 8693. In the Form 1040software, 5 independent copies of Form 8611 are accessible through theRoad Map at the LIHCR line above line 63 Form 1040. (In the Form 1065software, 5 independent copies of Form 8586 are accessible through theRoad Map at two credit recapture lines for line 20c of Schedule K: “8611LowIncHsg.-42(j)(5)” and “8611 Low Income Housing-other.”)

Information on Form 8609 required. Much of the information that you mustsupply on Form 8611 is found on the approved Form 8609 (Low-IncomeHousing Credit Allocation Certificate) for the property and the annual Form8609-A (Annual Statement for Low-Income Housing Credit).

IDENTITY OF BUILDING. You must complete a separate Form 8611 for eachseparate building subject to the recapture tax.

A & B are taken from Form 1040. These are the name(s) and primarySSN entered on Form 1040.

C Address of building (as shown on Form 8609). Enter the building’sstreet address in 35 characters or less.

City. Enter the city or town in 25 characters or less. (For e-file, onlythe first 22 characters are recognized by the IRS.)


D Building identification number (BIN). Enter the 9-character BIN forthe building.

E Date placed in service (as shown on Form 8609). Enter the dateshown on Form 8609.

F If building is financed in whole or in part with tax-exempt bonds, fur-nisk:

(1) Issuer’s name. Enter the name of the entity that issued the bondin 35 characters or less.

(2) Date of issue. The date of issue is generally the date of physicalexchange of the bond for the purchase price. Enter the date inthe standard xx/xx/xxxx format.

(3) Name of issue. Enter the name of the issue in 35 characters orless. If not named, enter any other identification of the bond is-sue.

(4) CUSIP number. Enter the 9-character CUSIP number for thebond. If more than one bond was issued for the property, usethe CUSIP number of the bond with the latest maturity date.

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TENTATIVE RECAPTURE. The recapture is computed here before taking intoaccount prior disallowed amounts and interest on the recapture. If the recap-ture was passed through to you from a flow-through entity (such as a part-nership), skip lines 1 through 7 and enter the recapture passed through toyou on line 8. You cannot use the same copy of Form 8611 for both abuilding you own (using lines 1 through 7) and a building a partnership inwhich you are a partner owns (using line 8). You must use a separate copyof Form 8611 for each.

1 Enter total credits reported on Form 8586 in prior years for thisbuilding. You must include the credits shown in Part I of all Forms8586 that you previously filed for the property. These are the tenta-tive credits before reduction by any tax liability limit.

2 Credits included on line 1 attributable to additions to qualified basis.(Supported by the Credit on Additions Worksheet, Figure Prem-14.)You must complete a separate supporting worksheet for each prioryear for which line 7 of Form 8609-A (or its predecessor, ScheduleA of Form 8606) was completed. The result on line i of all work-sheets combined is posted here.

3 Credits subject to recapture. (auto-calc) Computed as line 1 less line 2.Year recapture event occurs. Enter the year number when the re-capture occurs, where 1 represents the first year in service, 2 thesecond year, etc. For example, if the bond was issued in 1999, taxyear 2006 would be the 7th year, so 7 would be entered here.

% (0-100) that applies. (auto-calc) The IRS-defined percentage isbased on the recapture year in accordance with the table in the IRSinstructions, expressed here as a percentage.

4 Credit recapture percentage. (auto-calc) Computed as the preceding per-centage expressed in decimal form to 4 decimal places (1 more placethan the minimum allowed by the IRS). (The IRS erroneously calls this apercentage, but it is really a ratio with 1.0 as the maximum.)

5 Accelerated portion of credit. (auto-calc) Computed as line 3 timesline 4.

% (0-100) decrease in qualified basis. Enter the percentage decreasein qualified basis during the tax year. See IRS instructions for detailson how to figure the entry for this line.

6 Percentage decrease in qualified basis. (auto-calc) Computed as thepreceding percentage expressed in decimal form to 4 decimal places(1 more place than the minimum allowed by the IRS). (The IRS er-roneously calls this a percentage, but it is really a ratio with 1.0 asthe maximum.)

Line 5 times line 6. (auto-calc) Computed as indicated, this is the ac-celerated portion recaptured.

Part for prior recapture. If there was a prior recapture of acceleratedcredit on the building, you do not recapture that amount again as aresult of the current reduction in basis. However, the computation


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of the amount to enter here can be involved. See the IRS instruc-tions for details.

7 Amount of accelerated portion recaptured. (auto-calc) Computed asline 5 times line 6 less the preceding entry.

8 Enter recapture amount from flow-through entity. Enter here recap-ture reported to you from a flow-through entity (partnership, S cor-poration, estate, or trust). (This line is not applicable to you if youcompleted lines 1 through 7 because you are thereby indicating thatyou alone own the building, not a partnership.)

Credit on AdditionsWorksheet. (FigurePrem-14; supports line2 of Form 8611) Youmust complete a sepa-rate worksheet for eachprior year for which line7 of Form 8609 Sche-dule A was completed.This worksheet is pat-terned after the IRS’sLine 2 Worksheet in theIRS Instructions forForm 8611.

a. Enter the a-mount fromline 10, Schedule A (Form 8609). Enter as indicated.

b. Multiply a by 2. (auto-calc) Computed as indicated.c. Enter the amount from line 11, Schedule A (Form 8609). Enter as indi-

cated.d. Subtract c from b. (auto-calc) Computed as indicated.e. Enter percentage figured in Step 1 of the instructions for line 14,

Schedule A (Form 8609). Be sure to enter the number as a percent-age (which ranges from 0 to 100%) rather than a decimal (whichranges from 0 to 1.0). Enter zero if not applicable.

f. Multiply d by e. (auto-calc) Computed as indicated.g. Subtract f from d. (auto-calc) Computed as indicated.

Amount from line 15, Schedule A (Form 8609). Enter as indicated.Amount from line 16, Schedule A (Form 8609). Enter as indicated.

h. Divide line 16, Schedule A (Form 8609) by line 15, Schedule A (Form8609). (auto-calc) Computed as indicated. Although shown on thescreen to only 2 decimal places, the result is carried to full accuracywhen used to compute line I, below.

i. Multiply g by h. (auto-calc) Computed as indicated.The result on line i is posted to line 2 of Form 8611 along with all otherworksheets for line 2.

CREDIT ON ADD'NS TO BASISCREDIT ON ADD'NS TO BASISCREDIT ON ADD'NS TO BASISCREDIT ON ADD'NS TO BASIS Complete separate worksheet Complete separate worksheet Complete separate worksheet Complete separate worksheet for each prior year with line for each prior year with line for each prior year with line for each prior year with line 7 of Sch.A of 8609 completed. 7 of Sch.A of 8609 completed. 7 of Sch.A of 8609 completed. 7 of Sch.A of 8609 completed. a Amount on ln 10,Sch.A(8609) 0 a Amount on ln 10,Sch.A(8609) 0 a Amount on ln 10,Sch.A(8609) 0 a Amount on ln 10,Sch.A(8609) 0 b Multiply a by 2............ b Multiply a by 2............ b Multiply a by 2............ b Multiply a by 2............▒ 0▒ 0▒ 0▒ 0 c Amount on ln 11,Sch.A(8609) 0 c Amount on ln 11,Sch.A(8609) 0 c Amount on ln 11,Sch.A(8609) 0 c Amount on ln 11,Sch.A(8609) 0 d Subtract c from b.......... d Subtract c from b.......... d Subtract c from b.......... d Subtract c from b..........▒ 0▒ 0▒ 0▒ 0 From ln14,SchA(8609)instns: From ln14,SchA(8609)instns: From ln14,SchA(8609)instns: From ln14,SchA(8609)instns: e %(0-100) figured in Step 1. 0 e %(0-100) figured in Step 1. 0 e %(0-100) figured in Step 1. 0 e %(0-100) figured in Step 1. 0 f Multiply d by e............ f Multiply d by e............ f Multiply d by e............ f Multiply d by e............▒ 0▒ 0▒ 0▒ 0 g Subtract f from d.......... g Subtract f from d.......... g Subtract f from d.......... g Subtract f from d..........▒ 0▒ 0▒ 0▒ 0 Amount on ln 15,Sch.A(8609) 0 Amount on ln 15,Sch.A(8609) 0 Amount on ln 15,Sch.A(8609) 0 Amount on ln 15,Sch.A(8609) 0 Amount on ln 16,Sch.A(8609) 0 Amount on ln 16,Sch.A(8609) 0 Amount on ln 16,Sch.A(8609) 0 Amount on ln 16,Sch.A(8609) 0 h Divide 16 by 15,Sch.A(8609) h Divide 16 by 15,Sch.A(8609) h Divide 16 by 15,Sch.A(8609) h Divide 16 by 15,Sch.A(8609)▒ 0▒ 0▒ 0▒ 0 i Multiply g by h............ i Multiply g by h............ i Multiply g by h............ i Multiply g by h............▒ 0▒ 0▒ 0▒ 0

Figure Prem-14. Credit on Additions Worksheet

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NET RECAPTURE. The recapture tax to be paid this year, or the carryforwardof credit to next year, is computed here (except for section 42(j)(5) partner-ships, which use lines 16 and 17 instead).

Special procedure for Form 1065 returns. The following entry appearshere only in the Form 1065 software. An equivalent line appears belowline 10 in the Form 1040 software, as described later.

Is line 8 from a section 42(j)(5) partnership? Answer Yes only if thepass-through entity from which the amount on line 8 came is a Sec-tion 42(j)(5) partnership. Your answer here ensures that the amounton line 8 flows to the proper line on Schedule K, as indicated at theend of this form.

Line 9 through 15 are intentionally zero for partnership returns. Lines 9through 15 do not apply to partnership returns, so, in the Form 1065software, all seven lines are zero and none of the intermediate lines ap-pear. You should therefore skip to line 16 for partnership returns.

Complete lines a through d below so that the software can computethe entry for line 9 for you. These lines correspond to Steps 1through 4 in the IRS instructions for line 9:

a Enter credits for the building that you could not use in prior years.This is generally the amount of credit on line 1 of the current Form8586 less the credits allowed in all prior years combined.

b Part of line a attributable to additions to qualified basis. Creditsattributable to additions after the first year must be entered here.

c Line a less line b times the decimal on line 4. (auto-calc) Computedas indicated.

d Line c times the decimal on line 6. (auto-calc) Computed as indi-cated.

9 Unused portion of the accelerated amount from line 7. (auto-calc)Computed as the amount on line d.

10 Net recapture. (auto-calc) Computed as line 7 or 8, whichever ap-plies, less line 9, but no less than zero.

Is line 8 from a section 42(j)(5) partnership? Answer Yes only if thepass-through entity from which the amount on line 8 came is a Sec-tion 42(j)(5) partnership. If you answer Yes, line 11 will be zero be-cause the interest is already figured in the amount reported to you.

11 Enter interest on the line 10 recapture amount. You must enter herenot your actual interest but rather interest computed in accordancewith IRS tables of interest factors and annual interest rates in effectfor each year credit that is now recaptured was claimed. See IRSinstructions for details. (This line is forced to zero if you answeredYes to the preceding question, and the phrase “Section 42(j)(5)”will appear on the dotted line for line 11. )

12 Total amount subject to recapture. (auto-calc) Computed as the sumof lines 10 and 11.


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13 Unused credits attributable to this building reduced by the acceler-ated portion included on line 9. (auto-calc) Computed as line 9 lessthe amount you entered on line a above line 9.

14 Recapture tax. (auto-calc) Computed as line 12 less line 13, but noless than zero. This amount is posted to the LIHCR componentabove Form 1040, line 63, and reflected in the Total Tax for the re-turn at line 63

15 Carryforward of the low-income housing credit attributable to thisbuilding. (auto-calc) Computed as line 13 less line 12, but no lessthan zero. If an amount appears here you can report it as a carry-forward on line 6 of the Form 3800 for the next tax year.

Only Section 42(j)(5) partnerships complete lines 16 and 17. Lines 16 and 17are relevant only to Form 1065 returns. They are completed for the Form1065 return of a partnership with at least 35 partners, unless the partnershipelects (or elected) not to be treated as a section 42(j)(5) partnership. (If youmust use this section, lines 9 through 15 should be zero.)

16 Enter interest on the line 7 recapture amount. You must enter herenot your actual interest but rather interest computed in accordancewith IRS tables of interest factors and annual interest rates in effectfor each year credit that is now recaptured was claimed. See IRSinstructions for line 11 for details. (This entry will be forced to zerofor a Form 1040 return.)

17 Total recapture. (auto-calc) Computed as the sum of lines 7 and 16.(This entry will be forced to zero for a Form 1040 return.)

The amount on line 17 is posted to Schedule K (Form 1065) and allocated toeach partner’s Schedule K-1 (Form 1065).

Allocation to Schedule K, line 20c. (Appears for Form 1065 software ONLY.)For a partnership return, the results of Form 8611 are allocated between twoseparate lines on Schedule K so that partners will have all the informationthey need to complete a Form 8611 for their own return:

Recapture under section 42(j)(5). (auto-calc) Computed as the sum ofline 17 plus, if you answered “Yes” to the 42(j)(5) question, line 8.This result is posted to the part of Schedule K, line 20c, labeled“8611 LowIncHsg.-42(j)(5).”

Other recapture. (auto-calc) Computed as the sum of line 7, if thispartnership is a section 42(j)(5) partnership, plus, if you answered“No” to the 42(j)(5) question, line 8. This result is posted to thepart of Schedule K, line 20c, labeled “Low Income Hsg-other.”


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Form 8736 / Application for Automatic Extension of Time toFile U.S. Return for a Partnership, REMIC, or for CertainTrusts

For Form 1065 software only. This form is not included in the Form 1040software because it is not relevant to U.S. Individual Income Tax Returns.

Purpose. This form is used to apply for an automatic 3-month extension oftime to file. The extension will generally be allowed by the IRS for a partner-ship return if you properly complete Form 8736 and file it by the regular duedate of the return. The form is analogous to Form 4868 that is used for indi-vidual returns, but provides only a 3-month extension instead of a 4-monthextension, and does not require any payment or estimate of tax for a Form1065 partnership return. As a result, since most partnerships are calendar-year partnerships, the automatic extension will extend the due date to July15th of filing year. If more time is needed, Form 8800 can be filed after Form8736 to request additional time for reasonable cause. (This form is a stand-alone form not filed with the Form 1065 return; it is therefore accessible onlyfrom the Forms Menu and not through the Road Map.)

1 I request an automatic 3-month extension of time to file. (auto-calc) TheIRS designed this form for multiple uses, so the choice for returns other thanForm 1065 is provided. However, for our Form 1065 software only the Form1065 choice is applicable and is therefore chosen automatically.

2 If the entity does not have an office or place of business in the UnitedStates, answer Yes here. Answer Yes if the partnership has neither an officenor any other place of business in the United States.

3a For calendar year... (auto-calc) If you did not specify a fiscal year on ourControl Form, a calendar year is assumed for the tax year and appears here.Otherwise, zero.

Or other tax year beginning... (auto-calc) If you entered a fiscal year onour Control Form, your entry for the beginning of the fiscal year ap-pears here.

and ending... (auto-calc) If you entered a fiscal year on our ControlForm, your entry for the end of the fiscal year appears here.

3b If this tax year is for less than 12 months, specify why:Initial return. (auto-calc) Taken from your entry on Form 1065, line G.Final return. (auto-calc) Taken from your entry on Form 1065, line G.Change in accounting period. Answer Yes if applicable.

4 If this extension is for Form 1041, 1041-N, 1041-QFT, 1065-B, or 1066, enterthe following. These lines are not applicable to Form 1065 returns, but are in-cluded for completeness.



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Form 8800 / Application for Additional Extension of Time toFile U.S. Return for a Partnership, REMIC, or for CertainTrusts

For Form 1065 software only. This form is not included in the Form 1040software because it is not relevant to U.S. Individual Income Tax Returns.

Purpose. This form is generally used to apply for additional time to file onceyou have filed Form 8736 for an automatic 3-month extension. You can alsofile Form 8800 without having filed Form 8736, but only if you can show un-due hardship and file the form by the regular due date of the return. With thisform you specify the extension date, but the IRS will not grant an extensionmore than 6 months after the regular due date of the return, whether or notyou filed Form 8736. Unlike Form 8736, on this form you must provide anadequate explanation of the reason the partnership needs the extension, andthe extension will not be approved without it. The IRS therefore cautions youto file this form early enough that you could conceivably file on time if the ex-tension were not granted. (This form is a stand-alone form not filed with theForm 1065 return; it is therefore accessible only from the Forms Menu andnot through the Road Map.)

1 I request an additional extension of time until... You can generally apply foran additional 3 months beyond the extension afforded by Form 8736, but nomore. The date you enter here should therefore be no more than 6 months af-ter the regular due date of the partnership return.

...to file (check only one). (auto-calc) The IRS designed this form formultiple uses, so the choice for returns other than Form 1065 isprovided. However, for our Form 1065 software only the Form1065 choice is applicable and is therefore chosen automatically.

2 If the entity does not have an office or place of business in the UnitedStates, answer Yes here. Answer Yes if the partnership has neither an officenor any other place of business in the United States.

3a For calendar year... (auto-calc) If you did not specify a fiscal year on ourControl Form, a calendar year is assumed for the tax year and appears here.Otherwise, zero.

Or other tax year beginning... (auto-calc) If you entered a fiscal year onour Control Form, your entry for the beginning of the fiscal year ap-pears here.

and ending... (auto-calc) If you entered a fiscal year on our ControlForm, your entry for the end of the fiscal year appears here.

3b If this tax year is for less than 12 months, specify why:Initial return. (auto-calc) Taken from your entry on Form 1065, line G.Final return. (auto-calc) Taken from your entry on Form 1065, line G.Change in accounting period. Answer Yes if applicable.

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4 Explain why the entity needs an extension. The IRS will not approve the ex-tension if you do not provide adequate justification for the extension. Nine-teen 25-character entry lines are provided to supply an explanation that fitson the printed form.

ITEMIZE to explain more. Itemize this line to provide further explanationin a separate supporting statement.

5 Have you filed Form 8736 to request an automatic extension of time to filefor this tax year? If you answer No, the IRS will grant the extension only forundue hardship. You must explain the hardship fully in line 4.

SIGNATURE AND VERIFICATION. A general partner must generally sign thisform, but an attorney in good standing or a person currently enrolled to prac-tice before the Treasury Department can sign if so authorized by the partner-ship. The qualified person must sign the official printed Form 8800 in order toaffirm the jurat on the graphic form.

RETURN LABEL. Unless you specify otherwise, the IRS will send the answerto your application for an extension to the name and address printed at thetop of the form. If you want the answer sent to a different name and ad-dress, supply that information here. You need make no entries here if thename and address on Form 1065 are the name and address you want to usefor the IRS response.

Name. Specify the addressee in 35 characters or less.Number and street or P.O. Box. Enter the street address in 35 charac-ters or less.

City, state, and ZIP code. Enter the city, state, and ZIP code in 35characters or less.



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Form 8801 / Credit for Prior Year Minimum Tax

Purpose. This form is used to figure a credit for alternative minimum tax(AMT) paid in past years when the is no AMT for the current year. However,only the part of past AMT attributable to deferral items qualifies for thecredit, and the current-year credit is limited to the amount by which the ten-tative minimum tax is less than the regular tax less other credits. (The AMT isgenerally the amount by which the tentative minimum tax is greater than theregular tax.) Form 8801 is accessible through the Road Map at line 55b ofForm 1040.

Translation based on prior-year Form 6251. Contrary to the rule for otherforms, Form 8801 is not translated from the prior-year Form 8801. Becausethe credit depends most critically on amounts found on the prior-year Form6251, Form 8801 is translated from the prior-year Form 6251 instead. Defer-ral items that qualify for the credit (and exclusion items that do not) are iden-tified on the prior Form 6251 as well as amounts from the Schedule D TaxWorksheet or equivalent. Therefore, if you have a carryover from the prior-year Form 8801, you must enter that amount yourself of line 19 of the cur-rent Form 8801 because it is not translated from the prior-year return.

Amounts on 2005 Form 6251. All but one of the following amounts are auto-matically translated from the prior-year Form 6251 for use in the current-yearForm 8801. As long as you translated a prior-year return with the tax year re-tained at 2005, these amounts should already be correct. Otherwise, youmust enter them all yourself because the computation of Form 8801 dependscritically on these amounts.

2005 filing status. The prior-year filing status is required because theAMT on prior-year exclusion items is computed in this part of theform. Enter filing status 1 for single, 2 for married filing jointly, 3 formarried filing separately, 4 for head of household, and 5 for quali-fying widow(er).

2005 Form 6251, line 1. This is the prior-year AGI less itemized de-ductions taken, if any.

2005 Form 6251, line 2. This is the part of prior-year medical and den-tal expense that is treated as a preference.

2005 Form 6251, line 3. This is the total of prior-year deductible taxes.2005 Form 6251, line 4. This is the part of prior-year home mortgageinterest not used to buy, build, or improve your home.

2005 Form 6251, line 5. This is the total of prior-year miscellaneousdeductions.

2005 Form 6251, line 6. This is the amount of itemized deductionsdisallowed in 2005 because of high income, but which are allowedfor the purposes of this form.

2005 Form 6251, line 7. This is the prior-year tax refund reported onthe 2005 Form 1040.

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2005 Form 6251, line 8. This is the prior-year investment interest ex-pense difference between the regular tax and the AMT.

2005 Form 6251, line 9. This is the prior-year depletion difference be-tween the regular tax and the AMT.

2005 Form 6251, line 10. This is the amount of net operating loss de-ducted on the prior-year Form 1040, line 21, expressed here as apositive so that it is added back to income for the purposes of thisform.

2005 Form 6251, line 11. This is the prior-year tax-exempt interestfrom certain private activity bonds.

2005 Form 6251, line 12. This is the prior-year preference from thesale of small business stock.

Other exclusion items. Enter here any 2005 exclusion items not re-flected above. For example, the preference for passive activities online 18 of the prior-year Form 6251 can include both exclusionitems and deferral items. See IRS instructions for line 2 of Form8801. CAUTION: You must make this entry yourself because it isNOT translated from the prior-year return.

2005 Form 6251, line 34. This is the prior-year regular tax (2005 Form1040, line 44) less any tax from Form 4972 included (2005 Form1040, line 44b) less foreign tax credit (2005 Form 1040, line 47).

2005 Form 6251, line 35. This is AMT on the prior-year return.

Information for 2005 Form 6251, line 29. The following information is requiredfor a taxpayer who was under age 14 in 2005, and is automatically trans-lated from the prior-year Form 6251 as long as the tax year on the return wasretained at 2005. It was used in the prior-year Form 6251 to determinewhether a special limitation for children applies. This information determinesthe answer above line 11 of the current-year Form 8801, and applies the limi-tation in the computation for line 11 when applicable.

YOUR 2005 earned income. For this purpose, earned income consistsof wages, net profit or loss on Schedules C (except statutory) andF, and self-employment on Schedule E, less half of self-employmenttax deducted on the 2005 Form 1040.

Adjustment for special businesses. This is an allowance for personalservices rendered, as explained in the IRS instructions for line 29 ofForm 6251.

YOUR age on 2005 Form 1040. This is your age on January 1, 2006.Both parents deceased by 2006? Answer Yes if neither parent wasalive on January 1, 2006.

The special limitation applies if your age was under 14 for the 2005 returnand at least one parent was alive.

Information for 2005 Form 6251, Part III. The following information is requiredif capital gains rates applied to the AMT for the prior year – that is, whenPart III of Form 6251 was required to be used to compute the AMT for taxyear 2005. (Part III would have been required for the 2005 Form 6251 if ei-ther line 9b of the 2005 Form 1040 had an amount, or the lesser of line 15


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or 16 of the 2005 Schedule D was greater than zero.) All entries are auto-matically translated from the prior-year Form 6251 as long as the tax year onthe return was retained at 2005.

2005 Form 1040, line 9b. This is qualified dividends reported on theprior-year return.

2005 Form 1040, line 43. This is the taxable income on the prior-yearreturn.

…as refigured for the AMT. If you had to adjust any entries for the purposesof the AMT, the refigured amounts must be used here (as ensured by transla-tion from the prior-year return) rather than the amounts on Schedule D or theSchedule D Tax Worksheet. (Note that the Schedule D Tax Worksheet is al-ways present in Tax Preparer for all calculations involving capital gains,whether or not that worksheet was required to be used; therefore, all work-sheet entries are available from any prior-year return created using Tax Pre-parer.)

2005 Schedule D, lesser of line 15 or 16. This is the net capital gain onthe prior-year return.

2005 Schedule D, line 19. This is normally the unrecaptured section1250 gain for the prior year, but is zero if you were not required touse the Schedule D Tax Worksheet for 2005.

2005 Schedule D Tax Worksheet, line 10. This entry would be zero ifyou were not required to complete the worksheet last year.

2005 Schedule D Tax Worksheet, line 13. If you did not complete theSchedule D Tax Worksheet for 2005, and did not create the currentreturn by translating the prior-year return, enter line 6 of the 2005Qualified Dividends and Capital Gain Tax Worksheet.

