Premium Level Supplement 2005 - HowardSoft · Form 8396 / Mortgage Interest Credit _113 Form 8582-CR / Passive Activity Credit Limitations _117 Form 8586 / Low-Income Housing

Premium Level Supplement 2005

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 the2005 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 2004 and January 2005,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 2005 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 1116 / Foreign Tax Credit _____________________________ 2Form 1310 / Refund Due a Deceased Taxpayer ______________ 19Form 2120 / Multiple Support Declaration ___________________ 22Form 2350 / Application for Extension of Time to File U.S. IncomeTax Return ______________________________________________ 23Form 2555 & 2555-EZ / Foreign Earned Income ______________ 26Form 2688 / Application for Additional Extension of Time to FileU.S. Individual Income Tax Return _________________________ 37Form 2848 / Power of Attorney and Declaration of Representative39Form 4136 / Credit for Federal Tax Paid on Fuels_____________ 42Form 4137 / Social Security and Medicare Tax on Unreported TipIncome__________________________________________________ 48Form 4255 / Recapture of Investment Credit _________________ 52Form 4952 / Investment Interest Expense Deduction __________ 54Form 4970 / Tax on Accumulation Distribution of Trusts _______ 60Form 4972 / Tax on Lump-Sum Distributions_________________ 68Form 5884 / Work Opportunity Credit _______________________ 73Form 6198 / At-Risk Limitations ____________________________ 76Form 6478 / Credit for Alcohol Used as Fuel _________________ 82Form 6765 / Credit for Increasing Research__________________ 88Form 6781 / Gains and Losses from Section 1256 Contracts andStraddles _______________________________________________ 96Form 8271 / Investor Reporting of Tax Shelter Registration Number_______________________________________________________ 104

Form 8332 / Release of Claim to Exemption for Child of Divorcedor Separated Parents ____________________________________ 105Form 8379 / Injured Spouse Claim and Allocation ___________ 106Form 8396 / Mortgage Interest Credit ______________________ 113Form 8582-CR / Passive Activity Credit Limitations __________ 117Form 8586 / Low-Income Housing Credit ___________________ 118Form 8594 / Asset Acquisition Statement Under Section 1060 __ 122Form 8611 / Recapture of Low-Income Housing Credit _______ 126Form 8736 / Application for Automatic Extension of Time to FileU.S. Return for a Partnership, REMIC, or for Certain Trusts ___ 131


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Form 8800 / Application for Additional Extension of Time to FileU.S. Return for a Partnership, REMIC, or for Certain Trusts___ 132Form 8801 / Credit for Prior Year Minimum Tax_____________ 134Form 8815 / Exclusion of Interest from Series EE and I U.S.Savings Bonds Issued After 1989 _________________________ 141Form 8822 / Change of Address __________________________ 144Form 8824 / Like-Kind Exchanges_________________________ 146Form 8828 / Recapture of Federal Mortgage Subsidy________ 152Form 8834 / Qualified Electric Vehicle Credit _______________ 157Form 8839 / Qualified Adoption Expenses _________________ 161Form 8846 / Credit for Employer Social Security and MedicareTaxes Paid on Certain Employee Tips _____________________ 175Form 8853 / Archer MSAs and Long-Term Care InsuranceContracts ______________________________________________ 178Form 8859 / District of Columbia First-Time Homebuyer Credit 191Form 8861 / Welfare-to-Work Credit _______________________ 193Form 8862 / Information to Claim Earned Income Credit AfterDisallowance __________________________________________ 196Form 8885 / Health Coverage Tax Credit __________________ 201

Part II – California (FTB) Forms_______________________203Schedule G-1 / Tax on Lump-Sum Distributions ____________ 203Form 3501 / Employer Child Care Program/Contribution Credit204Form 3504 / Long-Term Care Credit _______________________ 205Form 3508 / Solar Energy System Credit___________________ 207Form 3510 / Credit for Prior Year Alternative Minimum Tax __ 208Form 3521 / Low-Income Housing Credit___________________ 209Form 3523 / Research Credit _____________________________ 210Form 3526 / Investment Interest Expense Deduction _________ 211Form 3533 / Change of Address __________________________ 212Form 3535 / Manufacturer’s Investment Credit______________ 213Form 3548 / Disabled Access Credit_______________________ 214Form 3553 / Enterprise Zone Employee Credit ______________ 215Form 3801-CR / Passive Activity Credit Limitations __________ 216Form 3805V / NOL Computation and NOL and Disaster LossLimitations_____________________________________________ 217Form 3805Z / Enterprise Zone Deduction and Credit Summary218Form 3806 / LARZ Deduction and Credit Summary__________ 219Form 5123 / Employer-Provided Adoption Assistance Exclusion220Form 5870A / Tax on Accumulation Distribution of Trusts ____ 221


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Table of FiguresFigure Prem-1. Foreign Source Worksheet (Screen 1 of 2)______11Figure Prem-2. Foreign Source Worksheet (Screen 2 of 2)______13Figure Prem-3. Eligible Person Worksheet ____________________22Figure Prem-4. Tax Home Worksheet ________________________29Figure Prem-5. U.S. Income Worksheet_______________________30Figure Prem-6. U.S. Home Maintained Worksheet _____________31Figure Prem-7. Travel Abroad Worksheet ____________________32Figure Prem-8. Fuel Use Worksheet__________________________44Figure Prem-9. Fuel Sale Worksheet _________________________46Figure Prem-10. ITC Recapture Worksheet ___________________52Figure Prem-11. Section 1256 Contracts______________________98Figure Prem-12. Losses from Straddles _____________________100Figure Prem-13. Gains from Straddles ______________________101Figure Prem-14. Unrecognized Gains _______________________102Figure Prem-15. Tax Shelter Registration Worksheet__________104Figure Prem-16. Credit on Additions Worksheet ______________128Figure Prem-17. Student Worksheet ________________________142Figure Prem-18. Electric Vehicle Worksheet__________________159Figure Prem-19. Adoption Expense (Screen 1) _______________163Figure Prem-20. Adoption Expense (Screen 2) _______________165Figure Prem-21. Adoption Expense (Screen 3) _______________167Figure Prem-22. Adoption Expense (Screen 4) _______________168Figure Prem-23. Long-Term Care Worksheet_________________189Figure Prem-24. Address Worksheet ________________________200Figure Prem-25. Other Person Worksheet____________________200Figure Prem-26. Long-Term Care Worksheet_________________205


What It Is

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What It IsThe Premium Level Supplement 2005 is a special supplement to the TaxForms Guides for all 2005 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 2005 Edition. This is the primary Tax Forms Guide forall programs for the 2005 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 2005 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 2005 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 key for quickest searches through the on-screen manuals. Thesearch capability that is built into on-screen manuals lets you find any phrasein this document quickly and easily. Just press ctrl-F and a box appears foryou to enter a phrase. Once you find an occurrence of this phrase you canfind the next one by pressing ctrl-G. You can then continue to press ctrl-Guntil you have searched the entire document.

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Form 1116

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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 IRSnumber. None of these forms is included in Economy Level or Standard Levelsoftware.

Form 1116 / Foreign Tax CreditPurpose. Form 1116 is used to claim credit for income taxes paid to a quali-fying foreign country or U.S. possession. It’s purpose is to prevent you frombeing double-taxed on the same income – once by the U.S. and once by theforeign country. Form 1116 is accessible through the Road Map at line 46 ofForm 1040. Ten copies of Form 1116 are built into the software.

Prepare Form 1116 only after Form 1040 is complete and final through line45. Because of the unique structure of Form 1116, you should prepare Forms1116 only after the return is complete and final through line 45 of Form1040. Especially important are all income items through line 22, itemizeddeductions on Schedule A for line 39, and tax on lump-sum distributions onForm 4972 for line 43b. If any of these amounts change after you prepareForms 1116, you must itemize to the worksheets accessed at line 1 of Form1116 and view all worksheets so that they are updated with the newamounts, since worksheets only recalculate when you view them.

You may qualify for the credit without filing Form 1116. You can claim thecredit without filing Form 1116 if all of the following conditions are met:

(1) All foreign income was investment income. Income that falls into thiscategory includes interest, dividends, royalties, rents, annuities, gainfrom sale of investment property, and capital gains not associated withyour active conduct of a trade or business. (The IRS confusingly callsthis the “passive income” category, but it has no relation to “passive ac-tivity income” defined for Form 8582. Rather, it includes “portfolio in-come” as defined for Schedule D and is therefore “nonpassive income” inthe context of Form 8582!)

(2) All foreign income and withholding were reported to you on a qualifiedstatement. Qualified statements include Form 1099-INT, 1099-DIV, andSchedule K-1.

(3) Total foreign taxes do not exceed $300 ($600 if married filing jointly).Only creditable foreign taxes count in this determination.

However, the ability to omit Form 1116 does not give you the ability to ig-nore its rules. You must still reduce your credit by amounts described in IRSinstructions for line 12 of Form 1116, which generally means that you cannotclaim credit for taxes on income that you have excluded from U.S. incometax. CAUTION: It may be to your benefit to use Form 1116 even when youare qualified to omit it, because you cannot carry over any unused credit toanother year if you omit Form 1116.


Form 1116

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Copy 1 is ALWAYS REQUIRED. Unlike other forms for which we provide mul-tiple copies, copy 1 is mandatory for Form 1116 because of the unconven-tional design of the form by the IRS. The IRS requires that you post the cred-its from all Forms 1116 to Part IV of a single Form 1116, leaving Part IVblank for all other copies of Form 1116. The result in Part IV of that oneForm 1116 is then posted to line 46 of Form 1040. We have therefore desig-nated copy 1 of Form 1116 as the single copy for which Part IV is com-pleted. As a result, if you do not create a copy 1 of Form 1116, no credit willbe posted to Form 1040. Therefore, whether you need one or more copies ofForm 1116, copy 1 must be one of the copies.