PART I, NET MINIMUM TAX ON EXCLUSION ITEM. All adjustments and pref-erences that increase taxable income for the purposes of the AMT are eitherdeferral items or exclusion items. The prior-year AMT attributable to exclusionitems is computed here. It is subtracted from the full amount of AMT in PartII in order to arrive at the part of the prior-year AMT that is qualified for acredit. Entries are required only for lines 3 and 12; all other entries are com-pleted for you based on the translated amounts from Form 6251 and anyother entries you made on the first two screens of Form 8801.

1 2005 Form 6251 lines 1, 6, and 10. (auto-calc) Computed as “2005Form 6251, line 1” less “2005 Form 6251, line 6” plus “2005 Form6251, line 10.” This is the prior-year income to which prior-year ex-clusions are added in order to determine the prior-year AMT attrib-utable to exclusions.

2 Adjustments and preferences treated as exclusion items. (auto-calc)Computed as the sum of 2005 Form 6251 amounts on lines 2, 3,4, 5, 8, 9, 11, 12, and “Other exclusion items” (entered on screen1), less the 2005 Form 6251 amount on line 7.

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3 Minimum tax credit net operating loss deduction. See IRS instruc-tions for details on determining the amount to enter here. Enter theamount as a positive number here.

4 Combine lines 1, 2, and 3. (auto-calc) Normally computed as line 1plus line 2 less line 3. However, if married filing separately for 2005and this result exceeds $191,000, an additional amount is added tothis result (25% of the excess of this result over $191,000, but nomore than $29,000).

5 $58,000, $40,250, or $29,000. (auto-calc) Based on the previous entryfor “2005 filing status,” computed as $58,000 for filing status 2 or5, $40,250 for 1 or 4, or $29,000 for 3.

6 $150,000, $112,500, or $75,000. (auto-calc) Based on the previous entryfor “2005 filing status,” computed as $150,000 for filing status 2or 5, $112,500 for 1 or 4, or $75,000 for 3.


8 Multiply line 7 by 25% (.25). (auto-calc) Computed as indicated.Limitation for child applied. (auto-calc) Answered Yes if your agewas under 14 for the 2005 return and at least one parent was alive.

9 Subtract line 8 from line 5. (auto-calc) Normally computed as indi-cated, but no less than zero. However, if the preceding answer isYes, this result is limited to no more than “YOUR 2005 earned in-come” plus “Adjustment for special businesses” plus $5,850.


Part III required for line 11 calculation. (auto-calc) Answered Yes ifeither “2005 Form 1040, line 9b” or “2005 Schedule D, minimumof line 16 or 17a” is greater than zero. Because qualified dividendsand capital gains qualify for favorable tax rates, when the answer isYes a special calculation in Part III of this form is used in place ofthe normal calculation of tax for line 11.

11 Usually, multiply line 10 by .26. (auto-calc) This is the AMT for theincome on line 10. If Part III is NOT required for line 11 calculations:computed as .26 times line 10 for amounts up to $175,000($87,500 if married filing separately) plus .28 times the amount bywhich line 10 exceeds that level, if any. (This one formula gives thesame result as the IRS’s two separate formulas.) If Part III IS re-quired for line 11 calculations: taken as line 46 in Part III of thisform instead.

12 Minimum tax foreign tax credit on exclusion items. If you had a for-eign tax credit from Form 1116 on the prior-year return, you mustrefigure the tax for the AMT using only exclusion items. To do soyou must create a Form 1116 on a separate copy of this return andalter its entries in accordance with the IRS instructions for this lineof Form 8801.


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13 Tentative minimum tax on exclusion items. (auto-calc) Computed asline 11 less line 12.

14 2005 Form 6251, line 34. (auto-calc) Taken from your prior entry forthis amount, it is the prior-year regular tax (2005 Form 1040, line44) less any tax from Form 4972 included (2005 Form 1040, line44b) less any foreign tax credit (2005 Form 1040, line 47).

15 NET MINIMUM TAX ON EXCLUSION ITEMS. (auto-calc) Computedas line 13 less line 14, but no less than zero.

PART II, MINIMUM TAX CREDIT AND CARRYFORWARD TO 2007. The creditis computed here based on prior-year AMT less the part attributed to exclu-sion items plus any carryover from the prior-year Form 8801.

16 2005 Form 6251, line 35. (auto-calc) Taken from the prior entry forthe amount, this is AMT on the prior-year return.

17 Amount from line 15 above. (auto-calc) Taken from line 15, as indi-cated, this is the part of line 16 attributable to exclusion items.

18 Subtract line 17 from line 16. (auto-calc) Computed as indicated,with a negative result allowed.

19 2005 MINIMUM TAX CREDIT CARRYFORWARD. Enter the amountfrom your 2005 Form 8801, line 26. This is the carryforward to2006 computed on the prior-year Form 8801. CAUTION: This entryis NOT automatically translated from the prior-year return (becausethe prior-year Form 6251 is used as the source of translation, notthe prior-year Form 8801). Your entry here is required to get anycredit for a carryover from the prior-year Form 8801.

2005 unallowed nonconventional source fuel credit. Enter only theamount not allowed in the prior year because of limitations undercode sections 29(b)(6)(B) and 30(b)(3)(B).

2005 unallowed qualified electric vehicle credit. Enter only theamount not allowed in the prior year because of limitations undercode sections 29(b)(6)(B) and 30(b)(3)(B).

20 2005 unallowed nonconventional source fuel and qualified electricvehicle credits. (auto-calc) Computed as the sum of the precedingtwo entries.

21 Combine lines 18, 19, and 20. (auto-calc) Computed as indicated, thisis the tentative credit for Form 8801 before limitation to current-year tax. If this result is zero or less, neither a credit nor a carryoverexist and the form will not be printed with the complete official re-turn.

2006 Form 1040, line 44. (auto-calc) Taken from Form 1040 as indi-cated, this is the regular tax on the return.

2006 Form 1040, lines 47 through 55. (auto-calc) Taken from line 56of Form 1040, this is the total credit claimed for the current year.Form 8801 amount in the above. (auto-calc) Taken from 55b ofForm 1040, this is the amount of Form 8801 credit included in line56 of Form 1040.

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Form 8912 amount in the above. (auto-calc) Taken from the Form8912 component of line 55c of Form 1040, this is the amount ofcredit included in line 56 of Form 1040 for clean renewable energyand gulf tax credit bonds.

22 2006 regular income tax liability minus allowable credits. (auto-calc)Computed as “2006 Form 1040, line 44” less “2006 Form 1040,lines 47 through 55” plus “Form 8801 amount in the above” plus“Form 8812 amount in the above.” This is the regular tax less allcredits in line 56 of Form 1040 except the credit from this form andthe credit from Form 8912.

23 2006 Form 6251, line 33. (auto-calc) Taken from Form 6251, as indi-cated, this is the tentative minimum tax on the current-year return.


25 MINIMUM TAX CREDIT. (auto-calc) Computed as the smaller of line21 or line 24, this is the current-year credit to be posted to line 55bof Form 1040.

26 MINIMUM TAX CREDIT CARRYFORWARD TO 2007. (auto-calc) Com-puted as line 21 less line 25, this is the credit carryover to next year.

PART III, TAX COMPUTATION USING MAXIMUM CAPITAL GAINS RATES.This part is used only if there were qualified dividends or a net capital gain onthe prior-year return, and is used to compute the AMT on the income shownon line 10 of the current-year Form 8801. In that case, the answer for ”PartIII required for line 11 calculations” (following line 10 on screen 3 of our Form8801) will be Yes, and the income on line 10 will be reflected below. Oth-erwise, no amount from the current-year form will appear and no entries arerequired in this part of the form. TIP: If you did not use Tax Preparer to pre-pare the prior-year return and did not complete the Schedule D Tax Work-sheet for that use, you can use the Override Key to access the appropriatelines below and enter amounts from Schedule D in accordance with the texton the IRS Form 8801.

27 Amount from Form 8801, line 10. (auto-calc) Taken from Part I of thisform, as indicated, only if the answer to ”Part III required for line 11calculations” is Yes. Otherwise, zero.

28 Line 13 of the 2005 Schedule D Tax Worksheet. (auto-calc) Takenfrom the corresponding entry on screen 2 when Part II is required;otherwise, zero.

29 Amount from 2005 Schedule D, line 19. (auto-calc) Taken from thecorresponding entry on screen 2 of Form 8801 when Part III is re-quired; otherwise, zero.

30 Smaller of the sum of lines 28 and 29 or line 10 of the Schedule DTax Worksheet. (auto-calc) Computed as indicated, the result will beline 28 alone if you were not required to use the worksheet.

31 Smaller of line 27 or line 30. (auto-calc) Computed as indicated.32 Subtract line 31 from line 27. (auto-calc) Computed as indicated.


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33 Usually, multiply line 32 by .26. (auto-calc) Computed as .26 timesline 32 for amounts up to $175,000 ($87,500 if married filing sepa-rately) plus .28 times the amount by which line 32 exceeds that level,if any. (This one formula gives the same result as the IRS’s twoseparate formulas.)

34 $59,400, $29,700, or $39,800. (auto-calc) Based on your previous entryfor “2005 filing status,” computed as $59,400 for filing status 2 or5, $29,700 for 1 or 3, or $39,800 for 4.

35 Line 14 of the 2005 Schedule D Tax Worksheet. (auto-calc) When PartIII is required, computed from your prior entries as “2005 Form1040, line 43” less “2005 Schedule D Tax Worksheet, line 13,”which results in line 14 of the 2005 Schedule D Tax Worksheet.


37 Smaller of line 27 or line 28. (auto-calc) Computed as indicated.38 Smaller of line 36 or line 37. (auto-calc) Computed as indicated.39 Multiply line 38 by 5% (.05). (auto-calc) Computed as indicated.40 Subtract line 38 from line 37. (auto-calc) Computed as indicated, but

no less than zero.41 Multiply line 40 by 15% (.15). (auto-calc) Computed as indicated.42 Subtract line 37 from line 31. (auto-calc) Computed as indicated.43 Multiply line 42 by 25% (.25). (auto-calc) Computed as indicated.44 Add lines 33, 39, 41, and 43. (auto-calc) Computed as indicated.45 Usually, multiply line 27 by .26. (auto-calc) Computed as .26 times

line 27 for amounts up to $175,000 ($87,500 if married filing sepa-rately) plus .28 times the amount by which line 27 exceeds that level,if any. (This one formula gives the same result as the IRS’s twoseparate formulas.)

46 Smaller of line 44 or line 45. (auto-calc) Computed as indicated, thisis the tax for line 11 of Form 8801 when Part III is required for thecalculation of that tax.


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Form 8815 / Exclusion of Interest from Series EE and I U.S.Savings Bonds Issued After 1989

Purpose. This form is used to exclude from taxation interest on qualifiedbonds you cashed in to pay for higher education expenses. The only qualifiedbonds are series EE and series I U.S. Savings Bonds issued in your name after1989, and you must have been at least age 24 when the bonds were issued.Furthermore, the exclusion is not available if married filing separately, and isphased out at high income for other filing statuses. The interest is reportedon Form 1099-INT Worksheets for line 1 of Schedule B, and the exclusion ofthat interest is reported at line 3 of Schedule B. Form 8815 is accessiblethrough the Road Map at line 3 of Schedule B.

PERSONS WHO QUALIFIED. The person for whom you paid higher educationexpenses must be you, your spouse, or a dependent claimed on line 6c ofForm 1040. Eligible expenses include contribution to the person’s CoverdellEducation Savings Account (ESA) or Qualified Tuition Program (QTP). Othereligible expenses include tuition and fees at an eligible educational institutionin which the person was enrolled or attended.

1 Number of qualified persons. (Supported by the Student Worksheet,Figure Prem-15.) The qualified person is identified in the supportingworksheets along with the qualified educational institution, ESA, orQTP. The number of students identified appears here.

2 Qualified higher-education expenses you paid in 2006. (auto-calc)Taken from the supporting worksheets for line 1.

3 Nontaxable educational benefits received for 2006. (auto-calc) Takenfrom the supporting worksheets for line 1.

4 Subtract line 3 from line 2. (auto-calc) Computed as indicated. If zero,you cannot take the exclusion and the form will compute none.

5 Proceeds from all series EE and I U.S. savings bonds issued after1989 that you cashed in 2006. Enter total proceeds including both in-terest and principal.

Face value of post-1989 series EE bonds cashed in 2006. Enter theface value at original issue. (EE bonds, first offered in 1980, are is-sued at a 50% discount from face value, and face value is paidupon their 30-year maturity.)

Face value of series I bonds cashed in 2006. Enter the face value atoriginal issue. (I bonds, first issued in 1998, are issued at full facevalue, and face value plus accrued interest is paid upon their 30-year maturity.)

Total counted as principal. (auto-calc) Computed in accordance withthe IRS’s Line 6 Worksheet as half of the series EE face value plusall of the series I face value.

6 Interest included on line 5. (auto-calc) Computed in accordance withthe IRS Line 6 Worksheet as line 5 less the “Total counted as prin-cipal.” CAUTION: You may have to override this amount if you re-


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ported any of the interest before 2006. See IRS Pub. 550 for de-tails.

7 Divide line 4 by line 5 (1.0 maximum). (auto-calc) Computed as indi-cated (to 4 decimal places), this is the fraction of the proceeds usedfor eligible expenses.

8 Multiply line 6 by line 7. (auto-calc) Computed as indicated, this is thetentative exclusion before reduction for high income.

Fling status (ineligible if 3). (auto-calc) Taken from Form 1040, you areallowed no exclusion if married filing separately.

Student Worksheet.(Figure Prem-15) Youmust identify eachqualifying person, insti-tution or account, andamount spent.

a. Name of per-son. The per-son must beyou, yourspouse, or adependentclaimed online 6c ofForm 1040.Enter the full name in 25 characters or less.

b. Name and address of educational institution. If the proceeds of thebond were spent directly for tuition and fees, enter the name andaddress of the eligible institution. If the proceeds were used for con-tributions to a Coverdell ESA, enter “ESA” and the name and ad-dress of the financial institution where the account is held. If theproceeds were used for contributions to a QTP, enter “QTP” andthe name and address of the program. SPECIAL INSTRUCTION fore-file returns: If the return will be e-filed and you don’t know theaddress, you must enter the word NONE for “address line 1” in or-der for the e-file output to be acceptable to the IRS.

Qualified expenses paid in 2006. Enter the tuition and fees paid or con-tributions to the ESA or QTP.

Nontaxable benefits received in 2006. If any of the amount on the pre-ceding line was covered by a scholarship or other nontaxable bene-fit, enter the amount here. (Do not include on either line amountspaid directly by or to the institution.)

Person counted. (auto-calc) The worksheet is counted only if you en-tered an amount for “Qualified expenses paid in 2006.”

STUDENT WORKSHEETSTUDENT WORKSHEETSTUDENT WORKSHEETSTUDENT WORKSHEET Person must be you, spouse, or Person must be you, spouse, or Person must be you, spouse, or Person must be you, spouse, or dependent who attended eligi- dependent who attended eligi- dependent who attended eligi- dependent who attended eligible educational institution. ble educational institution. ble educational institution. ble educational institution. a. Name of person a. Name of person a. Name of person a. Name of person b. Name educ institution ....: b. Name educ institution ....: b. Name educ institution ....: b. Name educ institution ....:

address line 1....... address line 1....... address line 1....... address line 1....... address line 2....... address line 2....... address line 2....... address line 2....... city/state/ZIP.......: city/state/ZIP.......: city/state/ZIP.......: city/state/ZIP.......:

Qlfd expenses paid in 2006 Qlfd expenses paid in 2006 Qlfd expenses paid in 2006 Qlfd expenses paid in 2006 Nontaxable benis rcvd 2006 0 Nontaxable benis rcvd 2006 0 Nontaxable benis rcvd 2006 0 Nontaxable benis rcvd 2006 0 Person counted....... Person counted....... Person counted....... Person counted.......▒ Yes▒ Yes▒ Yes▒ Yes

Figure Prem-15. Student Worksheet

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EXCLUSION AND LIMITATION. The rest of the form is fully automatic. Thephaseout of the exclusion for high income is computed here based on a spe-cial form of modified AGI.

Amount from line 2 of Schedule B. (auto-calc) Taken from Schedule Bas indicated, this is line 1 of the IRS’s Line 9 Worksheet.Form 1040, line 22. (auto-calc) Taken from Form 1040 as indicated.Form 1040, line 8a. (auto-calc) Taken from Form 1040 as indicated.

Income on Form 1040, line 22, excluding line 8a. (auto-calc) Computedas “Form 1040, line 22” less “Form 1040, line 8a,” this is line 2 ofthe IRS’s Line 9 Worksheet.

Form 1040, line 36, excluding lines 33 and 35. (auto-calc) Computedfrom Form 1040 as indicated, this is line 4 of the IRS’s Line 9Worksheet.

Additional adjustments per IRS Pub. 550:Foreign exclusion and deduction. (auto-calc) Computed as the Form2555 exclusion reflected in Form 1040, line 21, plus the Form2555 deduction reflected in Form 1040, line 36.U.S. possession income excluded. (auto-calc) Taken from the entrybelow line 22 of Form 1040 for “U.S. possession income not re-ported” (under the banner of CERTAIN NONTAXABLE INCOME).Adoption benefits excluded (Form 8839). (auto-calc) Taken from theentry below line 22 of Form 1040 for “Excluded benefits from Form8839” (under the banner of CERTAIN NONTAXABLE INCOME).

Additions per IRS Pub. 550. (auto-calc) Computed as the sum of thepreceding three amounts.

9 Modified adjusted gross income. (auto-calc) In accordance with theIRS’s Line 9 Worksheet (in the Form 8815 instructions) as modifiedby the more complete IRS Pub. 550, computed from the precedingamounts as “Amount from line 2 of Schedule B” plus “Income onForm 1040, line 22, excluding line 8a” less “Form 1040, line 36,excluding lines 33 and 35” plus “Additions per IRS Pub. 550.” SeeIRS Pub. 550 for details. You are allowed no exclusion if theamount on this line is $124,700 or more ($78,100 or more if singleor head of household).

10 $63,100 if single or head of household, $94,700 if married filingjointly or qualifying widow(er). (auto-calc) Computed as indicated,this is the income at which the phaseout of the exclusion starts.

11 Subtract line 10 from line 9. (auto-calc) Computed as indicated, ifzero or less you are allowed the full exclusion on line 8. Otherwise,the phaseout is computed on lines 12 and 13.

Line 11 as a % of $15,000 or $30,000 (100% maximum). (auto-calc)Computed as line 11 divided by $30,000 ($15,000 if single or headof household) expressed as a percentage, this is the percentage bywhich the tentative exclusion on line 8 will be reduced because ofthe phaseout.


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12 Divide line 11 by $15,000 if single or head of household; $30,000 ifmarried filing jointly or qualifying widow(er). (auto-calc) Computedas indicated to 4 decimal places.

13 Multiple line 8 by line 12. (auto-calc) Computed as indicated.14 EXCLUDABLE SAVINGS BOND INTEREST. (auto-calc) Computed as

line 8 less line 13, this is the allowed exclusion.The amount on line 14 is posted to line 3 of Schedule B where it is sub-tracted from the total interest on line 2 of Schedule B. CAUTION: You mustreport the interest shown on line 6 of this Form 8815 on line 3 of a 1099-INTWorksheet for line 1 of Schedule B. The exclusion applies to this interestalone.


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Form 8822 / Change of Address

Purpose. This form is used to report a change of address to the IRS at a timewhen you are not filing the return to which it applies. Accordingly, this formis not attached to any return, but is sent by itself to the IRS. (To change youraddress at the time you file you merely use the new address on your return.)Because of its stand-alone nature, Form 8822 is accessible only from theForms Menu, and not through the Road Map.

When a separate Form 8822 is required. This form can be used to notify theIRS of a change in home or business mailing address or business location.You use Part I of the form for a change in your home and Part II for a changefor your business. However, the IRS instructs you to use a separate copy ofForm 8822 for your business than you do for your home.

PART I, CHANGE YOUR HOME MAILING ADDRESS. This part is used tochange the address for Form 1040 returns, among others, and is thereforethe part normally used for the Form 1040 (Tax Preparer) software. The nameand new address entries are automatic when you use this part with the Form1040 software.

Check ALL boxes this change affects:1 Individual income tax returns? Answer Yes if the address change af-

fects a U.S. Individual Income Tax Return, such as Form 1040,1040A, 1040EZ, TeleFile, or 1040NR returns.

If last return was a joint return, are you now establishing a resi-dence separate from the spouse with whom you filed that return?Answer Yes if applicable.

2 Gift, estate, or generation-skipping transfer (GST) tax returns? An-swer Yes if the address change affects the cited returns, such asForm 706, 706-NA, or 709 returns.

For Form 706 or 706-NA:Decedent’s name. If you answered Yes to line 2 for an estate tax re-turn, enter the decedent’s name here in 25 characters or less.

Decedent’s social security number. If you answered Yes to line 2 andentered a decedent name above, you must also enter the dece-dent’s SSN.

If 1 or 2 is “Yes”:3a, 3b, 4a, 4b, Your and spouse’s name and SSN. (auto-calc lines) If you

indicated, by answering Yes to line 1 or line 2, that you are usingPart I of this form, the name and SSN entries are taken from Form1040. Otherwise they are blank. (HINT: If you are using this formonly for gift, estate, or GST returns, you must created a mock Form1040 with your name and SSN.)

5 Prior name(s). If you or spouse are changing your name due to mar-riage or divorce, complete these lines for the person changing theirname. You must also notify the Social Security Administration ofthe change.


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6a Old address. Enter the old address that the IRS has for the cited re-turn(s).

6b Spouse’s old address, if different. Enter the spouse’s old address ifdifferent from the address on line 6a.

7 New address. (auto-calc lines) If you indicated, by answering Yes toline 1 or line 2, that you are using Part I of this form, these addressentries are taken from Form 1040. Otherwise they are blank.

PART II, CHANGE YOUR BUSINESS MAILING ADDRESS OR BUSINESSLOCATION. This part is used to change the address for Form 1065 returns,among others, and is therefore the part normally used for the Form 1065(Tax Preparer: Partnership Edition) software. The employer IDN and newmailing address entries are automatic when you use the Form 1065 software.

Check ALL boxes this change affects:8 Employment, excise, income, and other business returns? Answer

Yes if the address change affects U.S. business returns, such asForm 720, 940, 940-EZ, 941, 990, 1041, 1065, or 1120 returns.

9 Employee plan returns? Answer Yes if the address change affects aU.S. employee plan return, such as Form 5500 or 5500-EZ returns.

10 Business location? Answer Yes if the address change is a change ina business’s location.

If 8, 9, or 10 is “Yes”:11a Business name. Enter the business name in 35 characters or less.11b Employer IDN. Enter the tax identification number of the business

in the standard format. (For Form 1065 software this entry is auto-matically the IDN you entered on Form 1065.)

12 Old mailing address. Enter the former mailing address that the IRShas for the cited return(s).

13 New mailing address. Enter the new mailing address for the citedreturns. (For Form 1065 software these entries are taken automati-cally from the address you entered on Form 1065.)

14 New business location. Enter the new location of the business ifyou answered Yes to line 10.

PART III, SIGNATURE.Contact person’s daytime phone number. This is an optional entry to

use if you want the IRS to contact anyone by phone if there arequestions about the completed form.

If you completed Part I, you (and spouse, if filing jointly) must sign the officialprinted Form 8822. If you completed Part II, an owner, officer, or representa-tive of the business must sign.

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Form 8824 / Like-Kind Exchanges

Purpose. This form is principally used to report an exchange of business orinvestment property for property of a like kind. (It is also used to report cer-tain conflict-of-interest sales in Part IV of the form.) Although part or all ofthe exchange may be currently tax-free, the basis in the new property is gen-erally lowered so that the exchange is really a form of tax deferral rather thanzero tax. You must use a separate Form 8824 for each separate exchange,and five copies of the form are available in the software. For both Form 1040and Form 1065 software, Form 8824 is accessible through the Road Map atvarious lines on both Schedule D and Form 4797.

CAUTION: Like-kind exchanges subject to many rules. It is important thatyou structure the exchange in a way that will satisfy the IRS under the cur-rent regulations, because the regulations are quite involved and have changedmany times over the years. A careful reading of the IRS Form 8824 Instruc-tions and the examples in IRS Pub. 544 (Sales and Other Dispositions of As-sets) are therefore critical for both structuring the exchange and completingForm 8824.

PART I, INFORMATION ON THE LIKE-KIND EXCHANGE. In this part you mustdescribe the properties and non-monetary details of the exchange.

Collectible (28% rate sale)? Your answers to this and the next twoquestions are used to determine where any taxable income from thetransaction is posted and how it is taxed. Answer Yes here for anexchange of collectibles, which are subject to the highest capitalgains tax.

Capital asset (for Schedule D)? Answer Yes if the sale of the prop-erty given up would have been reported on Schedule D. Otherwiseit is assume to be reportable on Form 4797. The entry for this lineis automatically Yes if you answered Yes to the preceding question.

Installment method applies? If Yes, no amounts are posted fromthis form to any other form or schedule, and you must completeForm 6252 to determine any taxable gain this year.

1 Describe the like-kind property given up. Describe the property givenup in the exchange here in 35 characters or less. If real or personalproperty located outside the U.S., indicate the country as well. Ifyou need more room, leave this line blank and instead press F10and enter the description in a supporting statement for this line.