IMPORTANT: Use IRS resources for important details. The IRS Instructionsfor Form 1116 includes several topics that may require your attention, in-cluding a list of foreign taxes that are not eligible for the Foreign Tax Credit,situations that may require a redetermination of the credit on an amended re-turn, and adjustment of income to compensate for the lower rates that applyto capital gains. IRS Pub. 514 (Foreign Tax Credit for Individuals) provideseven more detail on what taxes qualify for the credit and includes helpfulfilled-in examples for Form 1116. We strongly recommend that you carefullyread both documents before preparing Form 1116, unless you are onlyclaiming a credit for foreign taxes paid on interest and dividends receivedfrom foreign sources.

Category of income. You must identify the category of income to which thiscopy of Form 1116 applies. You must use a separate Form 1116 for foreigntax related to each separate category.

a. Passive income. This is generally portfolio income or other invest-ment income from sources in which you are not an active partici-pant. It is the most popular category because it includes dividendsfrom foreign stocks. It also includes interest, royalties, rents, annui-ties, gain from sale of investment property, and capital gains notassociated with your active conduct of a trade or business.(CAUTION: This category has no relation to “passive activity in-come” defined by the IRS for Form 8582. Rather, it is related to“portfolio income” as defined for Schedule D and is therefore“nonpassive income” in the context of Form 8582.)

b. High withholding tax interest. This is foreign interest subject to highwithholding rates – 5% or more.

c. Financial services income. This is generally income derived by a fi-nancial services entity (banks, insurance companies, etc.) andtherefore does not apply to individuals unless they are sole proprie-tors of financial services entities. You must report in a supportingstatement for this line the type of income and amount for each in-come item that qualifies as financial services income. Failure to doso will cause an e-filed return to be rejected by the IRS.

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Form 1116

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d. Shipping income. This is income derived from transport in foreigncommerce, such as cargo services.

e. Dividends from a DISC or former DISC. These are dividends from aDomestic International Sales Corporation) that are treated as for-eign-source income.

f. Certain distributions from a foreign sales corporation (FSC) or for-mer FSC. These are distributions from a Foreign Sales Corporationattributable to foreign trade income.

g. Lump-sum distributions. These are foreign-source lump-sum distribu-tions from a pension plan. If you elected to have this income taxedusing one of the options on Form 4972, a separate limitation ap-plies, as explained later in these details. The IRS instructs you NOTuse copy 1 of Form 1116 for this category if you are filing morethan one Form 1116; nevertheless, the return will show the propercredits even if you do.

h. Section 901(j) income. This is income derived from certain sanctionedcountries. No tax credit is allowed for these countries, but youmust still complete Form 1116 through line 16 to determine for-eign source taxable income. Unlike the other categories, you mustuse a separate copy of Form 1116 for each separate country fromwhich you receive section 901(j) income. The IRS instructs youNOT use copy 1 of Form 1116 for this category if you are filingmore than one Form 1116; nevertheless, the return will show theproper credits even if you do.

i. Certain income re-sourced by treaty. This is income you elect totreat as foreign source income by application of an income taxtreaty with the country.

j. General limitation income. This is all other foreign income, includingwages or salary as an employee, income from your conduct of abusiness not described above, and gains from sale of inventory ordepreciable property from a trade or business not described above.

k. Resident of (name of country or U.S. possession). Name the countryin 15 characters or less, abbreviating if necessary. (Even thoughthere is room on the form for a longer entry, we limit your entry to15 characters because that is all the IRS will accept for an e-filedreturn.)

Preparation for completing Parts I and II of Form 1116. Before you can com-plete Parts I and II, you must complete a number of special sections we haveprovided in order to automate the form. The need for these entries is not evi-dent from the form itself but is buried in the IRS Instructions for Form 1116and IRS Pub. 514 (Foreign Tax Credit for Individuals). You should refer tothose sources if you have questions not answered here.

Deductions for lines 3a and 3b. In determining the taxable income attributableto a particular category and country, Form 1116 includes the reporting of ex-penses that cannot be definitely attributable to any one category and country.


Form 1116

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Those expenses apply to all countries reported on Forms 1116 but are dividedamong them and the U.S. in proportion to their respective gross incomes.Each column of Form 1116, Part I (and each worksheet that Tax Preparerprovides to support them) shows the required prorating, which is generallydifferent for each country. But the expenses to which the prorating is appliedare the same for all countries and categories. We therefore provide the ex-pense entries for lines 3a and 3b here to eliminate duplicate data entry thatmight otherwise be required.

3a Certain itemized deductions or standard deduction. You report hereeither your standard deduction or a portion of your itemized deductions,depending on which is used for line 39 of Form 1040:

Schedule A used for Form 1040, line 39? (auto-calc) Taken from Form1040, as indicated. If No, all amounts below from Schedule A willbe zero and you need make no entries below for line 3a of Form1116. But if Yes, you must determine the amounts to exclude fromselected parts of Schedule A for the purposes of this line.

Schedule A, line 4. (auto-calc) Taken from Schedule A, this is themedical expense deducted.Part to exclude from line 3a. Enter the part of the preceding amountthat applies to a particular category and country, or applies to theU.S. An amount that applies to a particular category and countrywill be reported on line 2 of the respective worksheet instead.

Schedule A, line 5 (if sales tax). (auto-calc) Taken from Schedule A,this is the deduction for general sales tax, if any. If income tax wasdeducted at Schedule A, line 5, rather than sales tax, no amountwill appear here.Part to exclude from line 3a. Enter the part of the preceding amountthat applies to a particular category and country, or applies to theU.S. An amount that applies to a particular category and countrywill be reported on line 2 of the respective worksheet instead.

Schedule A, line 6. (auto-calc) Taken from Schedule A, this is the de-duction for real estate tax.Part to exclude from line 3a. Enter the part of the preceding amountthat applies to a particular category and country, or applies to theU.S. An amount that applies to a particular category and countrywill be reported on line 2 of the respective worksheet instead.

Schedule A, line 18. (auto-calc) Taken from Schedule A, this is thededuction for gifts to charity.Gifts after 7/27/2004. Because of a change in the law, gifts made af-ter July 27, 2004 are not required to be included on Form 1116.Other part to exclude from line 3a. For the 2004 tax year return youcan also elect to omit gifts made before July 28, 2004. Also enterany part of Schedule A, line 18, that applies to a particular categoryand country, or applies to the U.S. An amount that applies to a par-ticular category and country will be reported on line 2 of the respec-tive worksheet instead.

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Form 1116

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Reduction % on Schedule A. (auto-calc) The amounts to be used online 3a are subject to the same high-income limitations as are ap-plied on Schedule A. To determine the proper reduction, a reductionpercentage is computed by dividing the amount disallowed onSchedule A (shown above line 28 on the screen) by the total ofamounts on Schedule A that are subject to the limitation (allamounts on Schedule A except lines 4, 13, 19, and the gamblingand Form 4684 parts of line 27).

3a Amount for line 3a of all Forms 1116. (auto-calc) If itemized deduc-tions were used for Form 1040, line 39, this line is computed as thesum of the above amounts for Schedule A lines 5, 6, and 18 lessthe entered exclusions, reduced by the preceding percentage, plusthe amount for Schedule A line 4 less its entered exclusion. Other-wise, the standard deduction used on Form 1040, line 39, appearshere. This result is used for line 3a of all worksheets for Form 1116(except those for category g with a Form 4972 election, as de-scribed later).

3b Amount for line 3b of all Forms 1116. In a supporting statement forthis line, enter any other deductions that do not definitely relate toany particular type of income or country. Do not include interest ex-pense or losses here; they will be reported on lines 4 and 5 instead.Failure to report the amounts for this line in a supporting statementwill cause an e-filed return to be rejected by the IRS.

Gross income for prorating. The prorating of amounts not definitely related toa particular type of income or country requires a knowledge of the gross in-come for the type and country, entered on line 3d of the respective work-sheet, and the gross income for all sources combined, including the U.S. Thelatter amount is computed here and is used for line 3e of all worksheets.

Gross income on Form 1040, line 22. (auto-calc) Taken from line 22 ofForm 1040, as indicated.

Income excluded via Form 2555 or 2555-EZ. (auto-calc) Taken fromthe Form 2555 and 2555-EZ components of Form 1040, line 21,but shown as a positive number. This is the amount by which grossincome was reduced in computing Form 1040, line 22, and must beadded back to income for the purposes of Form 1116, line 3e.

Other deductions and losses reflected in Form 1040, line 22. For thepurposes of lines 3d and 3e, the IRS defines gross income as in-come without regard to deductions and losses. You must thereforeenter any other deductions and losses that reduced income in com-puting Form 1040, line 22, and must be added back to income forthe purposes of Form 1116, line 3e.

3e Gross income without exclusions, losses, and deductions. (auto-calc) Computed as Form 1040, line 22, with the preceding twoamounts added back to income.

Gross income with exclusions for line 4a worksheet. (auto-calc)Computed as the preceding result reduced by the exclusions from


Form 1116

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Forms 2555 and 2555-EZ. The prorating for line 4a is different fromthat for lines 3a and 3b in that the exclusions from Forms 2555 and2555-EZ are not added back to income for the purposes of the for-mer. This result is used on the worksheets in computing the pro-rated amount for line 4a.

Information for deduction at line 4a. The prorating for line 4a is computed oneach worksheet, but the amount to be prorated is the same for all worksheetsand is the amount deducted on Schedule A for home mortgage interest.

Schedule A, lines 10 through 12. (auto-calc) Taken from Schedule A,as indicated, this is the amount shown on Schedule A for homemortgage interest, including deductible points. If Schedule A wasnot used for Form 1040, line 39, this amount will be zero.

Reduction % on Schedule A. (auto-calc) Taken from the previously-computed percentage, shown above line 3a, this is the amount bywhich the preceding deduction must be reduced before being usedon Form 1116.