2 Describe the like-kind property received. Describe the property re-ceived in the exchange here in 35 characters or less. If real or per-sonal property located outside the U.S., indicate the country aswell. If you need more room, leave this line blank and instead pressF10 and enter the description in a supporting statement for this line.


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3 Date like-kind property in line 1 (property given up) was originallyacquired. Enter the date you originally acquired the property in thestandard mm/dd/yyyy format.

4 Date you actually transferred your property to the other party. Enterthe transfer date in the standard mm/dd/yyyy format.

Transferred in the current tax year. (auto-calc) Automatically Yes ifthe date on line 4 is within the tax year of the return. If Yes, youmust file Form 8824 with the return. If No, you must file Form8824 with the return only if a related party exchange and the dateis less than 3 years earlier than the tax year of the return.

Treated as LONG term? (auto-calc) Automatically Yes if the date online 4 is more than one year after the date on line 3. If Yes, anygain currently recognized on this form is treated as long term (ex-cept for ordinary income under recapture rules).

5 Date like-kind property you received was identified by written noticeto another party. You must deliver a signed written notice of theproperty to be received within 45 days after the date on line 4. SeeIRS instructions for detailed requirements for this notice. However,if you actually received the replacement property within the 45 dayperiod, no written notice is required and you should enter here thedate the property was received.

6 Date you actually received the like-kind property from the otherparty. Enter the date in the standard mm/dd/yyyy format. To qualifyas a like-kind exchange, you must have received the party by eitherthe 180th day after the date on line 4 or the due date (including ex-tensions) of your tax return for the tax year in which the date online 4 falls, whichever is earlier.

7 Was the exchange of either property made with a related party? Youmust answer Yes whether a related party was involved directly orindirectly. If Yes, you must complete Part II, below. Related partiesinclude your spouse, children, grandchildren, parents, grandparents,brother, sister, or a related corporation, S corporation, partnership,trust, or estate. See IRS Form 8824 instructions for additional ruleswhen related parties are involved.

PART II, RELATED PARTY EXCHANGE INFORMATION. Complete this partonly if you answered Yes to the question on line 7.

8 Name, relationship, IDN, and address of related party. You mustfully identify the related party, include SSN if an individual or EIN ifa corporation, partnership, trust, or estate.

9 During this tax year (and within 2 years after the last transfer ofproperty that was part of the exchange) did the related party di-rectly or indirectly sell or dispose of any part of the like-kind prop-erty received from you in the exchange? If Yes, you must generallyreport on your tax return for the year of disposition the deferred

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gain figured on line 24 of this form unless an exception in line 11applies.

10 During this tax year (and within 2 years after the last transfer ofproperty that was part of the exchange) did you sell or dispose ofany part of the like-kind property you received? If Yes, you mustgenerally report on your tax return for the year of disposition the de-ferred gain figured on line 24 of this form unless an exception in line11 applies.

11 If one of the exceptions below apply, answer:a The disposition was after the death of either of the related parties.b The disposition was an involuntary conversion, and the threat of

conversion occurred after the exchange.c You can establish to the satisfaction of the IRS that neither the ex-

change nor the disposition had tax avoidance as its principal pur-pose. If Yes, you must explain in a supporting statement for thenext line.

If c is Yes, itemize here to explain. Explain a Yes answer to line 11cin a supporting statement for this line. See IRS Pub. 537 (Install-ment Sales) for exceptions to tax avoidance.

PART III, REALIZED GAIN OR LOSS, RECOGNIZED GAIN, AND BASIS OFLIKE-KIND PROPERTY RECEIVED. In this part you must determine the gainrecognized this year as well as the deferred gain. The recognized gain will beposted to Schedule D or Form 4797, unless the installment method applies.

If reporting multi-asset exchanges, skip lines 12 through 18, overrideline 19, 20, and 25, and itemize here to explain. For multi-asset ex-changes involving more than one kind of property or cash, you mustprovide your own computation of the realized and recognized gainsin a supporting statement for this line, and override the cited linesto report the results on this form.

Use lines 12 through 14 ONLY if you gave up any property that is NOTlike-kind property:

12 FMV of other property given up. Enter the Fair Market Value of theproperty given up (included in line 1) that is NOT like-kind property.

13 Adjusted basis of other property given up. Enter the adjusted basisof the property given up (included in line 1) that is NOT like-kindproperty.

14 Gain or loss recognized on other property given up. (auto-calc)Computed as line 12 less line 13. CAUTION: You must report thisgain on Schedule D, Form 4797, or Form 6252, whichever is ap-propriate, as if the property were sold rather than exchanged; thisamount is NOT automatically posted to these forms.

Cash the other party paid you. Enter cash you received.FMV of other property received. Enter the fair market value of otherproperty that is not like-kind property you received in the exchange.

Net liabilities assumed by other party. Enter the liabilities transferredto the other party.


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Exchange expenses you incurred. Expenses you enter here will re-duce the net value of other than like-kind property.

15 Cash and other non-like-kind property received, including debt as-sumed by the other party. (auto-calc) Computed as the sum of thecash received, FMV of other property received, and assumed liabili-ties less the preceding expenses, this is the net value of other thanlike-kind property received in the exchange.

16 FMV of like-kind property you received. Enter the fair market valueof all like-kind property you received in the exchange.

17 Add lines 15 and 16. (auto-calc) Computed as indicated, this is thenet value of all property you received in the exchange, whether like-kind or not.

Adjusted basis of like-kind property you gave up. Enter as indicated.Net amounts paid to other party. Enter the total of liabilities you as-sumed, cash you paid, and fair market value of other non-like-kindproperty you gave up (excluding liabilities assumed by the otherparty).

Exchange expenses not used in line 15. Enter only expenses not in-cluded in line 15.

18 Adjusted basis of like-kind property you gave up, net amounts paidto other party, plus any exchange expenses not used on line 15.(auto-calc) Computed as the sum of the adjusted basis of like-kindproperty you gave up and net amounts you paid less the precedingexpenses. This is the net value of all property you gave up in theexchange, whether like-kind or not.

If like-kind property was your home for 5 years up to date of exchange:Section 121 exclusion. You may be able to exclude all or part of yourgain if you owned and used the property given up as your home forthe 5-year period immediately preceding the exchange. See IRS Pub.523 to determine the amount of exclusion to which you are enti-tled. When you enter the exclusion here, the calculations for lines19, 20, and 25 are modified in accordance with IRS instructionsand the words “Sec. 121 exclusion” will be printed on the dottedline next to line 19 of Form 8824 along with the amount of exclu-sion.

19 REALIZED GAIN OR LOSS. (auto-calc) Computed as line 17 less line18 and any “Sec. 121 exclusion” you entered above.

20 Smaller of line 15 or line 19. (auto-calc) Computed as the smaller ofline 15 (less any sec. 121 exclusion) or line 19, but no less thanzero.

21 Ordinary income under recapture rules. See IRS Form 8824 instruc-tions for details on how to determine the amount to enter here,which is the recapture of depreciation under specific rules. You willhave an amount here only if you would have reported the sale ofthe property given up in Part III of Form 4797 (for sales of section1245, 1250, 1252, 1254, and 1255 property). Therefore, if you

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identified the property as collectible property or a capital asset, theamount for this line will be forced to be zero. CAUTION: If the in-stallment method applies and the property is section 1252, 1254,or 1255 property, you must report this amount on line 25 or 36 ofa Form 6252 for this exchange; this amount is NOT automaticallyposted to any Form 6252.

22 Subtract line 21 from line 20. (auto-calc) Computed as indicated, butno less than zero, this amount will be posted to Schedule D or Form4797 unless the installment method applies, as detailed later.

23 RECOGNIZED GAIN. (auto-calc) Computed as the sum of lines 21and 22, this is the total amount to be reported as taxable in the cur-rent year (unless the installment method applies).

24 Deferred gain or loss. (auto-calc) Computed as line 19 less line 23,this is the amount to be deferred until the sale of the property re-ceived, unless a related party is involved. If a related party is in-volved and no exception applies, if either you or the related partydisposes of the property before the 2-year waiting period, you mustreport this amount on Schedule D and Form 4797 for the year ofthe sale.

25 BASIS OF LIKE-KIND PROPERTY RECEIVED. (auto-calc) Computedas the sum of lines 18 and 23 less line 15, this is the adjusted basisto be used when you eventually sell the like-kind property you re-ceived.

Allocation of Form 8824 lines 21 and 22 to Schedule D and Form 4797. Therecapture on line 21 and net gain on line 22 to be reported in the current yearare distributed here to the appropriate lines of Schedule D and Form 4797unless the installment method applies. (If the installment method applies, allbelow amounts will be zero and you must use Form 6252 to determine theamounts to report for the current year.)

Ordinary income:Short-term amount for Schedule D, line 4. (auto-calc) If a capital asset

sold in the current year and held one year or less, computed as thenet gain on line 22; otherwise, zero. (For Partnership Form 1065returns, this amount is posted to line 3 of the Form 1065 version ofSchedule D, not line 4.)

Short-term amount for Form 4797, line 16. (auto-calc) If not a capital as-set, but sold in the current year, computed as the recapture on line21 plus, if held one year or less, the net gain on line 21; otherwise,zero.

Long-term income:Long-term amount for Schedule D, line 11. (auto-calc) If a capital asset

sold in the current year and held more than one year, computed asthe net gain on line 22; otherwise, zero. (For Partnership Form1065 returns, this amount is posted to line 8 of the Form 1065 ver-sion of Schedule D, not line 11.)


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28% rate gain in the above. (auto-calc) Computed as the precedingSchedule D, line 11 amount if the sale was for collectible property.

Long-term amount for Form 4797, line 5. (auto-calc) If not a capital as-set, but sold in the current year and held more than one year, com-puted as the net gain on line 22; otherwise, zero.

Installment method. If the installment method applies, all above linesare zero and no amounts are posted to other forms. Instead, YOUmust complete a Form 6252 to figure the amount of gain to reportthis year.

PART IV, DEFERRAL OF GAIN FROM SECTION 1043 CONFLICT-OF-INTEREST SALES. This part is used very rarely because it applies only to offi-cers or employees of the executive branch of the Federal Government whoare required to sell property to comply with conflict-of-interest requirements.No amount is taxable this year unless there is ordinary income under recap-ture rules or the cost of replacement property is less than the gain realized onthe sale. Data entry is similar to, but much simpler than, the data entry forParts I and III of this form, so we do not detail the data entry here.CAUTION: If you have any amounts on line 35 or line 36, you must reportthose amounts on Schedule D or Form 4797 in accordance with IRS instruc-tions; no amounts are posted automatically to other forms.

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Form 8828 / Recapture of Federal Mortgage Subsidy

Purpose. This form is used to figure the recapture tax you owe if you sell (orotherwise dispose of) a home you financed under a federally subsidized pro-gram and that sale is within 9 years of the closing date of the loan. In thecontext of this form, you have a federal mortgage subsidy if your mortgageloan is characterized by either of the following:

Tax-exempt qualified mortgage bond. Your mortgage loan will gener-ally have an interest rate that is below market value if it was fundedfrom a tax-exempt qualified mortgage bond issue. This benefit is aform of federal subsidy.

Mortgage credit certificate (MCC). You can use Form 8396 to claim anannual tax credit if your mortgage loan came with a mortgage creditcertificate (MCC). This benefit is another form of federal subsidy.

Form 8828 is accessible through the Road Map at the FMSR line above line63 Form 1040.

When recapture applies...If you sold your home, you must figure recapture tax on the basis of

the actual sales price you received.If you gave away your home, you generally figure recapture tax as if

you sold it at fair market value. However, you do not owe recap-ture tax on a home given to your spouse (or ex-spouse) incident toa divorce.

If your home was destroyed by casualty, you must figure recapture taxas if you sold it at fair market value. However, you do not owe re-capture tax if you replaced the home on its original site (for use asyour home) within 2 years of the end of the tax year when thecasualty occurred.

...and when it does not.You sold or disposed of the home more than 9 years after the loan

started. No recapture applies if the sales date is more than 9 yearsafter the closing date of the original federally subsidized loan.

You refinanced your home. Whether you refinance with another feder-ally subsidized loan or not, you do not owe a recapture tax by virtueof the refinancing. However, you may still owe recapture tax whenyou later sell the home, although the amount of tax may be re-duced.

You transferred your interest in the home to a spouse under a divorcedecree. You generally to do not owe recapture tax under this cir-cumstance as long as no gain or loss was included in income, butsee IRS Pub. 504 for details.


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PART I, DESCRIPTION OF HOME SUBJECT TO FEDERALLY SUBSIDIZEDDEBT. You must fully identify the home and the loan, and provide the datesof relevant transactions.

1 Address of property:Number and street. Enter the street address in 35 characters or less.This is the address of the home that had the federally subsidizeddebt, not your current home.

City, state, and ZIP code. Enter in 35 characters or less.2 Type of federal subsidy:

a Mortgage loan from the proceeds of a tax-exempt bond. This is aloan that has an unusually low interest rate because it was financedby a tax-exempt qualified mortgage bond (QMB).

b Mortgage credit certificate. This certificate (MCC) comes with yourloan and allows you to claim an annual tax credit on your returnthrough Form 8396 (Mortgage Interest Credit).

If neither of the above types apply, Form 8828 does not apply to youand you should not file this form.

3 Name of the bond or certificate issuer:State. Enter the state that issued the underlying tax-exempt bond orissued the MCC. Use the standard 2-character state code.

Subdivision. Enter the political subdivision (such as city or county)as identified on the notification that came with the original loan (in20 characters or lees).

Agency, if any. Name the agency in 25 characters or less. (Only thefirst 20 characters are used for e-file, although we support 25 char-acters for paper returns.)

4 Name and address of original lending institution:Name. Enter the name of the bank (or other lender) that actually pro-vided your original federally subsidized mortgage (in 30 charactersor less).

Address. Enter the address of the lender in 50 characters or less(using the two 25-character data entry lines provided).

CAUTION: All dates are critical. You must enter all dates below in thestandard numerical mo/dy/year format in order for the software to de-termine your liability for the recapture tax and to calculate the holdingperiod rate for line 20 under some circumstances.5 Closing date of the original loan. Enter the precise date that the loan

was provided. This will generally be the settlement date of yourpurchase of the home if the loan was provided to purchase thehome, but can be a later date if your loan was federally subsidizedat a later date. If this date is before 1/1/1991, you are not liable forthe recapture tax.

6 Date of sale or other disposition of your interest in the home. If youco-owned the home with someone else, but sold (or otherwise dis-posed of) your entire interest in the home, the transaction counts asa sale for the purposes of this form. Enter the precise date in the

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standard format (mo/dy/year). If this date does not fall within thetax year of the return, no recapture tax is due for this return. Youmust file Form 8828 only for the tax year in which the sale oc-curred, filing an amended return (Form 1040X) for the appropriatetax year if it was in a prior year and your did not file Form 8828 inthe prior year as required.

7 Number of years and full months between line 5 and line 6. (auto-calclines) Computed as the number of full years and full months fromthe closing of the original loan to the sale or other disposition. If thisresult is more than 9 years, you are not liable for the recapture tax.

8 Date of full repayment of the original loan. If you never refinancedyour home during your ownership, or all refinancing replaced theoriginal loan with another MCC loan, this date will be the same asthe sale date on line 6. Otherwise the date will precede the saledate. Enter in the standard date format (mo/dy/year).

Required to file Form 8828? (auto-calc) Determined from your entries atlines 2, 5, and 6. The answer will be No if ANY of the following condi-tions apply:

Neither line 2a nor line 2b is answered Yes.Line 5 (closing date) is before January 1, 1991.Line 6 (sale date) is not in the current tax year.Line 6 (sale date) is more than 9 years after line 5 (closing date).

But if the answer is Yes, a recapture tax may apply and you must com-plete this form. (If the answer is No, no recapture tax will apply andyou should NOT file Form 8828 with the return. The form will not beprinted when you choose to print a complete official return.)

PART II, COMPUTATION OF RECAPTURE TAX. You must not only providedetails of the purchase and sale, but must also enter information from a tablethat appears in the documentation that the borrower receives when the loanis created. If you owned the home with someone else, enter only your sharefor all entries (including income, expenses, basis, sales price, etc.).

9 Sales price of your interest in the home sold or disposed of. If you didnot sell the home you must enter the fair market value on the dateof its disposition.

10 Expenses of sale. Include sales commissions, advertising , legal fees,etc.

11 Amount realized. (auto-calc) Computed as line 9 less line 10.

Original cost of property. Enter the purchase price of the home whenyou bought it.

Purchase commissions, fees, etc. Enter expenses of the purchasethat increased your cost of the property.

Improvements. Enter improvements made to sell the home.Past depreciation claimed. Enter any depreciation claimed in thepast, which is possible if you rented out part of your home.

Other adjustment for line 12. Enter any other amount to be added tothe cost in determining the adjusted basis on line 12. See IRS Pub.


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551 (Basis of Assets) for information on what other adjustments areapplicable (positive or negative).

12 Adjusted basis of your interest in the home sold or disposed of.(auto-calc) Computed as the “Original cost of property” plus “Pur-chase commissions, fees, etc.” plus “Improvements” less “Past de-preciation claimed” plus “Other adjustment for line 12.”

Itemize gain paid to QSML. If the loan was a Qualified SubordinateMortgage Loan (QSML) or a related grant, you may be required topay some of your gain on a sale to the QSML governmental lender.If you made such a payment, enter it in the amount column of asupporting statement for this line. Show in the text column the dateof the payment and how you computed the amount to pay. An en-try here will be flagged on the official printout with QSML printedbeside line 13.

13 Gain or (loss) from sale or disposition. (auto-calc) Computed as line11 less line 12 less the preceding amount paid to QSML. If a loss,you do not have recapture tax but you still must file this form withyour return.

14 Multiply line 13 by 50% (.50). (auto-calc) Normally computed as indi-cated. However, if you are not required to file Form 8828 (as de-termined below line 8), the result will be zero instead so that no re-capture tax is computed.

AGI on Form 1040, line 38. (auto-calc) Taken from Form 1040 as in-dicated.

Tax-exempt interest on Form 1040, line 8b. (auto-calc) Taken fromForm 1040 as indicated.

Gain included on Form 1040 for this sale. If any of the gain on thesale is taxable income to you, you must enter that amount here.This is relatively rare because the allowed exclusion of $250,000 ofgain ($500,000 if married filing separately) on the sale of yourhome will generally exceed any gain from the sale of the low-pricedhousing that is typical of the federal subsidy.

Other adjustment for line 15. Enter any other amount to be added toAGI in determining the adjusted AGI for line 15, such as tax-exemptinterest not shown on Form 1040, line 8b, including accrued inter-est.

15 Modified adjusted gross income. (auto-calc) Computed as “AGI onForm 1040, line 38” plus “Tax-exempt interest on Form 1040, line8b” less “Gain included on Form 1040 for this sale” plus “Otheradjustment for line 15.”

16 Adjusted qualifying income. You must determine the amount to en-ter here from a table in documentation that came with the originalloan. The table shows your “adjusted qualifying income” based onyour family size and the number of years and months shown in line7 of this form.

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17 Subtract line 16 form line 15. (auto-calc) Computed as indicated. Ifzero or a loss, you do not have recapture tax but you still must filethis form with your return.

18 Income percentage. (auto-calc) Computed as line 17 divided by$5,000 expressed as a percentage, but no more than 100% androunded to the nearest whole percent.

19 Federally subsidized amount. You should find this amount in thedocumentation that came with the original loan. It is 6.25% of thehighest amount of the loan that was federally subsidized.

Holding period percentage from issuer. You will find the percentageto enter here from the same table (in the documentation that camewith the original loan) that you used in determining the amount forline 16. This percentage will be used for line 20 only if you held theloan at least 4 years before fully repaying it. Otherwise a specialcalculation is used, as described next.

20 Holding period percentage. (auto-calc) Computed as the precedingentry if the date on line 8 is more than 4 years after the date on line5. Otherwise a calculation based on the IRS worksheet on the lastpage of the IRS Instructions for Form 8828 is used, in which casethe result is fully automatic based on the dates you entered at lines5, 6, and 8.

21 Multiply line 19 by the percentage on line 18. (auto-calc) Computedas indicated.

22 Recapture amount. (auto-calc) Computed as the amount on line 18times the percentage on line 21.

23 Tax. Smaller of line 14 or line 22. (auto-calc) Computed as indicated.This result on line 23 is posted to the FMSR component of Form 1040, line63.



Form 8834

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Form 8834 / Qualified Electric Vehicle Credit

Purpose. This form is used to figure and claim a credit for a qualified electricvehicle you first used in the current tax year. To be qualified the vehicle mustbe powered primarily by an electric motor, so hybrid cars like the Honda In-sight and Toyota Prius do not qualify. The vehicle must also have at leastfour wheels and designed for use on public roads. See the IRS Form 8834 In-structions for more requirements for the vehicle to be qualified. For a quali-fied vehicle placed in service during the tax year, the credit is the lesser of$1,000 or 2.5% of the cost of the vehicle (after reduction for any section179 deduction claimed for it). In the Form 1040 software, Form 8834 is ac-cessible through the Road Map at the 8834 line for line 55c of Form 1040.(In the Form 1065 software, Form 8834 is accessible through the Road Mapat the credit line for line 15f of Schedule K labeled “8834 Qlf. Electric vehi-cle.”)

PART I, TENTATIVE CREDIT. The full credit is computed in this part. (The al-lowable part is computed in Part II for Form 1040 returns. For partnership(Form 1065) returns, Part II is not applicable because the full credit is passedthrough to partners.)

Credit allowance slashed in four. This credit has had an unstable history. Theoriginal credit was 10% of the basis, with a $4,000 maximum for any onevehicle. It was then slated to phase out in 2.5% (and $1,000) incrementsstarting 2004. However, it received a new lease on life from the WorkingFamilies Tax Relief Act of 2004, which reinstated the full credit retroactivelyto January 1, 2004 and extended the full credit to the end of 2005. For2006, the credit returns to the original phaseout schedule as if the phaseouthad occurred all along, so the credit for 2006 is just 2.5% of the basis, witha maximum of $1,000 for any one vehicle. The credit expired at the end of2006, so this is the last tax filing season when it can be claimed.

1 through 7. Lines 1 through 7 are completed separately for each vehi-cle and therefore appear only on the supporting worksheets accessed atthe following line:

Itemize HERE for lines 1 through 7. (Supported by the Electric VehicleWorksheet, Figure Prem-16.) The credit is computed on the sup-porting worksheets at a rate of 2.5% of the basis after section 179deductions, subject to a maximum credit per vehicle of $1,000.

Number of vehicles claimed. (auto-calc) Computed as the number ofworksheets completed for Form 8834.

8 Add columns (a) through (c) on line 7. (auto-calc) Computed as thesum of credits on line 7 of all supporting worksheets combined.Each worksheet is printed on a separate column of the officialprinted Form 8834, column (a), (b), or (c). However, the softwareprints as many pages of Form 8834 as you need to report an unlim-ited number of vehicles. (For e-file, no more than 5 pages of Form

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8834 are accepted by the IRS. Therefore, if you have more than 15vehicles to report you must file a paper return.)

9 Qualified electric vehicle credits from pass-through entities. S corpo-rations and partnerships do not claim the credit themselves, but pass iton to shareholders and partners for use on their returns.

Schedule K-1 (Form 1120S), box 13, code D, E, or P. If you are ashareholder in an S corporation, the credits passed on to you arereported to you on a Schedule K-1 (Form 1120S). Note that codesD, E, and P encompass much more than the credit for this form. En-ter here only the part of box 13 codes D, E, and P that stems fromthe Qualified Electric Vehicle Credit.

Schedule K-1 (Form 1065), box 15, code D, E, or P. If you are a part-ner, the credits passed on to you are reported to you on a ScheduleK-1 (Form 1065). Note that codes D, E, and P encompass muchmore than the credit for this form. Enter here only the part of box15 codes D, E, and P that stems from the Qualified Electric VehicleCredit.

9 Qualified electric vehicle credits from pass-through entities. (auto-calc) Computed as the sum of the preceding two entries.

10 Add lines 8 and 9. (auto-calc) Computed as indicated.11 Passive activity credits included on line 10. If any of the credits on

this form are subject to passive activity limitations, you must com-plete Form 8582-CR (not built into the software) to determine theamount you can claim this year. Enter on this line the full amountof credit before passive activity limitations. (This line is not applica-ble to partnerships, so the entry is automatically zero for the Form1065 software.)

12 Subtract line 11 from line 10. (auto-calc) Computed as indicated.13 Passive activity credits allowed for 2006. Enter on this line the part

of line 11 that is allowed this year, as computed on Form 8582-CR.Your entry here can be no greater than the amount on line 11, andshould be less than line 11 if any of the credits are reduced by thepassive activity limitations. (This line is not applicable to partner-ships, so the entry is automatically zero for the Form 1065 soft-ware.)

14 TENTATIVE QUALIFIED ELECTRIC VEHICLE CREDIT. (auto-calc)Computed as the sum of lines 12 and 13, this is the full credit be-fore limitation to tax liability.

In the Form 1040 software, the amount on line 14 is used in Part II of Form8834, where the tax liability limit is applied. (In the Form 1065 software, theamount on line 14 is posted to the credit line for line 15f of Schedule K la-beled “8834 Qlf. Electric vehicle.”)