4a Amount for line 4a BEFORE pro rate. (auto-calc) If itemized deduc-tions were used for Form 1040, line 39, computed as the amounton lines 10 through 12 of Schedule A reduced by the precedingpercentage. Otherwise, zero. This result is prorated on each indi-vidual worksheet for Form 1116 in accordance with a worksheet inthe IRS instructions. TIP: If your gross foreign source income (in-cluding income excluded on Forms 2555 and 2555-EZ) does notexceed $5,000, you are allowed to allocate all of this home mort-gage interest to the U.S. instead of any foreign country. To makethis election, use the Override Key to access this computed line andchange it to zero.

Election for category g. Lump-sum distributions (category g) are eligible forfavorable tax treatment under certain conditions through Form 4972 (Tax onLump-Sum Distributions). The participant in the plan from which the distribu-tions were made must have been born before January 2, 1936, but if youqualify you may elect a 10-year option or, if capital gains are included, a capi-tal gain election through that form. If you make such an election for the for-eign-source lump-sum distribution you report here, you must so identify inthis section so that the proper special limitations are applied. When you makethis choice the normal instructions for Part III of Form 1116 are replaced byspecial instructions on the IRS Worksheet for Lump-Sum Distributions, all ofwhich is performed automatically by the software based on your followingentries and the amounts you report on our worksheets for line 1, later.CAUTION: You must prepare Form 4972 (accessible through the Road Map atline 43b of Form 1040) before you prepare this copy of Form 1116 in orderfor the proper calculations to be applied.

Elected Form 4972 for this income? You can answer Yes only if youhave already created a Form 4972 for the return and you have cho-sen category g for this copy of Form 1116. Amounts from Form4972 will then appear below.

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Form 1116

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Form 4972, lines 6 and 12. (auto-calc) Taken from the Form(s) 4972prepared for the return, this is the total of all lump-sum distributionsreported on the form(s). This total is used for line 17 of this copy ofForm 1116 in place of the normal amount.

Foreign source part of the above. Enter the amount you reported onForm 4972 for the foreign-source distribution reported here. Yourentry can be no more than the amount on the preceding line.CAUTION: This entry is critical for a Form 1116 that uses the Form4972 election. It is used for line 16 of this copy of Form 1116 inplace of the normal amount.

Form 4972, line 30. (auto-calc) Taken from Form 4972, this is theamount of tax reported on line 43b of Form 1040. This tax is usedfor line 19 of this copy of Form 1116 in place of the normalamount.

In addition to the modifications to lines 16, 17, and 19 noted above, if youmake this election the computations for lines 18, 20, and 21 are modified aswell, as noted in our instructions for those lines. Furthermore, the work-sheets you prepare in support of line 1 will have lines 1 through 6 zeroed;you will make monetary entries only in Part II so that line (x) has an amount,which will be reflected in line 8 of Form 1116 and used in the computation atline 21.

PART I, TAXABLE INCOME OR LOSS FROM SOURCES OUTSIDE THE UNITEDSTATED. After all the preparation in the preceding sections, you are nowready to compute the taxable foreign-source income for the category you se-lected for this copy of Form 1116. You must use the worksheets accessed atline 1 in this section for all monetary entries for Parts I and II of Form 1116(lines 1 through 8).

Foreign qualified dividends and capital gains. Because of their favorable taxtreatment, qualified dividends and capital gains are handled in a special wayon this form. Generally only a fraction of these sources of income are in-cluded in foreign-source income for lines 1 and 5 of Form 1116, and the tax-able income from all sources for line 17 is reduced in proportion to this typeof income from all sources. As a result, both line 16 (for foreign-source in-come) and line 17 (for all-source income) are adjusted lower than the total in-come for each, which affects the computation of the credit for this form.However, an exception applies if certain conditions are met, as explained forthe next two data entry lines:

Foreign qualified dividends + net capital gains. Enter the sum of yourforeign-source qualified dividends plus your foreign-source net capi-tal gains, where foreign-source net capital gain is defined by the IRSas the amount by which foreign-source net long-term capital gainexceeds foreign-source net short-term capital loss. If this amount is$20,000 or more, you do not qualify for an exception to the ad-justment of qualified dividends and capital gains on Form 1116.


Form 1116

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Qualify for “adjustment exception.” (auto-calc) Automatically Yes onlyif both of the following two conditions are met:(1) Line 17 of the Schedule D Tax Worksheet does not exceed speci-fied thresholds. Although the IRS defines the exception using otherworksheets as well, only the Schedule D Tax Worksheet need beconsidered for Tax Preparer because Tax Preparer creates theSchedule D Tax Worksheet whenever the specified types of incomemust be taxed at a reduced rate. (The thresholds are $146,750 ifsingle, $178,650 if married filing jointly or qualifying widow(er),$89,325 if married filing separately, and $162,700 if head ofhousehold.)(2) Foreign qualified dividends + net capital gains is less than$20,000. This test is based on your preceding entry.