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Electric Vehicle Work-sheet. (Figure Prem-16)Use a separate work-sheet for each vehicle.

Vehicle ID (notfor IRS). This15-characterline is pro-vided only foryour own re-cord keeping.It is neitherrequired by nor reported to the IRS.

1 Date vehicle placed in service. Enter the date in the standardmm/dd/yyyy format. Only dates within the tax year are allowed. Allother dates result in zero for the computed lines (4 through 7).

2 Cost of vehicle. Enter the cost before reduction by any depreciation.3 Section 179 expense deduction. Enter any section 179 expense you

deducted for this vehicle through Form 4562. The amount shouldbe shown on line i of a Listed Property Worksheet for this vehicle (insupport of line 26 of Form 4562).

4 Subtract line 3 from line 2. (auto-calc) Computed as indicated, this isthe basis available for the credit.

5 Multiply line 4 by 2.5% (.025). (auto-calc) Usually computed as indi-cated, the multiplier is zero if you entered a date outside of the taxyear.

6 Maximum credit per vehicle. (auto-calc) Computed as $1,000 for taxyear 2006 and zero thereafter.

7 Smaller of line 5 or line 6. (auto-calc) Computed as indicated, this isthe maximum credit available for this vehicle.

The result on line 7 is included in the total at line 8 of Form 8834.

PART II, ALLOWABLE CREDIT. This part is applicable only to Form 1040 re-turns, and limits the credit to the amount by which the regular tax (after mostother credits) exceeds the tentative minimum tax. Accordingly, you are al-lowed NO credit if you have an alternative minimum tax, but are allowedmore tax as the tentative minimum tax falls below the regular tax (after mostother credits). (Part II is not applicable to Form 1065 returns because the fullcredit is passed through to partners.)

15 Regular tax before credits. (auto-calc) From Form 1040, line 44.16 Credits that reduce regular tax before the qualified electric vehicle credit:16a Foreign tax credit. (auto-calc) Taken from Form 1040, line 47.16b Credit from Form 1040, lines 48 through 54. (auto-calc) Taken from

Form 1040 as indicated.

ELECTRIC VEHICLE WORKSHEETELECTRIC VEHICLE WORKSHEETELECTRIC VEHICLE WORKSHEETELECTRIC VEHICLE WORKSHEET Vehicle ID (not for IRS).. Vehicle ID (not for IRS).. Vehicle ID (not for IRS).. Vehicle ID (not for IRS).. 1 Date veh placed in service. 1 Date veh placed in service. 1 Date veh placed in service. 1 Date veh placed in service. 2 Cost of vehicle............ 0 2 Cost of vehicle............ 0 2 Cost of vehicle............ 0 2 Cost of vehicle............ 0 3 Sec. 179 expense deduction. 0 3 Sec. 179 expense deduction. 0 3 Sec. 179 expense deduction. 0 3 Sec. 179 expense deduction. 0 4 Subtract line 3 from line 2 4 Subtract line 3 from line 2 4 Subtract line 3 from line 2 4 Subtract line 3 from line 2▒ 0▒ 0▒ 0▒ 0 5 Multiply ln 4 by 2.5%(.025) 5 Multiply ln 4 by 2.5%(.025) 5 Multiply ln 4 by 2.5%(.025) 5 Multiply ln 4 by 2.5%(.025)▒ 0▒ 0▒ 0▒ 0 (zero if placed after 2006) (zero if placed after 2006) (zero if placed after 2006) (zero if placed after 2006) 6 Maximum credit per vehicle. 6 Maximum credit per vehicle. 6 Maximum credit per vehicle. 6 Maximum credit per vehicle.▒ 0▒ 0▒ 0▒ 0 7 Smaller of line 5 or line 6 7 Smaller of line 5 or line 6 7 Smaller of line 5 or line 6 7 Smaller of line 5 or line 6▒ 0▒ 0▒ 0▒ 0

Figure Prem-16. Electric Vehicle Worksheet

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16c American Samoa economic development credit (Form 5735). (auto-calc) Computed as zero, this line is applicable only to corporate re-turns, not individual or partnership returns. (This scope and title ofthis form were changed by the Tax Relief and Health Care Act of2006, but the new form was not yet released when these docu-ment was prepared. The form was formerly titled “PossessionsCorporation Tax Credit, and applied to all U.S. possessions, not justAmerican Samoa.)

Other credits eligible for line 16d. (Caution: This line is no longer apart of the official Form 8834, and should not be used unless spe-cifically instructed by the IRS to include any other credit in line 16d,below.) This line is provided for any other credits not listed abovethat can be used to reduce regular tax before the credit on thisform. These credits should have been included in line 56 of Form1040, but not all credits on that line can be used here. You mustitemize any entries in a supporting statement for this line.

16d Add lines 16a through 16c (auto-calc) Computed as indicated plusthe above extra credit, this is total credit applied before the creditfor this form.

17 Net regular tax. (auto-calc) Computed as line 15 less 16d, but noless than zero. If zero, no credit is allowed.

18 Tentative minimum tax. (auto-calc) Taken from Form 6251, line 33.19 Subtract line 18 from line 17. (auto-calc) Computed as indicated, but

no less than zero. If zero, no credit is allowed.20 QUALIFIED ELECTRIC VEHICLE CREDIT. (auto-calc) Computed as

the smaller of line 14 or line 19, this is the amount of credit allowedfor the 2006 Form 1040 return. No carryover to other years is al-lowed, so any amount by which this line falls short of line 14 is lostforever.

The result on line 20 is posted to Form 1040 as a component of line 55c ofForm 1040.



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Form 8839 / Qualified Adoption Expenses

Purpose. This form is used to figure and claim a credit for adopting a child ordisabled person, even if the adoption was not yet final by the end of the taxyear. The form is also used to justify the exclusion of employer-providedbenefits already excluded from the employee’s Form W-2, or to figure theamount that must be added back to income or any additional exclusion for achild with special needs. The credit and exclusion are both generally limitedto qualified expenses up to $10,960 per adopted child, or the full $10,960 ir-respective of expenses for a child with special needs. Form 8839 is accessi-ble through the Road Map at line 54b of Form 1040.

CAUTION: Credit and exclusion cannot use the same expenses. Form 8839provides for both a credit (in Part II) and an exclusion (in Part III), and bothcan be claimed for the same adopted child. Therefore, when you enter yourexpenses in line 5 of the form (via the worksheet we provide), you must ex-clude expenses covered by your employer. You must also exclude expensespaid by anyone else or expenses allowed as a credit or deduction elsewhere.

Information Required for MFS filers. These questions need be answered onlyfor MFS filers (that is, those who file Form 1040 using filing status 3 -- Mar-ried Filing Separately). Qualification for MFS filers to claim the credit or exclu-sion for a child depends on the answers to these questions, the modifiedAGIs, and the answers on the worksheet for the child. .

Legally separated by decree? If you are legally separated under a de-cree of divorce or separate maintenance, you do not have to satisfythe requirements that others filing separately must satisfy. Instead,you are considered unmarried for the purposes of this form even ifyou use filing status 3. You should answer this question before youcomplete the worksheets for line 1. CAUTION: If you answer thisquestion after completing the worksheets for line 1, you must returnto the worksheets so that the proper determination of qualificationfor each child can be made.

Did you live apart from the spouse during the last 6 months of the taxyear? To qualify for Form 8839, the answer must be Yes if marriedfiling separately unless you are legally separated by decree.

Did you provide over half the cost of keeping up your home? To qualifyfor Form 8839, the answer must be Yes if married filing separatelyunless you are legally separated by decree.

In addition to the above requirements, the child must have lived with youmore than half of the tax year for you to claim a credit or exclusion for thatchild. This requirement is separately answered on the worksheet for eachchild.

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PART I, INFORMATION ABOUT YOUR ELIGIBLE CHILD OR CHILDREN. Allinformation for Form 8839 is entered in this section. The remainder of theform is then completed automatically for you based on the information youprovide.

1 Number of eligible children. (Supported by the Adoption ExpenseWorksheet, Figure Prem-17.) All information about the adoptees isentered on the worksheets you access here, whether you use Part IIor Part III of the form. The number of children for whom you pro-vided complete information (that is, the number of worksheets youproperly completed) appears on this line.

ONLY if information is incomplete, identify agent or agency. If youcannot complete all information on the worksheets (such as the fullname and SSN), you must enter “See page 2” for the appropriate lineof the worksheet and provide in the following lines the name and ad-dress of the agency or agent that assisted you in the attempted adop-tion. Valid reasons for not having complete information include that theadoption was unsuccessful or the adoption was not final by the end ofthe tax year. If you make on entry on either of the following two lines,the words “See page 2” will appear on the official printout of Form8839 beside the heading for line 1(a), and your entries will be printednear the bottom of page 2.

Name. Enter the name of the agent or agency in 25 characters orless.

Address of agent or agency. Enter the address of the agent oragency in 35 characters or less.

Summary of worksheets:Filed Form 8839 in a prior year? (auto-calc) Answered Yes if youmade an entry for line 3 on any of the worksheets.

Amounts on line 6. (auto-calc) Computed as the sum of amounts online 6 for all worksheets combined, this total is used for line 7 ofForm 8839 (in Part II).

Received prior employer-provided adoption benefits? (auto-calc) An-swered Yes if you made an entry for line 20 on any of the work-sheets.

Amounts on line 22. (auto-calc) Computed as the sum of amounts online 22 for all worksheets combined, this total is used for line 23 ofForm 8839 (in Part III).

Amounts on line 24. (auto-calc) Computed as the sum of amounts online 24 for all worksheets combined, this total is used for line 25 ofForm 8839 (in Part III).


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Adoption Expense Worksheet. (Figure Prem-17) You must generally use aseparate worksheet for each separate child. However, if you failed in previousattempts to adopt one child, you must combine all children into one child forthe purposes of this form. Name only the child finally adopted or, if not yetfinal, the last one attempting to adopt.

I-Information on Eligible Child. All filers must complete this section, which isscreen 1 of the 4-screen worksheet for each child. (See Figure Prem-17.)

a. First name.Enter firstname in 10characters orless. If you donot know thefull name ofthe child be-fore you filethe return,enter “Seepage 2” onthis line, leavethe next entryblank, and,after you exitthe work-sheets, sup-ply the name and address of the adopting agent or agency on theentry lines below line 1 of Form 8839.Last name. Enter last name in 15 characters or less. If you do not knowthe full name of the child before you file the return, enter “See page 2”and, after you exit the worksheets, supply the name and address of theadopting agent or agency on the entry lines below line 1 of Form 8839.e-file name. (auto-calc) The names you enter are coded into a 25-character full name using IRS-specified symbols to highlight the lastname and IRS-specified abbreviations for suffixes. This result isused only in the e-file output for a return.e-file name control. (auto-calc) The last name you enter is coded intoa 4-character name control, usually the first four characters of the lastname. This result is used only in the e-file output for a return.

b. Year born. Enter the year in 4-digit format. The child must generallyby under age 18 to qualify you for the credit.

Disabled? If 18 or older by year-end, the child must be disabled(physically or mentally unable to take care of himself or herself) toqualify you for the credit or exclusion.

c. Born before 1989 and was disabled? (auto-calc) Answered Yes onlyif the preceding answer is Yes and your entry for line b precedes1989 (if preparing the return for tax year 2006).

ADOPTION EXPENSE(Scr 1of4)ADOPTION EXPENSE(Scr 1of4)ADOPTION EXPENSE(Scr 1of4)ADOPTION EXPENSE(Scr 1of4)I-Info on Eligible ChildI-Info on Eligible ChildI-Info on Eligible ChildI-Info on Eligible Child a. First name ............... a. First name ............... a. First name ............... a. First name ............... Last name ............... Last name ............... Last name ............... Last name ............... e-file name. e-file name. e-file name. e-file name. e-file name control... e-file name control... e-file name control... e-file name control... b. Year born................. b. Year born................. b. Year born................. b. Year born................. Disabled..................? No Disabled..................? No Disabled..................? No Disabled..................? No c. Born pre-1989 & disabled.. c. Born pre-1989 & disabled.. c. Born pre-1989 & disabled.. c. Born pre-1989 & disabled..▒ No▒ No▒ No▒ No d. Special needs.............? No d. Special needs.............? No d. Special needs.............? No d. Special needs.............? No e. Foreign child.............? No e. Foreign child.............? No e. Foreign child.............? No e. Foreign child.............? No f. Child�s SSN............... f. Child�s SSN............... f. Child�s SSN............... f. Child�s SSN............... Year adoption became final 0 Year adoption became final 0 Year adoption became final 0 Year adoption became final 0 Lived w/you over half 2006? No Lived w/you over half 2006? No Lived w/you over half 2006? No Lived w/you over half 2006? No Legally separate by decree Legally separate by decree Legally separate by decree Legally separate by decree▒ No▒ No▒ No▒ No Child counted as eligible Child counted as eligible Child counted as eligible Child counted as eligible▒ 0▒ 0▒ 0▒ 0 ======================================= ======================================= ======================================= =======================================

Figure Prem-17. Adoption Expense (Screen 1)

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d. Special needs? To answer Yes the child must have been a citizen orresident of the U.S. (or its possessions) when the adoption processbegan, must have been determined by a state as not returnable tohis or her parents’ home and not adoptable without assistance tothe adoptive parents. A child with special needs qualifies you for afull credit or exclusion even when your expenses do not match themaximum allowed amount.

e. Foreign child? To answer Yes the child must not have been a citizenor resident of the U.S. (or its possessions) when the adoption proc-ess began. You are not allowed a credit for a foreign child until thetax year in which the adoption becomes final. Similarly, you are notallowed to exclude any employer-provided benefits for a foreignchild until the tax year in which the adoption becomes final.

f. Child’s SSN. Enter the identifying number of the child in the standardxxx-xx-xxxx format. The number may be an SSN, ATIN, or ITIN, allof which use the same format. If you do not know the number be-fore you file the return, enter “See page 2” and after you exit theworksheets, supply the name and address of the adopting agent oragency on the entry lines below line 1 of Form 8839.

Year adoption became final. Enter the year as a 4-digit number.However, if the adoption is not yet final, leave the entry as zero.

Lived with you over half of 2006? This answer is relevant only if youare married filing separately but not separate by decree. In this casethe child must have lived with you for more than half of the year toqualify you for the credit or exclusion.

Legally separated by decree? (auto-calc) Taken from your answer atthe top of screen 1 of Form 8839, a Yes answer excludes the re-quirement for MFS filers that the child must have lived with youmore than half of the tax year.Child counted as eligible? (auto-calc) Answered Yes only if all ofthe following conditions are true: (1) The child is less than either less than 18 years old (line b is

1989 or later) or disabled (line c is Yes),(2) You made an entry for the child’s identifying number on line f,

and(3) If married filing separately, you answer is Yes to at least one of

the preceding two lines.

Info for ALL children. You must complete this section, which is at the top ofscreen 2 of the 4-screen worksheet, for every child regardless of your use forForm 8839. (See Figure Prem-18.)

Qualified expense paid in 2002 through 2004. Enter the amounts paid in2002, 2003, and 2004. Do not include any amount covered by anemployer-provided benefit or reimbursed by any other person andorganization. (An entry is required here only if the child is a foreignchild and the adoption was final in 2006.)


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Qualified expense paid in 2005. Enter the amount paid in 2005. Donot include any amount covered by an employer-provided benefit orreimbursed by any other person and organization.

Qualified expense paid in 2006. Enter the amount paid in 2006. Donot include any amount covered by an employer-provided benefit orreimbursed by any other person and organization.

Employer has a qualified adoption assistance program? You can an-swer Yes only if the employer has a separate written plan set up toprovide adoption assistance to its employees. See IRS Pub. 968(Tax Benefits for Adoption) for details. If you answer No, any em-ployer-provided benefits you received in the tax year are fully tax-able, which will be reflected in line 31 of Form 8839.

Employer-provided adoption benefits you received in 2006. Enter quali-fied amount received for this child. The total you received for theyear should be shown in box 12 of your 2006 Form W-2 with thecode T, but you must allocate that total among all worksheets ifmore than one child is adopted and planned to be adopted.

Info for foreign chil-dren. You must com-plete this section if youanswered Yes to line e,indicating that the childis a qualified foreignchild. For a foreignchild you can claim acredit or exclusion onlyin the tax year in whichthe adoption becamefinal, but can includeexpenses as far back as1997. Informationabout past years istherefore collected inthis section. (See Fig-ure Prem-18.)

Qualified expenses paid in 1997 through 2001. Enter the qualifiedamount paid in the cited years only. Do not include any amountcovered by an employer-provided benefit or reimbursed by any otherperson and organization.

Part of $5,000 limit allocated to another. The total of expenses for yearsprior to 2002 and after 1996 are subject to a $5,000 limit. How-ever, if you and another person (other than a spouse who filesjointly with you) adopt the child and both of you claim the credit,you must allocate the $5,000 maximum among the two of you. En-ter here that part of the maximum that is used by the other personon his or her tax return.

ADOPTION EXPENSE(Scr 2of4)ADOPTION EXPENSE(Scr 2of4)ADOPTION EXPENSE(Scr 2of4)ADOPTION EXPENSE(Scr 2of4) Qlfd. exp. pd.2002thru2004 0 Qlfd. exp. pd.2002thru2004 0 Qlfd. exp. pd.2002thru2004 0 Qlfd. exp. pd.2002thru2004 0 Qlfd. expense pd. in 2005. 0 Qlfd. expense pd. in 2005. 0 Qlfd. expense pd. in 2005. 0 Qlfd. expense pd. in 2005. 0 Qlfd. expense pd. in 2006. 0 Qlfd. expense pd. in 2006. 0 Qlfd. expense pd. in 2006. 0 Qlfd. expense pd. in 2006. 0 Employer has qlfd. program? Yes Employer has qlfd. program? Yes Employer has qlfd. program? Yes Employer has qlfd. program? Yes Employer beni rcvd in 2006 0 Employer beni rcvd in 2006 0 Employer beni rcvd in 2006 0 Employer beni rcvd in 2006 0Info for foreign children:Info for foreign children:Info for foreign children:Info for foreign children: Qlfd. exp. pd.1997thru2001 0 Qlfd. exp. pd.1997thru2001 0 Qlfd. exp. pd.1997thru2001 0 Qlfd. exp. pd.1997thru2001 0 Part of $5K lim to another 0 Part of $5K lim to another 0 Part of $5K lim to another 0 Part of $5K lim to another 0 Add�l qlfd expens for ln 5 Add�l qlfd expens for ln 5 Add�l qlfd expens for ln 5 Add�l qlfd expens for ln 5▒ 0▒ 0▒ 0▒ 0 Employer ben. 1997thru2001 0 Employer ben. 1997thru2001 0 Employer ben. 1997thru2001 0 Employer ben. 1997thru2001 0 Part of $5K lim to another 0 Part of $5K lim to another 0 Part of $5K lim to another 0 Part of $5K lim to another 0 Add�l emp ben for line 22. Add�l emp ben for line 22. Add�l emp ben for line 22. Add�l emp ben for line 22.▒ 0▒ 0▒ 0▒ 0 Employer beni 2002thru2005 0 Employer beni 2002thru2005 0 Employer beni 2002thru2005 0 Employer beni 2002thru2005 0Allowed amts. For 5 & 22:Allowed amts. For 5 & 22:Allowed amts. For 5 & 22:Allowed amts. For 5 & 22: Qlfd. adoption exp. for 5. Qlfd. adoption exp. for 5. Qlfd. adoption exp. for 5. Qlfd. adoption exp. for 5.▒ 0▒ 0▒ 0▒ 0 Employer benefits for 22.. Employer benefits for 22.. Employer benefits for 22.. Employer benefits for 22..▒ 0▒ 0▒ 0▒ 0


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Additional qualified expense for line 5. (auto-calc) Computed as thequalified expenses entered above for 1997 through 2001 but lim-ited to $5,000 less the preceding entry.

Employer-provided benefits received in 1997 through 2001. Enter theamount received in the cited years only.

Part of $5,000 limit allocated to another. The total of benefits for yearsprior to 2002 and after 1996 are subject to a $5,000 limit. How-ever, if you and another person (other than a spouse who filesjointly with you) adopt the child and both of you claim the exclu-sion, you must allocate the $5,000 maximum among the two ofyou. Enter here that part of the maximum that is used by the otherperson on his or her tax return.

Additional employer-provided benefit for line 22. (auto-calc) Computedas the benefits entered above for 1997 through 2001 but limited to$5,000 less the preceding entry.

Employer-provided adoption benefits you received in 2002 through2005. Enter qualified amount received for this child for tax years2002 through 2005 alone. The total you received each year shouldbe shown in box 12 of your Form W-2 for each year with the codeT, but you must allocate that total among all worksheets if morethan one child is adopted and planned to be adopted.

Allowed amounts for lines 5 and 22. Information entered in the preceding twosections is used to compute the total expenses for line 5 of Form 8839 andthe total employer-provided benefits for line 22 of Form 8839. (See FigurePrem-18.)

Qualified adoption expenses for line 5. (auto-calc) The computationdepends on a number of factors: (1) If the child is a foreign child and the adoption was final in the

tax year, computed as the sum of “Qualified. expense paid in2002 through 2004” plus “Qualified. expense paid in 2005”plus “Qualified. expense paid in 2006” plus “Additional qualifiedexpense for line 5.”

(2) If the child is a foreign child but the adoption was not final inthe tax year, computed as zero.

(3) If the child is not a foreign child and the adoption was not finalby the end of the tax year, computed as “Qualified. expensepaid in 2005.”

(4) If the child is not a foreign child and the adoption was final in aprior tax year, computed as “Qualified. expense paid in 2006.”

(5) If the child is not a foreign child and the adoption was final inthe tax year, but the child was not a child with special needs,computed as the sum of “Qualified. expense paid in 2005” plus“Qualified. expense paid in 2006.”

(6) If the child is not a foreign child, the adoption was final in thetax year, and the child was a child with special needs (indicated


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by line d), computed $10,960 regardless of your actual ex-penses.

Employer-provided benefits for line 22. (auto-calc) If the child is a for-eign child and the adoption was final in the tax year, computed asthe sum of “Employer-provided benefits received in 2006” plus“Additional employer-provided benefit for line 22” plus “Employer-provided benefits received in 2005.” Otherwise, computed as “Em-ployer-provided benefits received in 2006” alone.

II-Adoption Credit. You must complete this section, which is screen 3 of the4-screen worksheet for each child, only if you are claiming adoption credit forthe child. (See Figure Prem-19.)

2 Maximum exclusion per child. (auto-calc) If the child was counted aseligible on screen 1, the maximum exclusion for tax year 2006,$10,960, appears here automatically.

Amount allocated to another. If you and another person (other than aspouse who files jointly with you) adopt the child, you can bothclaim the credit but must allocate the $10,960 maximum amongthe two of you. Enter here that part of the maximum that is used tothe other person on his or her tax return.

If changed, maximum for line 2. (auto-calc) If you made an entry onthe preceding line, the remainder allocated to you appears here andis printed on the official printout of Form 8839 above the preprintedmaximum of $10,960.

Strikeout fororiginal line2. (auto-calc)If an amountappears onthe precedingline, thestrikeoutshown here isprinted on theofficial print-out of Form8839 so thatthe originalpreprinted maximum for line 2 is hidden, in accordance with IRS in-structions.

Prior amounts for this child:Last post-1997 Form 8839, line 3 plus line 6. If this child was claimedon a prior Form 8839 after 1997, enter the sum of lines 3 and 6 forthe child from the most recent Form 8839 on which this child wasclaimed.

1997 Form 8839, line 4. If the child was claimed on Form 8839 for taxyear 1997, enter line 4 for the child for that year.

ADOPTION EXPENSE(Scr 3of4)ADOPTION EXPENSE(Scr 3of4)ADOPTION EXPENSE(Scr 3of4)ADOPTION EXPENSE(Scr 3of4)II-Adoption CreditII-Adoption CreditII-Adoption CreditII-Adoption Credit 2 Maximum credit per child.. 2 Maximum credit per child.. 2 Maximum credit per child.. 2 Maximum credit per child..▒ 10,960.▒ 10,960.▒ 10,960.▒ 10,960. Amt. allocated to another 0 Amt. allocated to another 0 Amt. allocated to another 0 Amt. allocated to another 0 If changed, max. for ln 2 If changed, max. for ln 2 If changed, max. for ln 2 If changed, max. for ln 2▒ 0▒ 0▒ 0▒ 0 Strikeout for orig. ln 2. Strikeout for orig. ln 2. Strikeout for orig. ln 2. Strikeout for orig. ln 2. Prior amts for this child: Prior amts for this child: Prior amts for this child: Prior amts for this child: Last post-97 8839, ln 3+6 0 Last post-97 8839, ln 3+6 0 Last post-97 8839, ln 3+6 0 Last post-97 8839, ln 3+6 0 1997 Form 8839, line 4... 0 1997 Form 8839, line 4... 0 1997 Form 8839, line 4... 0 1997 Form 8839, line 4... 0 3 Amt. from prior Form 8839. 3 Amt. from prior Form 8839. 3 Amt. from prior Form 8839. 3 Amt. from prior Form 8839.▒ 0▒ 0▒ 0▒ 0 4 Subtract line 3 from ln 2. 4 Subtract line 3 from ln 2. 4 Subtract line 3 from ln 2. 4 Subtract line 3 from ln 2.▒ 0▒ 0▒ 0▒ 0 5 Qualified adoption expense 5 Qualified adoption expense 5 Qualified adoption expense 5 Qualified adoption expense▒ 0▒ 0▒ 0▒ 0 6 Smaller of line 4 or ln 5. 6 Smaller of line 4 or ln 5. 6 Smaller of line 4 or ln 5. 6 Smaller of line 4 or ln 5.▒ 0▒ 0▒ 0▒ 0


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3 Amount from prior Form 8839. (auto-calc) If an amount appears onthe above post-1997 line, that amount is normally used here. Oth-erwise, the amount on the 1997 line is used here. (If the child is aforeign child, this line is always computed as zero.) If an amountappears on line 3 for any child, the Yes box for line 3 will bechecked on the official printout of Form 8839. Otherwise the Nobox will be checked.


5 Qualified adoption expense. (auto-calc) Computed as “Qualifiedadoption expense for line 5” shown at the bottom of screen 2.

6 Smaller of line 4 or line 5. (auto-calc) Computed as indicated.

III-Employer Benefits. You must complete this section, which is screen 4 ofthe 4-screen worksheet for each child, only if you had employer-providedadoption benefits for the child. (See Figure Prem-20.)

19 Maximum ex-clusion perchild. (auto-calc) If thechild wascounted aseligible onscreen 1, themaximum ex-clusion for taxyear 2006,$10,960, ap-pears hereautomatically.

Amount allo-cated to an-other. If youand anotherperson (otherthan a spousewho files jointly with you) adopt the child, you can both claim theexclusion but must allocate the $10,960 maximum among the twoof you. Enter here that part of the maximum that is used to theother person on his or her tax return.

If changed, maximum for line 19. (auto-calc) Unless the child is a for-eign child, if you made an entry on the preceding line, the remainderallocated to you appears here and is printed on the official printoutof Form 8839 above the preprinted maximum of $10,960. (If thechild is a foreign child the amount computed for this line is muchmore complex. If the adoption was final during the tax year, themaximum is recomputed as the lesser of the same remainder as

ADOPTION EXPENSE(Scr 4of4)ADOPTION EXPENSE(Scr 4of4)ADOPTION EXPENSE(Scr 4of4)ADOPTION EXPENSE(Scr 4of4)III-Employer BenefitsIII-Employer BenefitsIII-Employer BenefitsIII-Employer Benefits19 Max. exclusion per child..19 Max. exclusion per child..19 Max. exclusion per child..19 Max. exclusion per child..▒ 0▒ 0▒ 0▒ 0 Amt. allocated to another 0 Amt. allocated to another 0 Amt. allocated to another 0 Amt. allocated to another 0 If changed, max for ln 19 If changed, max for ln 19 If changed, max for ln 19 If changed, max for ln 19▒ 0▒ 0▒ 0▒ 0 Strikeout for orig. ln 19 Strikeout for orig. ln 19 Strikeout for orig. ln 19 Strikeout for orig. ln 19 Prior amts for this child: Prior amts for this child: Prior amts for this child: Prior amts for this child: 2005 Form 8839,ln 20 + 24 0 2005 Form 8839,ln 20 + 24 0 2005 Form 8839,ln 20 + 24 0 2005 Form 8839,ln 20 + 24 0 2004 Form 8839,ln 20 + 24 0 2004 Form 8839,ln 20 + 24 0 2004 Form 8839,ln 20 + 24 0 2004 Form 8839,ln 20 + 24 0 2003 Form 8839,ln 20 + 24 0 2003 Form 8839,ln 20 + 24 0 2003 Form 8839,ln 20 + 24 0 2003 Form 8839,ln 20 + 24 0 2002 Form 8839,ln 20 + 24 0 2002 Form 8839,ln 20 + 24 0 2002 Form 8839,ln 20 + 24 0 2002 Form 8839,ln 20 + 24 0 2001 Form 8839,ln 16 + 20 0 2001 Form 8839,ln 16 + 20 0 2001 Form 8839,ln 16 + 20 0 2001 Form 8839,ln 16 + 20 0 2000 Form 8839,ln 16 + 20 0 2000 Form 8839,ln 16 + 20 0 2000 Form 8839,ln 16 + 20 0 2000 Form 8839,ln 16 + 20 0 1999 Form 8839,ln 20 + 24 0 1999 Form 8839,ln 20 + 24 0 1999 Form 8839,ln 20 + 24 0 1999 Form 8839,ln 20 + 24 0 1998 Form 8839,ln 18 + 22 0 1998 Form 8839,ln 18 + 22 0 1998 Form 8839,ln 18 + 22 0 1998 Form 8839,ln 18 + 22 0 1997 Form 8839, line 15.. 0 1997 Form 8839, line 15.. 0 1997 Form 8839, line 15.. 0 1997 Form 8839, line 15.. 0 20 Amt from last yr w/benefit 20 Amt from last yr w/benefit 20 Amt from last yr w/benefit 20 Amt from last yr w/benefit▒ 0▒ 0▒ 0▒ 0 21 Subtract ln 20 from ln 19. 21 Subtract ln 20 from ln 19. 21 Subtract ln 20 from ln 19. 21 Subtract ln 20 from ln 19.▒ 0▒ 0▒ 0▒ 0 22 Employer benis rcvd in yr. 22 Employer benis rcvd in yr. 22 Employer benis rcvd in yr. 22 Employer benis rcvd in yr.▒ 0▒ 0▒ 0▒ 0 24 Smaller of line 21 or 22.. 24 Smaller of line 21 or 22.. 24 Smaller of line 21 or 22.. 24 Smaller of line 21 or 22..▒ 0▒ 0▒ 0▒ 0 (but 21 if special needs (but 21 if special needs (but 21 if special needs (but 21 if special needs & adoption final in 2006) & adoption final in 2006) & adoption final in 2006) & adoption final in 2006)



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noted above vs. “Employer-provided benefits for line 22” shown atthe bottom of screen 2; otherwise the maximum is recomputed aszero. If the recomputed maximum is less than $10,960 then it ap-pears here and is printed on the official printout of Form 8839above the preprinted maximum of $10,960.)

Strikeout for original line 19. (auto-calc) If an amount appears on thepreceding line, the strikeout shown here is printed on the officialprintout of Form 8839 so that the original preprinted maximum forline 19 is hidden, in accordance with IRS instructions. This strikeoutwill also appear if you answered No to “Employer has a qualifiedadoption assistance program?” on screen 2, and the new amountfor line 19 will be zero.

Prior amounts for this child. In the following entries you need only enteran amount for the most recent Form 8839 for this child:

2005 Form 8839, lines 20 plus line 24. Enter as indicated if 2005 wasthe most recent tax year for which you received benefits for this child.








1997 Form 8839, line 15. Enter as indicated if 1997 was the most re-cent tax year for which you received benefits for this child.

20 Amount from the last year you received benefits. (auto-calc) Nor-mally computed as the first nonzero entry in the preceding six lines.(If the child is a foreign child, this line is always computed as zero.)


22 Employer-provided adoption benefits you received in 2006. (auto-calc) Computed as “Employer-provided benefits for line 22” shownat the bottom of screen 2.

24 Smaller of line 21 or line 22. (auto-calc) Normally computed as indi-cated, line 21 is used here instead if the child is identified as a childwith special needs on line e and the adoption was final during thetax year.

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Modified AGI for claimant. The IRS uses two slightly different definitions ofmodified AGI for Parts II and III of Form 8839, as computed here.

AGI on Form 1040, line 38. (auto-calc) Taken from Form 1040 as indi-cated, this is the AGI before any modification.

Excluded U.S. possession income. (auto-calc) Taken from your entrybelow line 22 of Form 1040 for “U.S. possession income not re-ported,” which is income from a U.S. possession, such as PuertoRico, that you did not report as taxable income on the return.

Excluded foreign housing expense. (auto-calc) Taken from Form 1040,this is the part of Form 1040, line 36 that stems from the foreignhousing deduction claimed via Form 2555.

Other foreign income excluded. (auto-calc) Taken from Form 1040, thisis the part of Form 1040, line 21 that stems from the foreign in-come and housing exclusion via Form 2555 or 2555-EZ. Thisamount appears as a negative number on Form 1040 (because it isa deduction from income), but appears here as a positive number(because it is being added back to income for purposes of the modi-fied AGI).

Modified AGI for line 8. (auto-calc) Computed as the sum of the pre-ceding four amounts, this is the AGI with excluded income addedback to income for this purposes of Form 8839.

Adoption benefits in Form 1040, line 7. (auto-calc) Any amount in line 7of Form 1040 that stems from Part III of this Form 8839 appearshere. It will be excluded from the computation of modified AGI forPart III. (In spite of the label, this entry can be negative or positive.)

Student loan interest deduction. (auto-calc) Taken from Form 1040,line 33.

Tuition and fees deduction. (auto-calc) Taken from the tuition and feespart of Form 1040, line 35.

Domestic production deduction. (auto-calc) Taken from the domesticproduction part of Form 1040, line 35.

Worksheet totals for line 23. (auto-calc) Taken as the total shown onthe line “Amounts on line 22” in the Summary of Worksheets, thisis the amount that will be used for line 23 of Form 8839.

Modified AGI for line 26. (auto-calc) Computed as “Modified AGI forline 8” less “Adoption benefits in Form 1040, line 7” plus the sumof the preceding four amounts.

Carryforward from 2005 Credit Carryforward Worksheet. If you have unusedcarryforwards from prior years, you can include here any carryforwards from2001 or later. The information for this section is found on the “Credit Carry-forward Worksheet” for carryforward to 2006, which you should have com-pleted after preparing your Form 8839 for tax year 2005. Even if you are in-eligible this year for credit based on new expenses because of a high AGI for2006, you may still qualify for the carryforward.


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Worksheet line 12 (carryforward from 2001). This is the earliest carry-forward you can claim on a return for tax year 2006. Any unusedcarryforward from prior years is lost forever.

Worksheet line 14 (carryforward from 2002). Enter as indicated.Worksheet line 16 (carryforward from 2003). Enter as indicated.Worksheet line 18 (carryforward from 2004). Enter as indicated.Worksheet line 20 (carryforward from 2005). Enter as indicated.

TOTAL carryforward to 2006 (worksheet line 23). (auto-calc) Computedas the sum of the preceding five lines, this is line 23 of the 2005Credit Carryforward Worksheet.

PART II, ADOPTION CREDIT. This section is fully automatic based on yourprior entries on the form and the worksheets. Note that amounts for lines 1through 6 are not shown here because they apply individually to each child,and therefore are seen only on the worksheets for line 1 and the officialprintouts of Form 8839.

Qualified for credit in Part II. (auto-calc) For this answer to be Yes, youmust have at least one qualifying child for line 1 with an amount online 6, have a modified AGI for line 8 less than $195,860 or a carry-forward from last year, and, if applicable, meet the special require-ments for MFS filers.

7 Add amounts on line 6. (auto-calc) Taken from the amounts on line 6of all worksheets combined (shown on screen 1).

8 Modified adjusted gross income. (auto-calc) Taken from “ModifiedAGI for line 8” shown on screen 2, which is based on the IRS’schart in their instructions for line 8.

9 If line 8 more than $164,410? (auto-calc) Answered as indicated.If Yes, subtract from line 8. (auto-calc) Computed as line 8 less$164,410, but no less than zero.

10 Divide line 9 by $40,000. (auto-calc) Computed as indicated, but nomore than 1.0, and expressed as a decimal to 4 places.

11 Multiply line 7 by line 10. (auto-calc) Computed as indicated.12 Subtract line 11 from line 7. (auto-calc) Computed as indicated.13 Credit carryforward from prior years. (auto-calc) Taken from “TOT-

AL carryforward to 2006 (worksheet line 23)” which resulted fromyour entries from the 2005 Credit Carryforward Worksheet. .

14 Add lines 12 and 13. (auto-calc) Computed as indicated.15 Amount on Form 1040, line 46. (auto-calc) Taken from Form 1040 as

indicated, this is your tax liability before credits.Form 1040, line 47 through 51. (auto-calc) Taken from Form 1040 asindicated, this is the sum of all credits through Form 1040, line 51.

Credit on Form 1040, line 53*. (auto-calc) Normally taken from Form1040 as indicated, this is amount may be revised if necessary toensure that the sum of the child tax credit, mortgage interest creditcomputed on Form 8396, and the adoption credit computed on thisform is the greatest it can be. See IRS Pub. 972 for the details ofthis computation, which the software performs automatically.

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Form 5695, line 12 (Form 1040, line 52a). (auto-calc) Taken from thepart of Form 1040, line 52, that stems from line 12 of Form 5695.The part that stems from line 29 of Form 5695 is not included.

Plus Form 8396, line 11 (Form 1040, line 54a). (auto-calc) Taken fromForm 1040, line 54a, this is the Mortgage Interest Credit claimed.

16 1040 filers: Total of amounts from Form 1040, lines 47 through 51and line 53; Form 8396, line 11; and Form 5695, line 12. (auto-calc)Computed as the sum of the preceding four lines, this is the sum ofall credits that take precedence over the adoption credit.

17 Subtract line 16 from line 15. (auto-calc) Computed as line indicated,but no less than zero.

18 ADOPTION CREDIT. (auto-calc) Computed as the lesser of line 17and line 14, this result is posted to line 54b of Form 1040.

PART III, EMPLOYER-PROVIDED ADOPTION BENEFITS. This section is fullyautomatic based on your prior entries on the form and the worksheets, ex-cept for the last line (on which MFJ filers must identify the spouse’s part ofany taxable benefits or additional exclusion). Amounts for lines 19 through22 and line 24 are not shown here because they apply individually to eachchild, and therefore are seen only on the worksheets for line 1 and the officialprintouts of Form 8839.

Qualified for credit in Part III. (auto-calc) For this answer to be Yes,you must have at least one qualifying child for line 1 with anamount on line 24, have a modified AGI for line 26 less than$195,860, and, if applicable, meet the special requirements forMFS filers.

23 Add amounts on line 22. (auto-calc) Taken from the amounts on line22 of all worksheets combined (shown on screen 1).

25 Add amounts on line 24. (auto-calc) Taken from the amounts on line24 of all worksheets combined (shown on screen 1).

26 Modified adjusted gross income (from worksheet). (auto-calc) Takenfrom “Modified AGI for line 26” shown on screen 2, which is basedon the IRS’s Modified AGI Worksheet—Line 26 in the IRS 2006 In-structions for Form 8839.

27 If line 26 more than $164,410? (auto-calc) Answered as indicated.If Yes, subtract from line 26. (auto-calc) Computed as line 26 less$164,410, but no less than zero.

28 Divide line 27 by $40,000. (auto-calc) Computed as indicated, but nomore than 1.0, and expressed as a decimal to 4 places.

29 Multiply line 25 by line 28. (auto-calc) Computed as indicated.30 EXCLUDED BENEFITS. (auto-calc) Computed as line 25 less line 29,

but no less than zero.Is line 30 more than line 23? (auto-calc) If Yes, you are allowed a re-duction in taxable income because of the rules for children withspecial needs. This exclusion will be reflected in line 31, below, andwill result in a reduction in Form 1040, line 7 and the printing of a


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flag on the official printout of Form 1040 to indicate that the reduc-tion stems from a child with Special Needs.

Pre-2006 foreign child exclusion. (auto-calc) If any of the worksheetswas prepared for a foreign child whose adoption was final in the taxyear, the total employer-provided benefits received before 2006(subject to limitations computed on the worksheet) appear here. Theamount on this line is used as an adjustment to line 31 in order tosatisfy the special IRS instructions for a foreign child.

31 TAXABLE BENEFITS. (auto-calc) Computed as line 23 less line 30less the amount on the preceding line. This result is posted to Form1040 as an adjustment to Form 1040, line 7. If nonzero, it isprinted near Form 1040, line 7 on the official printout along with aflag that indicates its source. If positive, the flag is “AB” (for “Adop-tion Benefits”). If negative, the flag is “SNE” (for “Special Needs”)when line 30 is more than line 23, and “PYAB” (for “Prior YearAdoption Benefits”) otherwise. (“PYAB” indicates that prior benefitsfor a foreign child caused line 31 to be negative.)

Part of line 31 for spouse. If married, you must identify the portion ofline 31 that applies to the spouse alone so that the amount will beproperly allocated between you and spouse for the purposes ofvarious unrelated calculations on the return.

CREDIT CARRYFORWARD WORKSHEET. This worksheet shows the amountof disallowed credit that can be carried forward to tax year 2007 and variousamounts that will be needed for the Credit Carryforward Worksheet to beused next year for computing any carryforward to tax year 2008. The work-sheet is fully automatic based on prior entries.

1 Amount from Form 8839, line 12. (auto-calc) Computed as indicated.2 2001 credit carryforward (line 12 of your 2005 worksheet). (auto-calc)

Taken from your entry on screen 2 for this line.3 2002 credit carryforward (line 14 of your 2005 worksheet). (auto-calc)




Taken from your entry on screen 2 for this line.7 Add lines 1 through 6. (auto-calc) Computed as indicated.8 Amount from Form 8839, line 18. (auto-calc) Computed as indicated.9 Subtract line 8 from line 7. (auto-calc) Computed as indicated.10, 11, 13, 15, 17, 19, 21, and 22. These lines are intentionally omitted

from the screen for simplicity, but are reflected in the calculations.12 2002 credit carryforward to 2007. (auto-calc) Compute line 11 (not

shown) as line 8 less line 2, but no less than zero, then computeline 12 as line 3 less line 11, but no less than zero.

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14 2003 credit carryforward to 2007. (auto-calc) Compute line 13 (notshown) as line 11 less line 3, but no less than zero, then computeline 14 as line 4 less line 13, but no less than zero.



20 2006 credit carryforward to 2007. (auto-calc) Compute line 10 (notshown) as line 2 less line 8, but no less than zero, then computeline 19 (not shown) as the sum of lines 10, 12, 14, 16, and 18.Next, compute line 20 as line 9 less line 19, but no less than zero.

23 TOTAL CREDIT CARRYFORWARD TO 2007. (auto-calc) Computed asthe sum of lines 19 and 20 less line 10, but no less than zero, thiscarryforward will be claimed on line 13 of the 2007 Form 8839.



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Form 8846 / Credit for Employer Social Security and Medi-care Taxes Paid on Certain Employee Tips

Purpose. This form is used to claim a credit for social security and Medicaretax paid on tips on behalf of food service employees, but only to the extentthat the tips are not used to meet Federal minimum wage requirements. Inthe Form 1040 software, Form 8846 is accessible through the Road Map atline 1j of Form 3800. (In the Form 1065 software, Form 8846 is accessiblethrough the Road Map at the credit line for line 15f of Schedule K labeled“8846 Employer ss/Med tips.”)

For the food service industry ONLY. This special credit is only for food orbeverage establishments where tipping of employees is customary for deliv-ering or serving food or beverage. Furthermore, only those tips for which youpaid or incurred social security and Medicare tax qualify.

No longer a stand-alone form. Starting tax year 2006, credit from Form 8846can no longer be reported directly on Form 1040. You must claim the creditat line 1j of Form 3800 even if this is the only credit you have to report onForm 3800. As a result, the section for applying a tax limitation to the creditis gone, and the limitation is now applied on Form 3800.

PART I, CURRENT YEAR CREDIT. The full credit is computed in this partbased on qualifying tips, before applying any limitations.

1 Tips received by employees on which you paid or incurred employersocial security and Medicare taxes during the tax year. Enter allqualifying tips for the tax year for which you were liable for socialsecurity and Medicare taxes.

2 Tips not subject to the credit provisions. If you pay any tipped em-ployees less than the federal minimum wage ($5.15 per hour for2006), the portion of those tips used to reach the minimum wage isnot eligible for the credit. You must determine the amount of ineligi-ble tips separately for each individual as the amount by which thetotal hours worked times the minimum wage rate exceeds the ac-tual wages paid (excluding tips), but no more than the amount oftips received by the employee.

3 Creditable tips. (auto-calc) Computed as line 1 less line 2.If you had any tipped employees whose wages (including tips) ex-

ceeded $94,200, enter the part of line 3 subject ONLY to Medicaretax in a supporting statement that explains your computation. Ifthe sum of wages and tips for any employee exceeds the maximumamount subject to social security tax ($94,200 for tax year 2006),you must figure for each such employee the amount of tips thatmake the total of wages plus tips exceed this maximum. Enter in asupporting statement for this line this excess for each employee inthe amount column and show how you figured the amount in the

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text column. If you make an entry here, a check box at line 4 ischecked on the official printout and the calculation for line 4 ismodified.

4 Multiply line 3 by 7.65%. (auto-calc) Normally computed as indicated.However, if you have an entry on the preceding line, only theamount on line 3 less the preceding amount is multiplied by 7.65%,then the amount on the preceding line times 1.45% is added to theresult. CAUTION: The deduction on your return for social securityand Medicare taxes paid must exclude this amount. For example, ifyou normally report those taxes on line 23 of Schedule C, you mustexclude the amount on line 4 from your entry for Schedule C, line23.

5 Form 8846 credits from pass-through entities. Enter any Form 8846credits from a pass-through entity shown as code G, H, or P in box13 of Schedule K-1 (Form 1120S) from an S corporation or box 15of Schedule K-1 (Form 1065) from a partnership.

6 CURRENT YEAR CREDIT. (auto-calc) Computed as the sum of lines 4and 5, this is the credit before any limitations are applied.

In the Form 1040 software, the amount on line 6 is posted to line 1j of Form3800. (In the Form 1065 software, the amount on line 6 is posted to thecredit line for line 15f of Schedule K labeled “8846 Employer ss/Med tips.”)



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Form 8853 / Archer MSAs and Long-Term Care Insurance Con-tracts

Purpose. This form is used to report contributions to Archer MSAs and figurethe corresponding deduction, and to report taxable distributions and pay-ments from MSAs and long-term care (LTC) insurance contracts. Once in-stalled, Form 8853 will be accessible through the Road Map at MSA, Med-MSA, and LTC lines above line 21 of Form 1040, the Archer MSA line aboveline 23 of Form 1040, and the MSA and MedMSA lines above line 63 ofForm 1040.

Beware complexities. So many aspects of the form defy intuition, especially forjoint returns where both spouses have MSAs or LTCs, that you may be temptedto use overrides on illogical results. If you experience such a temptation, it isvery important that you read these instructions and the 8-page IRS instructionsfor this form, because our calculations and printouts may be much more sophis-ticated than you realize. Unexpected results can arise when both spouses haveMSAs, or a taxpayer inherits an MSA, or there is only a partial exception to the50% penalty, or there is more than one LTC policyholder. (The difficulties arisebecause the form is physically designed to handle only the simple cases, but itis used for much more through convoluted IRS instructions.)

Information on YOUR Archer MSA (for Section A). All of the information re-quired for contributions and most of the information required for distributionsare entered here. CAUTION: Every answer is important for this complex form,so don’t skip what you don’t understand.

Dependent on another return. (auto-calc) Taken from your answer onForm 1040. You cannot deduct any contributions to an Archer MSAif you can be claimed as a dependent on someone else’s return.

Your age (from Form 1040). (auto-calc) Taken from your entry on Form1040.

Number of months contributions NOT allowed. Eligibility to make con-tributions to an Archer MSA is determined monthly, on the 1st dayof each month. Therefore, you must enter here the number of fullmonths in which you were ineligible to contribute to an ArcherMSA. (This entry is used to proportionately reduce the limitation forline 5 as your entry rises from 0 to 12, in accordance with the IRSLine 5 Worksheet.)

Example 1: You are ineligible for months in which you are enrolled inMedicare. Therefore, if you first enroll in Medicare on January 2 ofthe tax year, you should enter 11 here. (Formerly, you could notmake contributions for the months in which you were eligible forMedicare, but now you are allowed to make contributions unlessenrolled in Medicare.)

Example 2: You are ineligible to make contributions to an ArcherMSA if you can be claimed as a dependent on someone else’s re-

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turn. Therefore, your entry here will always be forced to 12 if youare a dependent of another.

Example 3: You are ineligible for all months prior to establishing theHDHP. Furthermore, if you established it after the 1st of the month,you are ineligible for that month. Accordingly, if you established theHDHP on February 2, 2006, you must enter 2 here because you areineligible for January and February, 2006.

Uninsured when the Archer MSA was established? Answer Yes only ifthe account holder was previously uninsured at the time the MSAwas established. See IRS instructions for details.

Does HDHP cover Family? An Archer MSA can only be set up for anemployee of a small business (or self-employed) who has a HighDeductible Health Insurance Plan (HDHP). Answer Yes only if thecoverage for this plan is family coverage rather than self-only. If youhave more than one plan and one is a family plan, answer Yes hereand answer all succeeding questions for that plan alone.

Annual deductible for plan. By the rules for Archer MSAs, for 2006 thedeductible is $3,650 to $5,450 for family coverage and $1,800 to$2,700 for self-only coverage. The software ensures that your entrylies in this range based on your answer to the preceding question.

% used in line 5 worksheet. (auto-calc) The limitation on contributions isbased on a percentage of the deductible for the plan. The percent-age is usually 75% for family coverage and 65% for self-only cov-erage. However, if married filing separately, the percentage for fam-ily coverage is nominally 37.5% (half of 75%), but you can overridethis line with a different fraction of 75% as long as the percentagefor you and spouse combined is 75%.