If you qualify for the exception, none of your entries for qualified dividends,capital gains, or capital losses are reduced at lines 1 and 5, and the taxableincome for line 17 reflects Form 1040, line 40 without adjustment. (The taxcode is so complex that you can choose to make your own determination ofadjustments by consulting IRS sections 1(h)(11)(C)(iv) and 904(b)(2). If youdo so, you will have to modify your entries on the worksheets so that the re-sults at lines 1 and 5 match the results of your own determination.)

For category on screen 1. Entries for both Part I and Part II of Form 1116 aresupplied on the worksheets that support line 1 and must relate, either directlyor through prorating, to the category you specified for this copy of Form1116. See the section following Part II for special lines that allow you tocreate special statements to justify amounts on lines 2 and 8.

1 Gross income from sources within country entered. (Supported by theForeign Source Worksheet, Figures Prem-1 and Prem-2.) You mustcomplete the supporting worksheets for the type of income youpreviously specified in lines a through j. When you return from theworksheets the sum of line 1 of all worksheets appears here. (Ifthis copy of Form 1116 is for a lump-sum distribution you reportedon Form 4972, the amount on this line will be zero if you properlyidentified the Form 4972 election earlier.)

Type of income. This entry applies to all worksheets prepared for thiscopy of Form 1116. You must identify the type of income reportedon the worksheets. For example, you would enter “Interest anddividends” if you chose category a for this form and the type ofpassive income you reported was comprise solely of interest anddividends. Abbreviate your entry if necessary to fit the 25-characterentry width provided.

2 through 5. These lines are visible only on the worksheets you accessat line 1, above. See the details for the Foreign Source Worksheeton the next page.

6 Add lines 2, 3g, 4a, 4b, and 5. (auto-calc, supported by the ForeignSource Worksheet, Figures Prem-1 and Prem-2) Computed as thesum of line 6 for all worksheets that support line 1 combined.

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Form 1116

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7 Subtract line 6 from line 1. (auto-calc) Computed as indicated, this isyour foreign-source taxable income for the category chosen for thiscopy of Form 1116 (before adjustment).

PART II, FOREIGN TAXES PAID OR ACCRUED. In this section you report thetaxes you paid or accrued for each separate country listed in Part I. Lines (m)and (n) of this section are entered below, but lines (o) through (x) are enteredon screen 2 of the worksheets that support line 1, using one worksheet foreach separate country or U.S. possession.

Credit is claimed for taxes:(m) Paid. You would normally answer Yes here if you report incomeon a cash basis. However, you can elect to use the accrual methodfor foreign taxes by answering No here; but once you make thiselection you must make it in all future years as well.

(n) Accrued. (auto-calc) Automatically the opposite of your precedinganswer.

(o) through (x). These lines are visible only on screen 2 of the work-sheets you access at line 1, above. See the details for the ForeignSource Worksheet on the next page.

8 Add lines A through C, column (x). (auto-calc, supported by the For-eign Source Worksheet, Figures Prem-1 and Prem-2) Computed asthe sum of line (x) for all worksheets that support line 1 combined,this is your total foreign taxes paid or accrued for the category cho-sen for this copy of Form 1116. If no amount appears here, checkyour entries in Part II of the worksheets for line 1 because no taxcredit will result on this copy of Form 1116 unless an amount ap-pears here.

Foreign Source Worksheet, Figures Prem-1 and Prem-2. You must use aseparate worksheet for each separate country or U.S. possession from whichyou received income in the category you identified for this copy of Form1116. Note that each worksheet consists of two screens: screen 1 for Part Ilines 1 through 4b, screen 2 for Part I lines 5 and 6 and Part II lines (o)through (x).

Screen 1 of 2:

PART I, TAXABLE INCOME OR LOSS FROM SOURCES OUTSIDE THE U.S.I Name country of U.S. possession. Enter the country or possession in

10 characters or less, abbreviating your entry to fit (because of theseverely limited space the IRS provides on the form). U.S. posses-sions that qualify for this credit are Puerto Rico, Guam, Common-wealth of the Mariana Islands, and American Samoa. Taxes paid toany subdivision of the country or U.S. possession also qualify, butyou should combine all such amounts (for the selected income cate-gory) with any amounts paid directly to the country or U.S. posses-


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sion, and enter only the name of the country or U.S. possessionhere.

Category g with Form 4972 election? (auto-calc) If this copy of Form1116 is for a lump-sum distribution (category g) and you indicatedon screen 3 that you elected to use Form 4972 for the distribution,the answer here will be Yes. For a Yes answer lines 1 through 6 ofthis worksheet will be zero, in accordance with IRS instructions,and you should proceed to Part II on the second screen of theworksheet. Otherwise you must complete the rest of Part I.

Qualified divi-dends and capi-tal gains. Quali-fied dividendsand capital gainsare generally re-ported at a re-duced amountbecause of theirfavorable taxtreatment, un-less you qualifyfor the exceptiondescribed earlierin the paragraphForeign qualifieddividends andcapital gains.The amount ofreduction can becomplex if youhave a complex Schedule D. But for most situations the income toreport is 42.86% of the full amount. The amount you enter herewill be multiplied by 0.4286 before being included in line 1, below,unless you qualify for the exception as indicated by a Yes answerfor “Qualify for adjustment exception” on screen 2 of Form 1116.If you are required to file Schedule D, you may have to enter amodified amount here such that your entry times 0.4286 producesthe proper adjusted amount for line 1. See pages 7 through 12 ofthe IRS Instructions for Form 1116 for details. CAUTION: Enter onlycapital gains here; capital losses are reported separately at line 5.

Other gross income from the country or U.S. possession and cate-gory. Enter all other income here that applies to the identified cate-gory and country. Do not reduce your entry here by any losses ordeductions that are reported in lines 2 through 5.

Form 2555 or 2555-EZ exclusion for the country or U.S. possessionand category. Enter any exclusion on Forms 2555 and 2555-EZ

FOREIGN SOURCE(screen1of2)FOREIGN SOURCE(screen1of2)FOREIGN SOURCE(screen1of2)FOREIGN SOURCE(screen1of2)I-TAXABLE INCOME OR LOSSI-TAXABLE INCOME OR LOSSI-TAXABLE INCOME OR LOSSI-TAXABLE INCOME OR LOSS I Name country or U.S. poss. I Name country or U.S. poss. I Name country or U.S. poss. I Name country or U.S. poss. Category g with 4972 election? Category g with 4972 election? Category g with 4972 election? Category g with 4972 election?▒ No▒ No▒ No▒ No If Yes, skip lines 1 through 6 If Yes, skip lines 1 through 6 If Yes, skip lines 1 through 6 If Yes, skip lines 1 through 6 Qlfd divs & capital gains. 0 Qlfd divs & capital gains. 0 Qlfd divs & capital gains. 0 Qlfd divs & capital gains. 0 Othr gross for country/cat 0 Othr gross for country/cat 0 Othr gross for country/cat 0 Othr gross for country/cat 0 2555 excls for country/cat 0 2555 excls for country/cat 0 2555 excls for country/cat 0 2555 excls for country/cat 0 1 Gross income from country.. 1 Gross income from country.. 1 Gross income from country.. 1 Gross income from country..▒ 0▒ 0▒ 0▒ 0 2 Expense DEFINTELY RELATED.. 0 2 Expense DEFINTELY RELATED.. 0 2 Expense DEFINTELY RELATED.. 0 2 Expense DEFINTELY RELATED.. 0 3 Pro rate other deductions: 3 Pro rate other deductions: 3 Pro rate other deductions: 3 Pro rate other deductions: ▒▒▒▒ a Crtn itemized or std ded... a Crtn itemized or std ded... a Crtn itemized or std ded... a Crtn itemized or std ded...▒ 0▒ 0▒ 0▒ 0 b Other deductions........... b Other deductions........... b Other deductions........... b Other deductions...........▒ 0▒ 0▒ 0▒ 0 c Add lines 3a and 3b........ c Add lines 3a and 3b........ c Add lines 3a and 3b........ c Add lines 3a and 3b........▒ 0▒ 0▒ 0▒ 0 d Gross foreign source inc... d Gross foreign source inc... d Gross foreign source inc... d Gross foreign source inc...▒ 0▒ 0▒ 0▒ 0 e Gross income all sources... e Gross income all sources... e Gross income all sources... e Gross income all sources...▒ 0▒ 0▒ 0▒ 0 f Divide 3d by 3e............ f Divide 3d by 3e............ f Divide 3d by 3e............ f Divide 3d by 3e............ g Multiply 3c by 3f.......... g Multiply 3c by 3f.......... g Multiply 3c by 3f.......... g Multiply 3c by 3f..........▒ 0▒ 0▒ 0▒ 0 4 Pro rata interest expense: 4 Pro rata interest expense: 4 Pro rata interest expense: 4 Pro rata interest expense: a Home mortgage interest..... a Home mortgage interest..... a Home mortgage interest..... a Home mortgage interest.....▒ 0▒ 0▒ 0▒ 0 b Other interest expense..... 0 b Other interest expense..... 0 b Other interest expense..... 0 b Other interest expense..... 0

Figure Prem-1. Foreign Source Worksheet(Screen 1 of 2)

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that relates to the specified country and category. This amount willreduce the gross income for the purposes of line 1.

1 Gross income from sources within country. (auto-calc) Computed asthe “Other gross income” less “Form 2555 or 2555-EZ exclusion”plus either (a) the full amount of “Qualified dividends and capitalgains” if you qualify for the “adjustment exception” (described pre-viously and shown at the top of screen 4 of Form 1116), or (b)0.4286 times “Qualified dividends and capital gains” if you do not.

2 Expenses DEFINITELY RELATED to the income on line 1. Enter herethe expenses that can be identified as pertaining only to the incomeon line 1. All other expenses are reported on lines 3 through 5 as aprorated share of expenses in accordance with IRS instructions. Ifyou include here any amounts deducted on Schedule A that aresubject to the high-income limitation (all amounts on Schedule Aexcept lines 4, 13, 19, and the gambling and Form 4684 parts ofline 27), you must reduce your entry by the “Reduction % onSchedule A” shown on screen 2 of our Form 1116. If any of theseamounts were reported on Schedule line 4, 5, 6, or 18, you mustalso exclude them from the applicable amounts on screen 2 of ourForm 1116. CAUTION: You must explain your entry for line 2 ofany worksheet in a separate supporting statement accessible fromscreen 5 of our Form 1116. Failure to do so will cause an e-filed re-turn to be rejected by the IRS.