Limitation per line 5 worksheet. (auto-calc) The IRS instructions includea Line 5 Limitation Chart and Worksheet that helps you determinethe limitation on contributions at line 5 of Form 8853. The softwarecomputes the limitation using that worksheet under the assumptionthat, for the months you are eligible, your deductible is the sameevery month throughout the year. If this assumption is not valid foryour case, you may have to override the result that appears herewith a manual calculation using the IRS worksheet. This result isproportionately reduced when “Number of months contributionsNOT allowed” is greater than zero, and reduced to zero when thenumber is 12.

Earned income on Form 1040. (auto-calc) Computed from amountsthroughout the return, this is the earned income attributed to youfrom wages and self-employment. This and the next several linesare used to determine your compensation applicable to the ArcherMSA. This compensation has an effect on Form 8853 only if yourcontributions for the year exceeded your wages (or self-employmentincome) for the job (or business) under which the plan was estab-lished.


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Wages included in the above. (auto-calc) This is the part of Form1040 line 7 attributed to you.

Net self-employment. (auto-calc) Computed as your earned incomeless your wages.

HDHP employer-maintained? If the Archer MSA applies to your workas an employee, you must answer Yes here. The answer is auto-matically Yes if the preceding two lines show that there are wagesbut no self-employment income. Conversely, the answer is auto-matically No if the preceding two lines show that there is self-employment income but no wages.

Tentative compensation. (auto-calc) Taken as your wages if the pre-ceding answer is Yes, and taken as your net self-employment in-come if not.

Adjustment for multiple sources. If your wages are used above butyou have more than one job, you must enter a negative numberhere to subtract out wages from all jobs other than the one underwhich the Archer MSA was established. Conversely, if your self-employment income is used and you have more than one trade orbusiness, you must enter an adjustment to remove all self-employment income other than the amount related to the trade orbusiness under which the Archer MSA was established.

Compensation for line 6. (auto-calc) Computed as the “Tentative com-pensation” less the preceding adjustment.

Your Archer MSA contributions for 2006. Enter only the contributionsyou made to your Archer MSA, including those made for 2006 inthe period January 1, 2007 through April 15, 2007, but do not in-clude rollovers. This amount will be used for line 4 of your contribu-tion to Section A, Part II of Form 8853. Do not include contribu-tions made by your employer.

Employer’s Archer MSA contributions for 2006. Enter the contributionsyour employer made to your Archer MSA. This amount will be usedfor line 3 of your contribution to Section A, Part II of Form 8853.If your employer made any contributions during the year, you arenot allowed to make any contributions. Any contributions you makeare considered excess contributions and must be withdrawn.

Distributions from your Archer MSAs in 2006. Enter the total distribu-tions received. This amount should be reported to you in box 1 of aForm 1099-SA with Archer MSA checked in box 5. This amountwill be used in line 8a of Section A, Part III of Form 8853.CAUTION: If this amount includes any amount rolled over into an-other Archer MSA or includes a timely withdrawal of a prior excesscontribution, be sure to include that amount in your entry for Form8853, Sec. A, Part III, line 8b so that you will not be taxed on it.

Amount received after died, or disabled, or over 65. Any amountsdistributed after the account holder died, became disabled, or turned65 are not subject to a 15% additional tax for not being used for

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qualified medical expenses. If “Your age at end of tax year” on ourForm 1040 is 66.01 or more, this entry is automatically the sameas the preceding entry. (Remember that the age entry is based onthe age on January 1 of the following year.) Otherwise you can en-ter any amount up to the preceding entry. This amount is taken intoaccount in the computation of the penalty at line 11b.

FMV of benefactor’s Archer MSA at time of death. If you inherited anArcher MSA from someone other than your spouse, the entire MSAmust be distributed to you. You must therefore enter the fair marketvalue (FMV) of the account at the time of your benefactor’s death,and the amount will be included in line 8a. In addition, no penaltyapplies to this distribution, so this amount is taken into accountwhen computing the 15% additional tax at line 11b. An entry herewill cause “DEATH MSA ACCT HOLDER” to be printed above thetaxpayer’s name(s) near the top of Form 8853 to flag to the IRSthat you are reporting a distribution from a deceased benefactor.

Information on SPOUSE’S Archer MSA (for Section A). This section completelyduplicates the section for YOUR Archer MSA, and so is not detailed hereagain. Note that amounts you enter here have no effect on the return unlessmarried filing jointly.

SECTION A, ARCHER MSAs. The information you supplied above is used toautomatically complete all of Section A except for a couple of entries in PartIII (concerning distributions you received). Only Archer MSAs are reportedhere. Medicare Advantage MSAs (formerly called Medicare+Choice MSAs)are reported in Section B.

(SECTION A) PART I, GENERAL INFORMATION. This section, which is comprisedsolely of questions, is automatically completed based on your entries on the pre-ceding screens. Note that answers in line 2 can be Yes only if married filing jointly.

Your Archer MSA for Part II. This section is automatically completed based onyour entries on the preceding screens, but there are some important subtle-ties to note because of the complexity of Form 8853.

3 Total employer contributions. (auto-calc) Taken from your entry for“Employer Archer MSA contributions for 2006.”

4 Contributions you made for 2006. (auto-calc) Taken from your entryfor “Your Archer MSA contributions for 2006.” Note that this entireamount will constitute an excess contribution subject to penalty ifline 3 shows an amount.

5 Limitation from worksheet for line 5. (auto-calc) Taken from the previ-ous result for this limitation, but zero if no contributions are shownon line 3 or line 4.

6 Compensation from employer maintaining the HDHP. (auto-calc)Taken from the previous result for “Compensation for line 6,” yourcontribution cannot exceed this amount.


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7 Archer MSA deduction. (auto-calc) Normally computed as the smallestof line 4, 5, or 6, the result will nevertheless be zero wheneverthere is an amount on line 3, since your contributions are not de-ductible if your employer contributed to your Archer MSA.

Above used for filed Form 8853. (auto-calc) If you use any filingstatus other than married filing jointly, the answer is Yes if there isan amount on line 3 or 4, and the above results will appear on theprinted Form 8853. By contrast, the IRS instructions are quite in-volved for joint filers when it comes to what is actually reported.For example, if you have self-only coverage but your spouse hasfamily coverage, the answer here will be No and only the spouse’snumbers will be used on the form. If you both have family cover-age, only the one with the lower deductible is reported. But if youboth have self-only coverage, and both have contributions, each setof amounts will be detailed on separate pages of Form 8853 page1, and the main Form 8853 will show entries only for lines 3, 4,and 7. See IRS instructions for details.

Your excess contributions. (auto-calc) Computed as the amount on line4 less the amount on line 7 when this section is used for filing.Otherwise taken as the entire amount on line 4 because this is notthe Archer MSA recognized by the IRS. CAUTION: If an amount ap-pears here, see the shaded box on the next page for instructions onreporting this excess.

Employer excess contributions. (auto-calc) Computed as the amount online 3 less the lesser of lines 3, 5, or 6 when this section is used forfiling. Otherwise taken as the entire amount on line 3 because thisis not the Archer MSA recognized by the IRS. CAUTION: If anamount appears here, see the shaded box on the next page for in-structions on reporting this excess.

Spouse Archer MSA for Part II. This section is also automatically completedbased on your entries on the preceding screens, and uses the same computa-tions as the section for You except that all lines are zero if not married filingjointly. It is therefore not separately detailed here.

(SECTION A) PART II, ARCHER MSA CONTRIBUTIONS AND DEDUCTIONS.This part is used to claim a deduction for contributions you make to yourArcher MSA. It is automatically completed based on the preceding two sec-tions. While other copies of Form 8853 page 1 may print with the official re-turn, this is the primary one, which is printed first. How the lines are com-puted depends on the answers for “Above used for filed Form 8853.”

3 Total employer contributions. (auto-calc) The amount that appearshere is taken from your or spouse’s results if only one of the two isused for filing, otherwise it is the sum of the two amounts.

4 Contributions you made for 2006. (auto-calc) The amount that appearshere is taken from your or spouse’s results if only one of the two isused for filing, otherwise it is the sum of the two amounts.

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5 Limitation from worksheet for line 5. (auto-calc) The amount that ap-pears here is taken from your or spouse’s results if only one of thetwo is used for filing, otherwise it is zero.

6 Compensation from employer maintaining the HDHP. (auto-calc) Theamount that appears here is taken from your or spouse’s results ifonly one of the two is used for filing, otherwise it is zero.

7 Archer MSA deduction. (auto-calc) The amount that appears here istaken from your or spouse’s results if only one of the two is usedfor filing, otherwise it is the sum of the two amounts. This result isautomatically posted to the Archer MSA line above line 23 of Form1040 Page 1, and reduces the AGI for the return.

In addition to this primary Form 8853, there will be two additional copies ofForm 8852 printed with the official return if married filing jointly and bothspouses amounts are used for filing (as indicated by Yes answers for bothspouses for “Above used for filed Form 8853”). These extra copies are identi-fied by the word STATEMENT appearing above the social security number forthe form and at the end of the heading for Section A, Part II, of Form 8853.Each copy will show results for one spouse alone, as backup for the primaryForm 8853. This procedure is used to conform to the unconventional IRS in-structions for Form 8853.

How to handle excess contributions. If an amount appears on any of the “ex-cess contribution” lines in the details for Part II for you or spouse, you aresubject to a 6% penalty tax on the amount. However, you are allowed towithdraw the amount with no penalty if you do so by the due date of the re-turn (including extensions) and withdraw any earnings on the amount as well.How you report the excess depends on whether or not you take advantage ofthis exception:♦ If you do NOT withdraw the excess on time... you must report the excess

as income on line 21 of Form 1040 unless it was included in box 1 of a W-2. If you need to report it you should enter it in a supporting statement forthe line “Other Unearned” above line 21 for the appropriate spouse. Thisamount will therefore be subject to ordinary income tax. You must also re-port the amount on line 39 of the Form 5329 for the appropriate spouse. A6% penalty will be applied there and reflected on Form 1040 line 60.

♦ If you DO withdraw the excess on time... you should exclude it from yourentries for contributions on Form 8853, as if the contribution had never oc-curred. However, if the amount you withdraw for this purpose is reportedto you in box 1 of a Form 1099-MSA, you must report the withdrawal as adistribution on both lines 8a and 8b of Form 8853 for the tax year to whichthe Form 1099-MSA applies. This amount will be subject to neither a pen-alty nor any other kind of taxation.

Note that you can also take advantage of the exception after you file by filingan amended return to report a withdrawal within 6 months after the due dateof the return (including extensions). You would revise both Forms 5329 and8853 in such an amended return.


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(SECTION A) PART III, ARCHER MSA DISTRIBUTIONS. This section is used toreport distributions you receive from your Archer MSA, which is subject totaxation and an additional penalty unless an exception applies.

Distributions from Archer MSAs. (auto-calc) Taken from your previ-ous entry for “Distribution from your Archer MSAs” for you (andspouse if married filing jointly).

FMV of benefactor’s Archer MSA at time of death. (auto-calc) Takenfrom your previous entry for “FMV of benefactor’s Archer MSA attime of death” for you (and spouse if married filing jointly). If anamount appears here, “DEATH MSA ACCT HOLDER” will be printedabove the taxpayer’s name near the top of Form 8853 to flag to theIRS that you are reporting a distribution from a deceased benefac-tor.

8a Distributions you and spouse received in 2006 from all ArcherMSAs. (auto-calc) Computed as the sum of the preceding twoamounts.

8b Distributions included in line 8a that you rolled over into anotherArcher MSA. In addition to qualified rollovers, enter any amount in-cluded in line 8a for the timely withdrawal of a prior excess contri-bution (and earnings on it).

8c Subtract line 8b from line 8a. (auto-calc) Computed as indicated.Unreimbursed qualified medical expenses. Generally, enter theamount in line 8c that you used to pay for qualified medical ex-penses for you, your spouse, or your dependents. However, see IRSinstructions for restrictions. CAUTION: Any amount you enter herecannot be claimed as an itemized deduction on Schedule A.

Decedent’s qualified medical expenses. Enter the amount of quali-fied medical expenses incurred by the above benefactor before hisor her death that you paid within 1 year of death. This entry can beno more than the FMV of the benefactor’s Archer MSA on the dateof death. CAUTION: Any amount you enter here cannot be claimedas an itemized deduction on Schedule A.

9 Unreimbursed qualified medical expenses. (auto-calc) Computed asthe sum of the preceding two amounts.

Your and spouse’s taxable distributions. (auto-calc) Computed as“Distributions from Archer MSAs” (without the decedent’s amount)less line 8b and less “Unreimbursed qualified medical expenses”(without the decedent’s amount). This amount is generally subjectto a 15% penalty tax unless you previously identified an amountdistributed due to death, disability, or age.

Decedent’s taxable distributions. (auto-calc) Computed as “FMV ofbenefactor’s Archer MSA at time of death” less “Decedent’s quali-fied medical expenses.” This entire amount is exempt from the15% penalty tax.

10 TAXABLE ARCHER MSA DISTRIBUTIONS. (auto-calc) Computed asline 8c less line 9, but no less than zero. This result is posted to the

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special “MSA” line for line 21 of Form 1040 for inclusion with otherincome.

Your and spouse’s exception to the 15% additional tax. (auto-calc)Taken from your prior entry for “Amount received after died, or dis-abled, or over 65” for you (and spouse if married filing jointly),which is the only part of your taxable distributions excepted fromthe penalty.

Decedent’s exception to the 15% additional tax. (auto-calc) Com-puted as the entire amount for “Decedent’s taxable distributions,”all of which is excepted from this penalty.

11a Any of the distributions in line 10 meet an exception to the addi-tional 15% tax. (auto-calc) Answered Yes if there is an amount oneither of the preceding two lines.

11b ADDITIONAL 15% TAX. (auto-calc) Computed as the amount on line10 less the sum of the preceding two exceptions, this amount isposted to the special “Archer MSA” line above line 63 of Form1040 for inclusion with other taxes.

Information on YOUR Medicare Advantage MSA (for Section B). All of the in-formation required for reporting distributions from your Medicare AdvantageMSA (formerly called Medicare+Choice MSA) are entered here. Although thissection follows the format of Section B, the determination of what to includeon the filed Form 8853 comes later.

Distributions from your Medicare Advantage MSAs in 2006. Enter thetotal distributions received. This amount should be reported to youin box 1 of a Form 1099-MSA. CAUTION: Do NOT include rolloversinto another Medicare Advantage MSA nor withdrawals for prior er-roneous contributions.Amount received after died or disabled. Any amounts distributed afterthe account holder died or became disabled are not subject to a 50%additional tax for not being used for qualified medical expenses. Youcan enter any amount up to the preceding entry. This amount is takeninto account in the computation of the penalty at line 15b. (UnlikeArcher MSAs, the age exception does not apply here.)

FMV of benefactor’s Medicare Advantage MSA at time of death. Ifyou inherited a Medicare Advantage MSA from someone other thanyour spouse, the entire MSA must be distributed to you. You musttherefore enter the fair market value (FMV) of the account at thetime of your benefactor’s death, and the amount will be included inline 12. In addition, no penalty applies to this distribution, so thisamount is taken into account when computing the 50% additionaltax at line 15b. An entry here will cause “DEATH MSA ACCTHOLDER” to be printed above the taxpayer’s name(s) near the topof Form 8853 to flag to the IRS that you are reporting a distributionfrom a deceased benefactor.


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12 Total distributions you received in 2006 from all Medicare Advan-tage MSAs. (auto-calc) Computed as the sum of “Distributions fromyour Medicare Advantage MSAs” and “FMV of benefactor’s Medi-care Advantage MSA at time of death.”

Unreimbursed qualified medical expenses. Generally, enter theamount in line 12 that you used to pay for qualified medical ex-penses for you, your spouse, or your dependents. However, see IRSinstructions for restrictions. CAUTION: Any amount you enter herecannot be claimed as an itemized deduction on Schedule A.

Decedent’s qualified medical expenses. Enter the amount of quali-fied medical expenses incurred by the above benefactor before hisor her death that you paid within 1 year of death. This entry can beno more than the FMV of the benefactor’s Medicare AdvantageMSA on the date of death. CAUTION: Any amount you enter herecannot be claimed as an itemized deduction on Schedule A.


Your taxable distributions. (auto-calc) Computed as “Distributionsfrom Medicare Advantage MSAs” (without the decedent’s amount)less “Unreimbursed qualified medical expenses” (without the dece-dent’s amount). This amount is generally subject to a 50% penaltytax unless you previously identified an amount distributed due todeath or disability.

Decedent’s taxable distributions. (auto-calc) Computed as “FMV ofbenefactor’s Medicare Advantage MSA at time of death” less “De-cedent’s qualified medical expenses.” This entire amount is exemptfrom the 50% penalty tax.

14 TAXABLE MEDICARE ADVANTAGE MSA DISTRIBUTIONS. (auto-calc) Computed as line 12 less line 13, but no less than zero.

Your exception to the 50% additional tax. (auto-calc) Taken fromyour prior entry for “Amount received after died or disabled” for you(and spouse if married filing jointly), this is the nominal exception.However, if this amount is less than “Your taxable distributions,”the IRS instructs you to use a special worksheet to determine theexcepted amount. This IRS worksheet (Additional 50% Tax Work-sheet—Line 15b) can result in a higher exception than the nominalamount when the MSA has a value at the beginning of the tax year.

Value of the Medicare Advantage MSA on December 31, 2005. Thisentry is relevant only when the exception on the preceding line isless than the entire distribution. Enter the value at the end of theprior tax year.

Annual deductible on January 1, 2006. Similarly, this entry is relevantonly when the exception is less than the entire distribution. Enterthe annual deductible at the beginning of the current tax year.

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Decedent’s exception to the 50% additional tax. (auto-calc) Com-puted as the entire amount for “Decedent’s taxable distributions,”all of which is excepted from this penalty.

15a Any of the distributions in line 14 meet an exception to the addi-tional 50% tax. (auto-calc) Answered Yes if there is an amount oneither of the preceding two lines.

15b ADDITIONAL 50% TAX. (auto-calc) Normally computed as 50% ofthe amount on line 14 less the sum of the preceding two exceptionamounts, but the computation is more complex for partial excep-tions, as noted above.

Information on SPOUSE’S Medicare Advantage MSA (for Section B). This sec-tion completely duplicates the section for YOUR Medicare Advantage MSA,and so is not detailed here again. Note that amounts you enter here have noeffect on the return unless married filing jointly.

SECTION B, MEDICARE ADVANTAGE MSA DISTRIBUTIONS. This part is usedto report taxable distributions from and penalty taxes on Medicare AdvantageMSAs. It is automatically completed based on the preceding two sections (foryou and spouse). If both spouses have distributions from their Medicare Ad-vantage MSAs, two additional copies of Form 8853 page 1 are printed withthe official return to show each spouse’s amounts (in the previous sections).However, the primary Form 8853, which is printed first, shows the sum ofamounts from the two additional copies.

12 Total distributions you received in 2006 from all Medicare Advan-tage MSAs. (auto-calc) Computed as the amount for the corre-sponding line for your Medicare Advantage MSAs (plus spouse’samount if married filing jointly).

13 Unreimbursed qualified medical expenses. (auto-calc) Computed asthe amount for the corresponding line for your Medicare AdvantageMSAs (plus spouse’s amount if married filing jointly).

14 TAXABLE MEDICARE ADVANTAGE MSA DISTRIBUTIONS. (auto-calc) Computed as the amount for the corresponding line for yourMedicare Advantage MSAs (plus spouse’s amount if married filingjointly). This result is posted to the special “MedMSA” line for line21 of Form 1040 for inclusion with other income.

15a Any of the distributions in line 14 meet an exception to the addi-tional 50% tax. (auto-calc) Normally from the answer for the corre-sponding line for your Medicare Advantage MSAs. But if marriedfiling jointly, answered Yes is either spouse’s answer is Yes.

15b ADDITIONAL 50% TAX. (auto-calc) Computed as the amount for thecorresponding line for your Medicare Advantage MSAs (plusspouse’s amount if married filing jointly). This result is posted to thespecial “MedMSA” line above line 63 of Form 1040 for inclusionwith other taxes.


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SECTION C, LONG-TERM CARE (LTC) INSURANCE CONTRACTS. This part isused to report taxable periodic payments from an LTC insurance contract oraccelerated death benefits from a life insurance policy. Only the policyholderreports the payments on this form, even if the payments are assigned tosomeone else. See IRS instructions for details on what constitutes a qualifiedcontract or policy, and what constitutes a per diem or periodic payment.

Is spouse the policyholder (vs. you)? Identify which spouse is the poli-cyholder so that the proper SSN is printed on page 2 of Form 8853.If both spouses own policies, answer No here so that the SSN ofthe primary taxpayer is used.

Itemize HERE for Section C. (Supported by the Long-Term Care Work-sheet, Figure Prem-21.) The number of worksheets on which youreported qualified LTC payments or accelerated death benefits ap-pears here. You must use a separate worksheet for each separateinsured or policy.

More than one Section C attached. (auto-calc) Answered Yes if the pre-ceding line shows that 2 or more worksheets have been completed.If Yes, only the total of line 28 from all worksheets appears on theofficial printed Form 8853, and all details appear only in supportingstatements, which duplicate the look of Section C.

19 Gross LTC payments received. (auto-calc, supported by the Long-Term Care Worksheet, Figure Prem-21.) The total from all work-sheets appears here.

20 through 27. (labels only) The entries for these lines are shown onlyon the supporting worksheets. When only one worksheet is com-pleted they also appear on the official printed Form 8853.

28 TAXABLE PAYMENTS. (auto-calc, supported by the Long-Term CareWorksheet, Figure Prem-21.) The total from all worksheets appearshere. This total is posted to the special “LTC” line for line 21 ofForm 1040 for inclusion with other income.

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Form 8853

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Long-Term Care Work-sheet. (Figure Prem-21)Use a separate work-sheet for each separateinsured or policy. Seethe chart in IRS instruc-tions titled “Filing Re-quirements for SectionC” to determine whichlines to complete.

16a Name of in-sured. Enterthe name in25 charactersor less.

16b SSN of in-sured. Enter

in the standard xxx-xx-xxxx format.17 In 2006, did anyone other than you receive payments? Answer Yes

only if another person received per diem or periodic payments undera qualified LTC contract for the same insured person or received ac-celerated death benefits for the same person. If Yes, you must fol-low special procedures detailed in the IRS instructions.

18 Was the insured terminally ill? The insured must have been certifiedby a physician as reasonably expected to die within 24 months ofthe diagnosis of illness. If Yes, and accelerated death benefits werereceived, you should complete only lines 16a through 19 of theworksheet.

19 Gross LTC payments received. Enter total payments received on aper diem or other periodic basis. The amount should be shown inbox 1 of a Form 1099-LTC that has the “Per diem” box checked inbox 3.

20 Part of line 19 from qualified LTC insurance contracts. If zero and noaccelerated death benefits were received, you should NOT be com-pleting Form 8853 for the LTC payments. Instead, you should re-port them all as income in a supporting statement for “Other Un-earned” at line 21 of Form 1040.

21 Accelerated death benefits received. Enter total payments receivedon a per diem or other periodic basis. Do not include payments forthe terminally ill.

22 Add lines 20 and 21. (auto-calc) Computed as indicated.Number of days in the LTC period. You can base this entry on eitherthe Contract Period method or the Equal Payment Rate method. SeeIRS instructions for details.

23 Multiply $250 by the number of days in the LTC period.. (auto-calc)Computed as 250 times the preceding entry.

LONG-TERM CARE WORKSHEETLONG-TERM CARE WORKSHEETLONG-TERM CARE WORKSHEETLONG-TERM CARE WORKSHEET 16a Name of insured 16a Name of insured 16a Name of insured 16a Name of insured 16b SSN of insured: ......... 16b SSN of insured: ......... 16b SSN of insured: ......... 16b SSN of insured: ......... 17 In 2006, another rcvd pmts.? No 17 In 2006, another rcvd pmts.? No 17 In 2006, another rcvd pmts.? No 17 In 2006, another rcvd pmts.? No 18 Was insured terminally ill.? No 18 Was insured terminally ill.? No 18 Was insured terminally ill.? No 18 Was insured terminally ill.? No 19 Gross LTC payments received 0 19 Gross LTC payments received 0 19 Gross LTC payments received 0 19 Gross LTC payments received 0 20 Part from QLFD LTC contract 0 20 Part from QLFD LTC contract 0 20 Part from QLFD LTC contract 0 20 Part from QLFD LTC contract 0 21 Accel�d death benefits rcvd 0 21 Accel�d death benefits rcvd 0 21 Accel�d death benefits rcvd 0 21 Accel�d death benefits rcvd 0 22 Add lines 20 and 21........ 22 Add lines 20 and 21........ 22 Add lines 20 and 21........ 22 Add lines 20 and 21........▒ 0▒ 0▒ 0▒ 0 No. of days in LTC period 0 No. of days in LTC period 0 No. of days in LTC period 0 No. of days in LTC period 0 23 Multiply 250 by days in per 23 Multiply 250 by days in per 23 Multiply 250 by days in per 23 Multiply 250 by days in per▒ 0▒ 0▒ 0▒ 0 24 Costs for qlfd LTC services 0 24 Costs for qlfd LTC services 0 24 Costs for qlfd LTC services 0 24 Costs for qlfd LTC services 0 25 Larger of line 23 or ln 24. 25 Larger of line 23 or ln 24. 25 Larger of line 23 or ln 24. 25 Larger of line 23 or ln 24.▒ 0▒ 0▒ 0▒ 0 26 Reimb�s for qlfd LTC srvcs. 0 26 Reimb�s for qlfd LTC srvcs. 0 26 Reimb�s for qlfd LTC srvcs. 0 26 Reimb�s for qlfd LTC srvcs. 0 27 Per diem limitation........ 27 Per diem limitation........ 27 Per diem limitation........ 27 Per diem limitation........▒ 0▒ 0▒ 0▒ 0 28 TAXABLE PAYMENTS........... 28 TAXABLE PAYMENTS........... 28 TAXABLE PAYMENTS........... 28 TAXABLE PAYMENTS...........▒ 0▒ 0▒ 0▒ 0 This worksheet counted..... This worksheet counted..... This worksheet counted..... This worksheet counted.....▒ 0▒ 0▒ 0▒ 0

Figure Prem-21. Long-Term Care Worksheet


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24 Costs incurred for qualified LTC services. Enter the amount forservices for the insured in the LTC period.

25 Larger of line 23 or line 24. (auto-calc) Computed as indicated.26 Reimbursements for qualified LTC services provided. Enter the a-

mount for services for the insured in the LTC period.27 Per diem limitation. (auto-calc) Computed as line 25 less line 26, but

no less than zero.28 TAXABLE PAYMENTS. (auto-calc) Computed as line 25 less line 26,

but no less than zero. This is the amount that must be reported asincome on the return.

This worksheet counted. (auto-calc) Answer Yes if line 18, 19, 20, or21 has an entry. If No, the worksheet will not be counted and willnot be printed with the return.


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Form 8859

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Form 8859 / District of Columbia First-Time Homebuyer Credit

Purpose. This form is used to claim a credit for purchasing a home in WashingtonD.C. You can only claim the credit for the first home you ever buy in WashingtonD.C. The credit is generally $5,000 ($2,500 if married filing separately), but isphased out for income above $70,000 ($110,000 if married filing jointly) and iszero for income above $90,000 ($130,000 if married filing jointly). Form 8859 isaccessible through the Road Map at line 54c of Form 1040.

PART I, GENERAL INFORMATION. You must identify the purchased property,including identifying information from the settlement statement or deed.HINT: Skip Parts I and II of you only have a credit carryover from 2005.

A Address of home qualifying for the credit (if different from Form 1040).Because this form must be filed with Form 1040, you do not have tomake an entry unless the mailing address on Form 1040 differs fromthe address of the property for which the credit is claimed.

Information from the settlement statement or deed:B Lot number. Enter the lot number, which should be no longer than a

4-digit number.C Square number. Enter the square number, which should be no longer

than four characters.D Settlement or closing date. Enter in the standard mm/dd/yyyy format.

PART II, TENTATIVE CREDIT. The credit and phaseout are figured here. Thispart is fully automatic except for your entry of the purchase price, below.

Maximum for your filing status. (auto-calc) The maximum credit is$5,000 for most taxpayers, but $2,500 if married filing separately.

Enter your purchase price. Enter only your share of the purchaseprice if someone other than your spouse has an interest in thehome. HINT: Enter zero if you are using this form only to report acarryover from 2005 in Part III.

1 Enter $5,000 ($2,500 if married filing separately). (auto-calc) Com-puted as the lesser of the preceding two lines, this is your credit be-fore any phaseout.

AGI on Form 1040, line 38. (auto-calc) Taken from Form 1040 as indi-cated.

U.S. possessions income. (auto-calc) Taken from the correspondingline in the section “CERTAIN NONTAXABLE INCOME” following line21 of Form 1040.

Exclusion/deduction from Form 2555. (auto-calc) Computed as the sumof the foreign earned income exclusion reflected in Form 1040, line21, and the foreign housing deduction included in Form 1040, line 36.(These amounts are determined on Forms 2555 and 2555-EZ.)

2 Modified adjusted gross income. (auto-calc) Computed as AGI plusthe preceding two excluded amounts (added back to income for thepurposes of this form).


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3 Is line 2 more than $70,000 ($110,000 if married filing separately)?(auto-calc) Computed as indicated.

NO. If No, your credit is not subject to phaseout, so that amount online 1 is carried to line 6, and lines 3 through 5 are zero.

YES. If Yes, your credit is subject to phaseout and line 3 is com-puted as modified AGI (line 2) less the above amount ($70,000 or$110,000).

4 Divide line 3 by $20,000. (auto-calc) Computed as indicated and car-ried to 4 decimal places.

5 Multiply line 1 by line 4. (auto-calc) Computed as indicated.6 Subtract line 5 from line 1. (auto-calc) Computed as indicated, this is

your TENTATIVE CREDIT before limitation to tax liability.

PART III, CREDIT CARRYFORWARD FROM 2005. You are allowed to carry-forward any credit disallowed because of the tax liability limit in Part IV.

7 Amount from line 12 of your 2005 Form 8859. Enter the carryover fig-ured on the prior-year Form 8859, which is line 12 on that form.CAUTION: For an entry to be valid here, you must have left lines 1through 6 blank.

PART IV, TAX LIABILITY LIMIT. The limitation to current tax and the computa-tion of carryover to next year are performed here.

8 Amount from Form 1040, line 46. (auto-calc) Taken from Form 1040,as indicated, this is the tax balance before credits.

Special computation from IRS Pub. 972 maximizes overall credit. Youwon’t find any mention of it in the IRS Form 8859 instructions, butthere is a special computation that ensures that the overall credit onthe return is maximized by shifting as much of the child tax crediton Form 1040, line 53, as possible to line 68 (refundable creditfrom Form 8812). We show the amounts involved in the computa-tion on the screen, but you should refer to IRS Pub. 972 for details.

9 Total of amounts on Form 1040, lines 47 through 51 and line 53; Form8396, line 11; Form 8839, line 18; and Form 5695, line 12. (auto-calc)Computed as indicated after modifying the credit of Form 1040, line53, when necessary, to maximize overall credit on the return.


11 CURRENT YEAR CREDIT. (auto-calc) Computed as the smaller of line10 or either line 6 or 7 (depending on whether you completed Part IIor III of this form, respectively).

12 CREDIT CARRYFORWARD TO 2007. (auto-calc) Computed as line 6or 7 (depending on whether you used Part II or Part III) less line 11.You cannot carry back this unused credit, but you can carry it for-ward as many years as it takes until it is all used.

The result on line 11 is posted to line 54c of Form 1040.

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Form 8861

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Form 8861 / Welfare-to-Work Credit

Purpose. This form is used to claim credit for wages you paid to long-termfamily assistance recipients. In the Form 1040 software, Form 8861 is ac-cessible through the Road Map at line 1c of Form 3800. (In the Form 1065software, Form 8861 is accessible through the Road Map at the credit line forline 15f of Schedule K labeled “8861 Welfare-to-work.”)

No longer a stand-alone form. Starting tax year 2006, credit from Form 8846can no longer be reported directly on Form 1040. You must claim the creditat line 1c of Form 3800 even if this is the only credit you have to report onForm 3800. As a result, the section for applying a tax limitation to the creditis gone, and the limitation is now applied on Form 3800.

Certification required. In order to claim this credit you must have certificationfor each employee from the state employment security agency (SESA). Youeither must have received the certification for a particular employee by theemployee’s first day of work or must complete a Form 8850 by that date(signed by you and the employee) and file it by the 21st day after the em-ployee starts work. You can claim the credit only if the request on Form8850 is approved. If approved and later revoked, you can still generally claimthe credit for the days before the revocation. See the IRS Instructions forForm 5884 for details on this and other requirements for this credit.

Extended through December 31, 2007. The credit formerly applied only towages paid or incurred before 2006. However, the credit was retroactivelyreinstated to January 1, 2006 by the Tax Relief and Health Care Act of 2006and extended to the end of 2007. Furthermore, this credit will be integratedwith the Work Opportunity Credit for 2007, with a single form to cover bothcredits.

CURRENT YEAR CREDIT. The full credit is computed in this part based onqualifying wages, before applying any limitations.

1 Total qualified first- or second-year wages paid or incurred duringthe tax year for services of employees who are certified as long-term family assistance recipients:

a Qualified first-year wages. Enter only wages paid or incurred in2006 within the tax year of the return. CAUTION: Wages you re-port here cannot be used on Form 5884 (Work Opportunity Credit).

X 35%...1a. (auto-calc) Computed as the wage on line a times 0.35.b Qualified second-year wages. Employees who you retain in youremployment for a second year qualify you for a higher credit.CAUTION: Wages you report here cannot be used on Form 5884(Work Opportunity Credit).

X 50%...1b. (auto-calc) Computed as the wages on line b times 0.50.2 Add lines 1a and 1b. (auto-calc) Computed as indicated. CAUTION:

You must generally reduce your deduction for wages and salaries


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(such as line 26 of Schedule C) by the amount on line 2. However,see the IRS Instructions for Form 5884 for exceptions.

ITEMIZE to explain exception. If an exception applies to reporting re-duced wages, itemize here to explain why you did not reduce yourdeduction by the full amount on line 2.

Special instructions for line 2 if a member of a controlled group. If claimingthe credit as a member of a controlled group, you must compute line 2 asyour prorated share of the credit. The credit must first be computed for thegroup as a whole, reflecting the calculations for lines 1a and 1b. Then eachgroup member must complete a Form 5884 for his or her own return by skip-ping lines 1a and 1b and entering on line 2 a prorated portion of the group to-tal. Prorationing of line 2 among group members must be in direct proportionto the amount of qualifying wages contributed by each member. To accom-plish this with the software while satisfying the IRS reporting requirements,press the Override Key (F8) to access line 2, then, in a supporting statementfor line 2, explain how the group credit was divided among the members, en-tering only your amount in the amount column. Your explanation will then beprinted with the return and cross-referenced on the official printout.

3 Welfare-to-Work Credits from partnerships, S corporations, coopera-tives, estates, and trusts. Enter any Welfare-to-Work Credit frompass-through entities, identified as code I in box 13 of Schedule K-1(Form 1120S), code I in box 15 of Schedule K-1 (Form 1065), codeG in box 13 of Schedule K-1 (Form 1041), or a written statementfrom a cooperative.

4 CURRENT YEAR CREDIT. (auto-calc) Computed as the sum of lines 2and 3, this is the credit before any limitations are applied.

Lines 5 and 6 are for cooperatives, estates, and trusts only:6 Amount allocated to the patrons of the cooperative or the beneficiar-

ies of the estate or trust.. (auto-calc) Always zero because this linedoes not apply to individuals nor partnerships.

7 Cooperatives, estates, and trusts, subtract line 5 from line 4. (auto-calc) Always zero because this line does not apply to individuals norpartnerships.

In the Form 1040 software, the amount on line 4 is posted to line 1c of Form3800. (In the Form 1065 software, the amount on line 4 is posted to thecredit line for line 15f of Schedule K labeled “8861 Welfare-to-work.”)


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Form 8862

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Form 8862 / Information to Claim Earned Income Credit Af-ter Disallowance

Purpose. This form is required in conjunction with a claim for the Earned In-come Credit (From 1040, line 65a) if any earned income credit you claimedsince 1996 was reduced or disallowed by the IRS for any reason other than amath or clerical error. It is not required unless your earned income credit wasreduced or disallowed after 1996. The form is an informational form only andis not used in the calculations of any other form. Accordingly, Form 8862 isaccessible only from the Forms Menu and not through the Road Map.

When it is NOT required. This form should not be filed if your Earned IncomeCredit (EIC) was never reduced or disallowed by the IRS after 1996, or youhave already filed a Form 8862 and had your EIC allowed since the event, oryour disallowance was because you had no qualifying child and you are nowclaiming only the childless EIC, or you have no valid claim for EIC on the cur-rent return.

Complete the return FIRST. Because this form is not relevant if you are noteligible for the EIC on the current return, the software prevents you fromcompleting the form if you are not eligible for the EIC. Therefore, you mustcomplete the return before you make any entries on this form. Once the re-turn is complete and final calculations have been performed, the automationbuilt into Form 8862 will be proper and your entries will be accepted whenappropriate. (You can force final calculations by pressing the Recalc Key,shift-F8 or ctrl-B, while viewing the return.)

PART I, ALL FILERS. Your eligibility to use Form 8862 form is checked here.1 Enter the year for which you are filing this form. (auto-calc) Taken

from your entry on the Control Form, this is the tax year of the re-turn.

Were you a qualifying child of another person during the tax year?(auto-calc) Taken from your entry on the first screen of Form 1040.You are not eligible for the EIC or Form 8862 if Yes.

Was spouse a qualifying child of another person during the taxyear? (auto-calc) Taken from your entry on the second screen ofForm 1040. If married filing jointly you are not eligible for the EIC orForm 8862 if the answer for spouse is Yes.

2 Was the ONLY reason your EIC was reduced or disallowed in an ear-lier year because you incorrectly reported your earned income orinvestment income? If Yes, you do NOT have to complete the restof Form 8862, but you DO have to file the form to show this an-swer.

3 Could you (or your spouse if filing jointly) be claimed as a qualifyingchild of another person for the year shown in line 1? (auto-calc) Ifmarried filing jointly, answered Yes if either of the answers to thequestions following line 1 is Yes. Otherwise taken as the answer foryou alone.


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Schedule EIC must show eligibility before using Form 8862:Eligible for childless credit. (auto-calc) Taken from screen 2 ofSchedule EIC, this determination is based on the age(s) of the tax-payer(s) in accordance with IRS Form 8867.

Eligible for child credit. (auto-calc) Taken from screen 2 of ScheduleEIC, this determination is based on the Dependent Worksheetscompleted for line 6c of Form 1040 in accordance with IRS Form8867.

Eligible for EIC this year. (auto-calc) Answered Yes if either of thepreceding two answers is Yes.

Past EIC disallowed or reduced? Answer Yes only if you are requiredto file Form 8862 because of a prior disallowance or reduction ofEIC as explained previously (after 1996).

If Yes, was nonqualifying child the reason? Answer Yes if your fullclaim for EIC would have been allowed in the year it was disallowedor reduced if the claimed children were qualified.

ELIGIBLE TO USE FORM 8862. (auto-calc) Normally taken as your an-swer to “Past EIC disallowed or reduced.” However, if qualified forthe childless credit, a Yes answer to “If Yes, was nonqualifyingchild the reason” will cause the answer here to be No. Form 8862should not be filed and cannot be completed if the answer is No.


PART II, FILERS WITHOUT A QUALIFYING CHILD. You must be eligible forthe childless credit and required to file Form 8862 in order to use this part.

Eligible to use this part? (auto-calc) Answered Yes only if ScheduleEIC shows that you are qualified for the childless credit.

4 Enter the number of days during the year shown on line 1 that youlived in the United States. If you enter less than 184 for 2006 youcannot take the childless credit. TIP: You can include your activeduty time in your entry here if you were on extended active dutyoutside the United States and your home is considered to be in theUnited States.

5 If married filing jointly, enter the number of days during the yearshown on line 1 that your spouse lived in the United States. If youenter less than 183 for 2006 and your filing status on Form 1040 ismarried filing jointly, you cannot take the childless credit. TIP: Youcan include your spouse’s active duty time in your entry here if yourspouse was on extended active duty outside the United States andyour spouse’s home is considered to be in the United States.

Eligible for the childless EIC? (auto-calc) The answer will be Yes only if“Eligible to use this part?” above is Yes, your entry for line 4 is 183or more, and, if married filing jointly, your answer for line 5 is 183or more.

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Form 8862

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PART III, FILERS WITH A QUALIFYING CHILD OR CHILDREN. You must beeligible for the child credit and be required to file Form 8862 to use this part.

ANSWERS FOR CHILD 1. You must supply the following information for theEIC-qualified child that is first among the Dependent Worksheets you com-pleted for Form 1040 line 6c.

Eligible to use this part? (auto-calc) Answered Yes only if at leastone qualifying child is recognized on Schedule EIC.

6 Enter the number of days child 1 lived with you in the United Statesduring the year shown on line 1. If you enter less than 183 for2006 you cannot take the EIC for this child, unless the child wasborn or died during the year as indicated by your entries on line 7.

7 (1) If child 1 was born during the year shown on line 1:Enter month of birth. Enter the 2-digit number for the month born.Enter day of birth. Enter the 2-digit number for the day born.

(2) If child 1 died during the year shown on line 1:Enter month of death. Enter the 2-digit number for the month died.Enter day of death. Enter the 2-digit number for the day died.

* Is child 1 eligible for EIC? (auto-calc) Answered Yes only if “Eligibleto use this part?” above is Yes and either line 6 is at least 183 (for2006) or you have an entry on line 7.

8 Enter addresses where you and child 1 lived together during the yearshown on line 1 by itemizing addresses here. (Supported by theAddress Worksheet, Figure Prem-22) You must enter all addressesin the supporting worksheets. If only one address is entered it willbe printed directly on the form; otherwise all addresses will appearin a supporting statement for Form 8862 and cross-referenced onthe form.

9 Did any other person live with child 1 for more than half the yearshown in line 1? Answer No if the only other person was a spousewith whom you file jointly and the child was under age 19. If youanswer Yes here you must identify the person(s) in a supportingstatement for the next line.

If “Yes,” enter that person’s name and relationship to child 1 byitemizing identity here. (Supported by the Other Person Worksheet,Figure Prem-23) You must identify all other applicable persons in thesupporting worksheets. If only one person is identified, the identitywill be printed directly on the form; otherwise all identities will ap-pear in a supporting statement for Form 8862 and cross-referencedon the form.


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ANSWERS FOR CHILD 2. You must supply the following information for theEIC-qualified child that is second among the Dependent Worksheets youcompleted for Form 1040 line 6c. This part is similar to that for child 1 ex-cept for additional questions that make it unnecessary to duplicate entries forlines 8 and 9 when they are the same as those for child 1.

Eligible to use this part? (auto-calc) Answered Yes only if at leasttwo qualifying children are recognized on Schedule EIC. If No, youcannot complete this part of the form.

6 Enter the number of days child 2 lived with you in the United Statesduring the year shown on line 1. If you enter less than 183 for2006 you cannot take the EIC for this child, unless the child wasborn or died during the year as indicated by your entries on line 7.

7 (1) If child 2 was born during the year shown on line 1:Enter month of birth. Enter the 2-digit number for the month born.Enter day of birth. Enter the 2-digit number for the day born.

(2) If child 2 died during the year shown on line 1:Enter month of death. Enter the 2-digit number for the month died.Enter day of death. Enter the 2-digit number for the day died.

* Is child 2 eligible for EIC? (auto-calc) Answered Yes only if “Eligibleto use this part?” above is Yes and either line 6 is at least 183 (for2006) or you have an entry on line 7.

8 Are addresses where you and child 2 lived together during the yearshown on line 1 the same as for child 1? If “Yes,” you do not haveto enter the addresses again here.

If No, supply address(es) by itemizing addresses here. (Supportedby the Address Worksheet, Figure Prem-22) You must enter all ad-dresses in the supporting worksheets unless you answered “Yes” tothe preceding question.

9 Did any other person live with child 2 for more than half the yearshown in line 1? Answer No if the only other person was a spousewith whom you file jointly and the child was under age 19. If youanswer Yes here you must identify the person(s) in a supportingstatement for the next line.

If “Yes,” are all persons the same as for child 1? If “Yes,” you do nothave to enter the information again here.

If “No,” identify enter person’s name and relationship to child 2 byitemizing identity here. (Supported by the Other Person Worksheet,Figure Prem-23) You must identify all other applicable persons in thesupporting worksheets unless you answered “Yes” to the precedingquestion.

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Form 8862

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Address Worksheet, Figure Prem-22. You must complete a separate work-sheet for each place you lived with the child during the year shown on line 1:

Number and street. Enterthe street address in30 characters or less.

City or town, state, andZIP code. Enter incity, state and ZIPcode in 25 charactersor less.

You must abbreviate entrieswhen necessary. Although the paper Form 8862 implies that longer entriesare allowed, the IRS e-file specifications indicate otherwise, so we have re-stricted the entries in accordance with the length that the IRS will actuallyprocess.

Other Person Worksheet, Figure Prem-23. You must complete a separateworksheet for each other person who lived with the child for more than halfof the year shown on line 1:

Name of person. Enterthe name of the per-son in 30 charactersor less.

Relationship to child. En-ter the relationship in11 characters or less.See our details for theDependents’ Work-sheet in the Tax Forms Guide 2007 Edition for a list of allowed rela-tionships. Leave blank if not related.

ADDRESS WHERE LIVED W/CHLDADDRESS WHERE LIVED W/CHLDADDRESS WHERE LIVED W/CHLDADDRESS WHERE LIVED W/CHLD Complete a separate worksheet Complete a separate worksheet Complete a separate worksheet Complete a separate worksheet for each address at which you for each address at which you for each address at which you for each address at which you lived with the child. lived with the child. lived with the child. lived with the child. Number and street.......: Number and street.......: Number and street.......: Number and street.......:

City, state, ZIP City, state, ZIP City, state, ZIP City, state, ZIP

Figure Prem-22. Address Worksheet

ADDRESS WHERE LIVED W/CHLDADDRESS WHERE LIVED W/CHLDADDRESS WHERE LIVED W/CHLDADDRESS WHERE LIVED W/CHLD Complete a separate worksheet Complete a separate worksheet Complete a separate worksheet Complete a separate worksheet for each address at which you for each address at which you for each address at which you for each address at which you lived with the child. lived with the child. lived with the child. lived with the child. Number and street.......: Number and street.......: Number and street.......: Number and street.......:

City, state, ZIP City, state, ZIP City, state, ZIP City, state, ZIP

Figure Prem-23. Other Person Worksheet


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Form 8885 / Health Coverage Tax Credit

Purpose. This form is used to claim a refundable credit for payments forhealth insurance coverage for certain special taxpayers. To qualify, you mustbe an eligible trade adjustment assistance (TAA) recipient, alternative TAArecipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient.If qualified, the credit is 65% of your payments, less any advance paymentsreceived. Form 8885 is accessible through the Road Map above line 29 ofForm 1040 and at line 69c of Form 1040. Two copies of Form 8885 areavailable, one for each spouse.

PART I, SEE IF YOU ARE ELIGIBLE. There are very specific qualifications forthis credit detailed in the IRS instructions for Form 8885. You must meet allrequirements in the IRS instructions for each month you enter an amount be-low. Do not make an entry for any month you do not qualify.

Is this spouse's copy (vs. you)? (auto-calc) This answer is based on thecopy you choose when you enter this form. A separate Form 8885is required for each spouse who is a qualified recipient.

1 Enter amount paid for qualified health insurance coverage for eachmonth you were eligible. A separate line is provided for each monthof the year, and you must enter eligible amounts separately for eachmonth. The official printed Form 8885 will show boxes checkedonly for the months that you enter an amount. TIP: Contrary to theIRS instructions for tax year 2005, you should NOT include any ad-vance payments you received (as reported to you in Form 1099-H,box 1).

PART II, HEALTH COVERAGE TAX CREDIT. The credit is computed based onyour entries in Part I and adjustments you enter in this part.

Are you claimed as a dependent on some other person’s tax return?(auto-calc) If so, you are not eligible for the credit.

Total paid for eligible months. (auto-calc) Computed as the sum ofpayments you entered in Part I.

Advance payments received (Form 1099-H, box 1). You must includeadvance payments received, as reported to you in box 1 of Form1099-H. They will be subtracted out at line 6. CAUTION: If anyamount you entered here was included in the preceding line, over-ride the preceding line and reduce the total accordingly.

2 Amount paid for qualified health insurance coverage for all monthschecked on line 1. (auto-calc) Computed as the sum of the preced-ing two lines. However, if no amounts are shown on line 1 then noamount will appear here because you have not indicated qualifica-tion for any month.

CAUTION: You must attach required documents listed on page 4 of theIRS instructions for any amounts in line 2.

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MSA distributions used to pay amounts included in line 2. Enter theArcher MSA distributions used to pay any part of line 2.

HSA distributions used to pay amounts included in line 2. Enter theArcher MSA distributions used to pay any part of line 2.

National Emergency Grants you received for health insurance in2006. Enter applicable amounts..

3 Total amount of (a) Archer MSA distributions used for line 2 and (b)National Emergency Grants received. (auto-calc) Computed as thesum of the above three amounts.

4 Subtract line 3 from line 2. (auto-calc) Computed as indicated.5 HEALTH COVERAGE TAX CREDIT. Multiply line 4 by 65%. (auto-calc)

Computed as indicated, this is the credit that is posted to line 69cof Form 1040.

Is this insurance for Form 1040, line 29? If you are claiming insurancepayments reported here as a self-employed health insurance pay-ments for line 29 of Form 1040, the amount considered for that linemust be reduced by any credit you claim here.

Exclusion for Form 1040, line 29. (auto-calc) Computed as the resulton line 7 if your answer to the preceding question is Yes; otherwisezero. This is the amount that cannot be considered for the deduc-tion on line 29 of Form 1040, and will be posted above that line foruse in its calculations.

Exclusion for Schedule A, line 1. (auto-calc) Computed as the resulton line 7 if your answer to the preceding question is No; otherwisezero. This is the amount that cannot be considered for the deduc-tion on line 1 of Schedule A, and will be posted above that line foruse in its calculations.


Form 8889

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Form 8889 / Health Savings Accounts (HSAs)

Purpose. This form is used to report contributions to HSAs and figure the corre-sponding deduction, and to report taxable distributions from HSAs. Form 8889is accessible through the Road Map at line 25 of Form 1040, the HSA lineabove line 21 of Form 1040, and the HSA line above line 63 of Form 1040.

Eligibility. To be eligible to contribute to an HSA, you must be covered undera high deductible health plan (HDHP) with particular characteristics:♦ For self-only coverage: minimum deductible is $1,050 and maximum de-

ductible plus annual out-of-pocket expense is $5,250.♦ Family coverage: minimum deductible is $2,100 and maximum deducti-

ble plus annual out-of-pocket expense is $10,500.You must generally not be covered under another health plan, but there are ex-ceptions listed in the IRS instructions for Form 8889. You must also not be en-rolled in Medicare for any month you contribute to the plan, and cannot be adependent on anyone else’s tax return. If you have both a self-only plan and afamily plan, the family plan must be used for Form 8889 and the other plan isignored. (Eligibility is determined monthly, on the first day of each month.)

Married taxpayers have extra complexities. When married and either spousehas family coverage, the IRS requires you to follow particular rules to deter-mine the plan to report on Form 8889. For example, if either spouse has afamily plan, you must use the family plan for both spouses and ignore theother plan. If both spouses have family coverage, you must use the plan withthe lower deductible for both spouses and ignore the other plan. (See the IRSInstructions for umbrella and embedded deductibles in the same plan.) If mar-ried and both spouses had family coverage, you can make a different alloca-tion among spouse’s than we compute at line 6. See the IRS Instructions forForm 8889 and IRS Pub. 969, Health Savings Accounts and Other Tax-Favored Health Plans.

Identification. Two copies of Form 8889 are available, one for each spouse.The copy you are currently using is identified here.

Social security number for this copy. (auto-calc) This is the social secu-rity number entered on Form 1040 for the spouse whose copy youchose when you entered Form 8889.

Is this spouse’s copy (vs. you)? (auto-calc) This answer is based onyour choice when you entered this form.

Dependent on another return. (auto-calc) Taken from your answer onForm 1040. You cannot deduct any contributions to an HSA if youare claimed as a dependent on someone else’s return.

Your age (from Form 1040). (auto-calc) Taken from your entry on Form1040. This should be your age on January 1, 2006 accurate to 2decimal places in order for age checks to be proper for this form.

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Information on YOUR HSA. General information on your HSA as well as con-tributions and distributions are entered here.

Number of months contributions NOT allowed. Eligibility to make con-tributions to an HSA is determined monthly, on the 1st day of eachmonth. Therefore, you must enter here the number of full months inwhich you were ineligible to contribute to an HSA. (This entry isused to proportionately reduce the limitation for line 3 of this formas your entry rises from 0 to 12, in accordance with the IRS Line 3Limitation Chart and Worksheet.)

Example 1: You are ineligible for months in which you are enrolled inMedicare. Therefore, if you first enroll in Medicare on January 2 ofthe tax year, you should enter 11 here.

Example 2: You are ineligible to make contributions to an HSA if you areclaimed as a dependent on someone else’s return. Therefore, your entryhere will always be forced to 12 if you are a dependent of another.

Example 3: You are ineligible for all months prior to establishing theHDHP. Furthermore, if you established it after the 1st of the month,you are ineligible for that month. Accordingly, if you established theHDHP on February 2, 2006, you must enter 2 here because you areineligible for January and February, 2006.

Does HDHP cover Family? Answer Yes only if the coverage for thisplan is family coverage rather than self-only. If you have more thanone plan and one is a family plan, answer Yes here and answer allsucceeding questions for that plan alone. If married and the otherspouse has family coverage, only that plan is considered for thepurposes of this form.

Annual deductible for plan. You are eligible to deduct contributionsonly if the deductible for the plan falls within allowed ranges:$1,050 through $5,250 for self-only coverage and $2,100 through$10,500 for family coverage. If your deductible is outside thisrange, the limitation for line 3 will be zero and all contributions willbe considered excess contributions.

Limitation per line 3 worksheet. (auto-calc) The IRS instructions include aLine 3 Limitation Chart and Worksheet that helps you determine the limi-tation on contributions at line 3 of Form 8889. The software computesthe limitation using that worksheet under the assumption that, for themonths you are eligible, your deductible is the same every monththroughout the year. If this assumption is not valid for your case, youmay have to override the result that appears here with a manual calcula-tion using the IRS worksheet. This result is proportionately reducedwhen “Number of months contributions NOT allowed” is greater thanzero, and reduced to zero when the number is 12.

Your HSA contributions for 2006. Enter the contributions you made toyour HSA (or someone else other than your employer made on yourbehalf), including those made for 2006 in the period January 1, 2007


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through April 16, 2007, but do not include rollovers from other HSAsor Archer MSAs. Your entry here is used at line 2 of Form 8889.

Excess timely withdrawn. If you find that your contributions (or thosemade on your behalf, other than your employer) exceed the allowedamount, you can correct the excess contributions by withdrawingthe excess (plus earnings on it) within 6 months of the regular duedate of the return. You can then enter the amount withdrawn hereand your contributions will be reduced for the purposes of the filedForm 8889 as if the excess had never occurred, all in accordancewith IRS instructions. (If you file the return before withdrawing theexcess, you should not make an entry here now. Instead, you willmake an entry here when you prepare an amended return afterwithdrawing the excess within the allowed time.)

Employer’s 2006 HSA contributions. Enter the contributions your em-ployer made to your HSA. Your entry here is used at line 9 of Form8889. CAUTION: If both you and your employer made contributionsduring the year, you may exceed the allowed amounts and have topay tax on the excess. See “How to handle excess contributions” inthe shaded box following our details for line 11.

Excess timely withdrawn. If you find that your employer’s contribu-tions exceeded the allowed amount, you can correct the excesscontributions by withdrawing the excess (plus earnings on it) within6 months of the regular due date of the return. You can then enterthe amount withdrawn here and the contributions reported on Form8889 will be reduced for the purposes of the filed Form 8889 as ifthe excess had never occurred, all in accordance with IRS instruc-tions. (If you file the return before withdrawing the excess, youshould not make an entry here now. Instead, you will make an entryhere when you prepare an amended return after withdrawing theexcess within the allowed time.) CAUTION: If the employer contrib-uted too much and recognizes this fact, the employer will generallyinclude the excess as wages in box 1 of a Form W-2, and you willreport it as income on Form 1040, line 7. If so, you must indicatethis fact to the software on the last screen of Form 1040 so thatthe excess is not reported as income at Form 1040, 21 as well.

Total HSA distributions for 2006. Enter the total distributions received. Thisamount should be reported to you in box 1 of a Form 1099-SA forwhich HSA is indicated in box 5. Your entry here is used at line 12a.

Part for timely withdrawal. Enter the part of the total distributionsthat was made in order to correct excess contributions (within 6months of the regular due date of the return). This amount is nottaxable and will be reflected in line 12b. TIP: Note that this entryapplies ONLY to amounts reported to you on Form 1099-SA for2006. Therefore, any timely withdrawals made after the end of2006 will be reported on line 12b of the 2007 Form 8889, not the2006 form. Similarly, you could have an amount for this line for a

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withdrawal that corrected a 2005 excess because you made thewithdrawal in 2006.

Part for allowed rollovers. Enter the part of the total distributions thatwas a rollover into another HSA. This amount is not taxable and willbe reflected in line 12b.

Part received after died, disabled, or over 65. Any amounts distrib-uted after the benefactor died, or you became disabled or turned65, are not subject to the additional 10% tax for not being used forqualified medical expenses. If “Your age at end of tax year” on ourForm 1040 is 66.01 or more, this entry is automatically the sameas the preceding entry. (Remember that the age entry is based onthe age on January 1 of the following year.) Otherwise you can en-ter any amount up to the preceding entry. This amount is taken intoaccount in the computation of the penalty at line 15b.

FMV of benefactor’s HSA at time of death. If you inherited an HSA fromsomeone other than your spouse, the entire HSA must be distrib-uted to you. You must therefore enter the fair market value (FMV)of the account at the time of your benefactor’s death, and theamount will be included in line 12a. In addition, no penalty appliesto this distribution, so this amount is taken into account when com-puting the 10% additional tax at line 15b. An entry here will cause“DEATH HSA ACCT HOLDER” to be printed above the taxpayer’sname(s) near the top of Form 8889 to flag to the IRS that you arereporting a distribution from a deceased benefactor.

PART I, HSA CONTRIBUTIONS AND DEDUCTIONS. This part is used to claima deduction for contributions you make to your HSA. It is automatically com-pleted based on the information you supplied above, but you may provide youown computation for line 6 if married and both spouses have family coverageunder their own HSAs.

1 Indicate your coverage under a high-deductible health plan (HDHP)during 2006. (auto-calc) If you (or someone on your behalf otherthan your employer) made contributions for your HSA, either Self-only or Family is answered Yes depending on your prior answer to“Does HDHP cover family.” Otherwise, both answers remain No andPart I of Form 8889 is not used.

2 HSA contributions you made for 2006. (auto-calc) Taken from your en-try for “Your HSA contributions for 2006.”

3 Deductible or limitation from worksheet for line 3. (auto-calc) Takenfrom the previous result for “Limitation per line 3 worksheet.”

Your Form 8853, lines 3 and 4. (auto-calc, supported by Form 8853)Computed as the sum of lines 3 and 4 of the section of our Form8853 entitled “Your Archer MSA for II.”

Spouse’s Form 8853, lines 3 and 4. (auto-calc, supported by Form8853) Computed as the sum of lines 3 and 4 of the section of ourForm 8853 entitled “Spouse Archer MSA for II.”


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Did either spouse have family coverage for the Archer MSA?. (auto-calc, supported by Form 8853) Answered Yes if either line 1c orline 2c of Form 8853 shows Yes for “Family.”

4 Amount you or employer contributed to your Archer MSA for 2006.(auto-calc) If the preceding answer is Yes, computed as the sum ofyour and spouse’s Form 8853 lines 3 and 4. Otherwise, computedas your Form 8853 lines 3 and 4 alone.


Special amount for line 6, if any, from IRS instructions. If married andthe spouses have separate family-coverage HSAs, you can choose adifferent allocation than the software provides for line 6. See IRSinstructions for line 6.

6 Amount from line 5, or see instructions.. (auto-calc) Normally com-puted as line 5. However, if you made an entry on the precedingline, that entry is used here instead.

7 If age 55 or older at the end of 2006, married, and you or spouse hadfamily coverage under an HDHP anytime during 2006, additionalcontribution amount. (auto-calc) If filing status is 2 or 3, familycoverage was indicated, and your age on 1040 is 55.0 or more,computed as $700 times the number of months of the year inwhich contributions were allowed. Otherwise, zero.

8 Add lines 6 and 7. (auto-calc) Computed as indicated.9 Employer contributions made to your HSAs for 2006. (auto-calc)

Taken from your prior entry for “Employer’s 2006 HSA contribu-tions.”


Smaller of line 2 or line 10. (auto-calc) Computed as indicated, this isthe HSA deduction before any adjustment from Form 5329.

Amount on Form 5329, line 42. (autocalc, supported by Form 5329) Ifyou had any excess contributions in 2005, and you properly enteredthem above line 42 of Form 5329, the amount on Form 5329, line42, for the appropriate spouse appears here. Once Form 8889 iscomplete, you may find that you have an additional HSA deductionfor line 11 (computed below) providing your contribution on Form8889, line 2 is less than the amount you are allowed for 2006(Form 8889, line 10).

Adjustment per Form 5329 line 43 instructions. (auto-calc) Computedas the lesser of the amount by which Form 5329, line 42 exceedsForm 8889, line 14 (later) or the amount by which Form 8889, line10 exceeds Form 8889, line 2. This is the additional deduction youare allowed this year (below) because of excess contributions in thepast not offset by current-year distributions. CAUTION: Becausethis computation depends on the later computation of Form 8889,line 14, this result may not be accurate until Form 8889 is com-

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plete. (This computation automates the IRS Instructions for Form5329, line 43.)

11 HSA deduction. (auto-calc) Computed as the sum of “Smaller of line2 or line 10” and “Adjustment per Form 5329 line 43 instructions.”This result is automatically posted to line 25 of Form 1040 as anadjustment to income.

Excess contributions. If line 2 exceeds line 10 or line 9 exceeds line 8, youhave an excess contribution that may be subject to taxes and penalties onForm 5329. See the last screen of our Form 8889 for details.

PART II, HSA DISTRIBUTIONS. This section is used to report distributions youreceive from your HSA, which is subject to taxation and an additional penaltyunless an exception applies.

Distributions from all HSAs. (auto-calc) Taken from your prior entryfor “Total HSA distributions for 2006.”

FMV of benefactor’s HSA at time of death. (auto-calc) Taken from yourprior entry for “FMV of benefactor’s HSA at time of death.” If anamount appears here, “DEATH HSA ACCT HOLDER” will be printedabove the taxpayer’s name near the top of Form 8889 to flag to theIRS that you are reporting a distribution from a deceased benefactor.

12a Distributions you received in 2006 from all HSAs. (auto-calc) Com-puted as the sum of the preceding two amounts.

Allowed rollovers in 12a. (auto-calc) Taken from your prior entry for“Part for allowed rollovers.”

Timely withdrawal in 12a. (auto-calc) Taken from your prior entry for“Part for timely withdrawal.”

12b Distributions included in line 12a that you rolled over into anotherHSA, etc. (auto-calc) Computed as the sum of the preceding twoamounts.

12c Subtract line 12b from line 12a. (auto-calc) Computed as indicated.Unreimbursed qualified medical expenses. Generally, enter the

amount in line 12c that you used to pay for qualified medical ex-penses for you, your spouse, or your dependents. However, see IRSinstructions for restrictions. CAUTION: Any amount you enter herecannot be claimed as an itemized deduction on Schedule A.

Decedent’s qualified medical expenses. Enter the amount of qualifiedmedical expenses incurred by the above benefactor before his or herdeath that you paid within 1 year of death. This entry can be nomore than the FMV of the benefactor’s HSA on the date of death.CAUTION: Any amount you enter here cannot be claimed as anitemized deduction on Schedule A.


Your taxable distributions. (auto-calc) Computed as “Distributionsfrom Archer MSAs” (without the decedent’s amount) less line 8band less “Unreimbursed qualified medical expenses” (without the


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decedent’s amount). This amount is generally subject to a 15%penalty tax unless you previously identified an amount distributeddue to death, disability, or age.

Decedent’s taxable distributions. (auto-calc) Computed as “FMV ofbenefactor’s Archer MSA at time of death” less “Decedent’s quali-fied medical expenses.” This entire amount is exempt from the 15%penalty tax.

14 TAXABLE HSA DISTRIBUTIONS. (auto-calc) Computed as line 12cless line 13, but no less than zero. This is the amount to be in-cluded in line 21 of Form 1040. (See the last screen of Form 8889for other amounts that may be included in the posting to line 21 ofForm 1040, including an adjustment you may have to make.)

Your exception to the 10% additional tax. (auto-calc) Taken from your priorentry for “Part received after died, or disabled, or over 65,” which is theonly part of your taxable distributions excepted from the penalty.

Decedent’s exception to the 10% additional tax. (auto-calc) Computedas the entire amount for “Decedent’s taxable distributions,” all ofwhich is excepted from this penalty.

15a Do any of the distributions in line 10 meet an exception to the addi-tional 10% tax. (auto-calc) Answered Yes if there is an amount oneither of the preceding two lines.

15b ADDITIONAL 10% TAX. (auto-calc) Computed as the amount on line10 less the sum of the preceding two exceptions, this amount isposted to the special “HSA” line above line 63 of Form 1040 for in-clusion with other taxes.

Special Transfers to Form 5329. If you have any excess contributions to yourHSAs (shown below) or you had an amount on line 43 of the 2005 Form5329, you must complete Part VII or Form 5329. The following amountsfrom this Form 8885 will be used in Part VII of Form 5329.

Contributions allowed in line 10. (auto-calc) Taken from line 10, asindicated.

Contributions you made in line 2. (auto-calc) Taken from line 2, as in-dicated.

! REMAINDER FOR FORM 5329, LINE 43. (auto-calc) Computed as line10 less line 2, but no less than zero, this is the Contribution Creditfor Form 5329, which is automatically posted to the proper copy ofForm 5329. If you had an amount on the 2005 Form 5329, line 48(and therefore have an entry for the current-year Form 5329, line42), you must manually enter that amount on the copy of Form5329 for the appropriate spouse to ensure that the additional tax onprior excess contributions is minimized in Part VII of Form 5329.

! DISTRIBUTIONS FOR FORM 5329, LINE 44. (auto-calc) Computed asthe result on Form 8889, line 14, this amount is automaticallyposted to the proper copy of Form 5329.

Your excess contributions. (auto-calc) Computed as line 2 less line10, but no less than zero, this is the amount by which your contri-

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butions (or those made on your behalf by someone else other thanyour employer) exceeded the allowed amount.

Employer’s excess contributions. (auto-calc) Computed as line 9 lessline 8, but no less than zero, this is the amount by which your em-ployer’s contributions exceeded the allowed amount.

! TOTAL EXCESS FOR FORM 5329, LINE 47. (auto-calc) Computed asthe sum of the above two amounts, this is the excess contributionthat is subject to a 6% additional tax through Form 5329. This re-sult is automatically posted to the proper copy of Form 5329.

Extra time to correct excess contributions. Note that you can also get credit forwithdrawing excess contributions after you file your return. Withdrawals made upto 6 months after the regular due date of the return (excluding extensions) can beused to cancel excess contributions and eliminate taxes and penalties on theamount. You would generally have to revise Forms 1040, 5329, and 8889 onyour amended return, entering the excess withdrawn on screen 1 of Form 8889.

Income for Form 1040, line 21. Although the taxable income on line 14 ofForm 8889 and any excess contributions are automatically reflected in line 21of Form 1040, you will have to enter an adjustment here if your employer re-ported excess contributions as taxable wages in box 1 of a Form W-2.

Your excess contributions. (auto-calc) Computed as line 2 less line 10,but no less than zero, this is the amount by which your contribu-tions (or those made on your behalf by someone else other thanyour employer) exceeded the allowed amount.

Employer’s excess contributions. (auto-calc) Computed as line 9 lessline 8, but no less than zero, this is the amount by which your em-ployer’s contributions exceeded the allowed amount.

Amount included in Form 1040, line 7. If the employer reported excesscontributions in box 1 of Form W-2, the amount will be reflected inline 7 of Form 1040 through your entry on the W-2 Worksheets forthat line. In order to prevent the double taxation of that amount,you must enter the amount here.

Net excess for Form 1040, line 21. (auto-calc) Computed as your andemployer’s excess contributions less the amount included in Form1040, line 7.

Taxable amount on Form 8889, line 14. (auto-calc) Taken from line 14,as indicated.

TOTAL FOR FORM 1040, LINE 21. (auto-calc) Computed as the sum ofthe preceding two amounts, this total is automatically posted to line21 of Form 1040 as taxable income.



California Schedule G-1

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Part II – California (FTB) FormsAlthough many forms for a California Form 540 return are similar to forms fora Federal Form 1040 return, many others are unique to California, especiallythose for the many special credits available in California. Following are detailsfor forms contained only in the Premium Level software for preparing Form540 returns, in numerical order by FTB number. None of these forms is in-cluded in Economy Level or Standard Level software.

Schedule G-1 / Tax on Lump-Sum Distributions

Not yet complete. At the time this supplement was written, this form wasnot yet installed in the software and its instructions were not yet complete.Be sure to “Check for Updates” frequently from the Tax Preparer ControlPanel to keep your software and this supplement up-to-date.

Purpose. This form, which is analogous to Federal Form 4972, is used totake advantage of a special tax break for total distributions from qualifiedplans. (When available, Schedule G-1 will be accessible through the RoadMap at line 23 of Form 540.)

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California Form 3504

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Form 3501 / Employer Child Care Program/ContributionCredit


Purpose. This form is used by employers to claim a credit for their contribu-tions to child care activities, including employee child care programs and con-tributions to child care services. The credit is generally 30% of the qualifyingcosts, up to a maximum of $50,000. The form is also used to figure recap-ture for credit previously claimed on a child care facility that ceased operationwithin 5 years of its establishment. Once installed, this form will be accessi-ble through the Road Map from Schedule P, page 2, at the line for credit 189in Section A2 of Part III.



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Form 3508 / Solar Energy System Credit


Purpose. This form is used to claim credit for up to 7.5% of the cost of pur-chase and installation of a solar or wind energy system. When available, Form3508 will be accessible through the Road Map from Schedule P, page 2, atthe line for credit 217 in Section A2 of Part III.

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Form 3510 / Credit for Prior Year Alternative Minimum Tax


Purpose. This form, which is analogous to Federal Form 8801, provides acredit for prior-year AMT when the current-year tentative minimum tax is lessthan the regular tax. When available, Form 3510 will be accessible throughthe Road Map from line 11 of Schedule P, page 2 -- the line for credit 188 inSection A2 of Part III.



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Form 3521 / Low-Income Housing Credit


Purpose. This form, which is analogous to Federal Form 8586, provides acredit for placing in service a building with a qualified amount of low-incomehousing. When available, Form 3521 will be accessible through the RoadMap from Schedule P, page 2, at the line for credit 172 in Section B2 of PartIII.

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Form 3523 / Research Credit


Purpose. This form, which is analogous to Federal Form 6765, provides acredit for increasing the technological research performed by your company.When available, Form 3523 will be accessible through the Road Map fromSchedule P, page 2, at the line for credit 183 in Section B2 of Part III.



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Form 3526 / Investment Interest Expense Deduction


Purpose. This form, which is analogous to Federal Form 4952, is used to fig-ure the amount of interest applicable to maintaining investments that can bededucted in the current year and to figure the amount of carryover to thenext year. When available, Form 3526 will be accessible through the RoadMap from our Worksheet A at the line “Investment adjustment on CaliforniaForm 3526,” and is reflected in the adjustment at line 40 of Schedule CA.

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Form 3533 / Change of Address


Purpose. This form, which is analogous to Federal Form 8822, is used to re-port to the FTB any change of address for your business or personal tax re-turns. When available, Form 3533 will be accessible only through the FormsMenu because it is a stand-alone form not normally filed with the Form 540return.



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Form 3548 / Disabled Access Credit


Purpose. This form, which works in concert with federal Form 8826, pro-vides a credit for expenditures to provide access to disabled individuals. Thecredit is 50% of the qualified expenses up to $250. By contrast, the federalcredit is 50% of the qualified expenses that exceed $250 (up to a $10,250maximum). When available, Form 3548 will be accessible through the RoadMap through Schedule P, page 2, at the line for credit 205 in Section A2 ofPart III.

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Form 3553 / Enterprise Zone Employee Credit


Purpose. This form provides a credit to employees who work within a Cali-fornia enterprise zone. The credit is generally 5% of up to $10,500 of quali-fied wages, but is reduced by a portion of wages earned outside the enter-prise zone. When available, Form 3553 will be accessible through the RoadMap through line 6 of Schedule P, page 2 -- the line for credit 169 in SectionA1 of Part III.


California Form 3801-CR

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Form 3801-CR / Passive Activity Credit Limitations


Purpose. This form, which is analogous to Federal Form 8582-CR, imposeslimitations on credits for passive activities. When available, Form 3801-CRwill be accessible only from the Forms Menu, not through the Road Map.

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California Form 3805V

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Form 3805V / NOL Computation and NOL and Disaster LossLimitations


Purpose. This form, which is analogous to Federal Form 3621, is used to fig-ure a deduction from income as a result of carryovers from years with anegative taxable income. When available, Form 3805V will be accessiblethrough the Road Map at lines 21b and 21d of Schedule CA.


California Form 3805Z

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Form 3805Z / Enterprise Zone Deduction and Credit Sum-mary


Purpose. This form is used to figure a deduction and a credit for businessexpenses in a California enterprise zone. When available, Form 3805Z will beaccessible through the Road Map at line 21e of Schedule CA.

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California Form 5870A

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Form 3806 / LARZ Deduction and Credit Summary


Purpose. This form is used to figure a deduction and a credit for businessexpenses in a Los Angeles Revitalization Zone. When available, Form 3806will be accessible through the Road Map at line 21e of Schedule CA.



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Form 5123 / Employer-Provided Adoption Assistance Exclu-sion


Purpose. This form, which is analagous to a small portion of federal Form8839, is used to figure an exclusion from income of employer-provided adop-tion benefits you received. When available, Form 5123 will be accessible onlythrough the Forms Menu and not through the Road Map.

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California Form 5870A

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Form 5870A / Tax on Accumulation Distribution of Trusts


Purpose. This form, which is analogous to federal Form 4970, is used to fig-ure the additional tax on an accumulation distribution made by a foreign trustand certain domestic trusts. When available, Form 5870A will be accessiblethrough the Road Map at line 23 of Form 540.

premium level supplement 2007 · form 4970 / tax on accumulation distribution of...

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