3 Pro rata share of other deductions NOT DEFINITELY RELATED:a Certain itemized deductions or standard deduction. (auto-calc)Taken from the result for line 3a on screen 2 of our Form 1116, thisis either a portion of itemized deductions or the entire standard de-duction depending on whether or not the standard deduction is usedfor Form 1040, line 39.

b Other deductions. (auto-calc) Taken from the result for line 3b onscreen 2 of our Form 1116, this is other deductions to be proratedamong countries (including the U.S.) and categories.

c Add lines 3a and 3b. (auto-calc) Computed as indicated.d Gross foreign source income. (auto-calc) Computed as sum of“Qualified dividends and capital gains” and “Other gross incomefrom the country or U.S. possession and category” entered aboveline 1, this is the gross income used for the purposes of proratingthe expenses (for the country and category indicated). It is a line 1without any 0.4286 adjustment for capital gains and with exclu-sions from Forms 2555 and 2555-EZ added back to income.

e Gross income from all sources. (auto-calc) Taken from the resultfor line 3e on screen 3 of our Form 1116, this is the gross incomefor the entire return, including all foreign and U.S. sources, for thepurposes of prorating expenses.


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f Divide line 3d by line 3e. (auto-calc) Computed as indicated andshown as a decimal to 4 places, this is the fraction of deductions online 3c to be deducted from income on line 1.

g Multiply line 3c by line 3f. (auto-calc) Computed as indicated, thisis the part of deductions on line 3c to be applied to the income forthis worksheet (that is, this country and category).

4 Pro rata share of interest expense:a Home mortgage interest. (auto-calc) This is a prorated share of theamount for line 4a on screen 3 of our Form 1116. The prorating forline 4a differs from that for line 3 in that the exclusions from Forms2555 and 2555-EZ are not added back to income when computinggross income. As a result, the prorating fraction is computed as theamount on line 3d reduced by the exclusions on Forms 2555 and2555-EZ, divided by the amount for “Gross income with exclusionsfor line 4a worksheet” on screen 3 of our Form 1116. This line iscomputed as this revised prorating fraction times the amount for line4a on screen 3 of our Form 1116, in accordance with the IRSWorksheet for Home Mortgage Interest – Line 4a (in the IRS Instruc-tions for Form 1116).

b Other interest expense. Enter the prorated share of other interesthere, including investment interest. TIP: If your gross foreign sourceincome (including income excluded on Forms 2555 and 2555-EZ)does not exceed $5,000, you are allowed to allocate all of this in-terest to the U.S. instead of any foreign country. To make this elec-tion, enter zero here.

Screen 2 of 2:

Capital losses.Like capital gainsfor line 1, capitallosses are gen-erally reported ata reduced a-mount, unlessyou qualify forthe exceptiondescribed earlierin the paragraphForeign qualifieddividends andcapital gains.The amount ofreduction can becomplex if youhave a complexSchedule D. But

FOREIGN SOURCE(screen2of2)FOREIGN SOURCE(screen2of2)FOREIGN SOURCE(screen2of2)FOREIGN SOURCE(screen2of2) Capital losses............ 0 Capital losses............ 0 Capital losses............ 0 Capital losses............ 0 Other loss for country/cat 0 Other loss for country/cat 0 Other loss for country/cat 0 Other loss for country/cat 0 5 Loss from foreign sources.. 0 5 Loss from foreign sources.. 0 5 Loss from foreign sources.. 0 5 Loss from foreign sources.. 0 6 Add lines 2, 3g, 4a, 4b,& 5 6 Add lines 2, 3g, 4a, 4b,& 5 6 Add lines 2, 3g, 4a, 4b,& 5 6 Add lines 2, 3g, 4a, 4b,& 5▒ 0▒ 0▒ 0▒ 0II-TAXES PAID OR ACCRUEDII-TAXES PAID OR ACCRUEDII-TAXES PAID OR ACCRUEDII-TAXES PAID OR ACCRUED o Date paid or accrued...... o Date paid or accrued...... o Date paid or accrued...... o Date paid or accrued...... In foreign currency: In foreign currency: In foreign currency: In foreign currency: p Dividends................. 0 p Dividends................. 0 p Dividends................. 0 p Dividends................. 0 q Rents and royalties....... 0 q Rents and royalties....... 0 q Rents and royalties....... 0 q Rents and royalties....... 0 r Interest.................. 0 r Interest.................. 0 r Interest.................. 0 r Interest.................. 0 s Other foreign taxes....... 0 s Other foreign taxes....... 0 s Other foreign taxes....... 0 s Other foreign taxes....... 0 In U.S. dollars: In U.S. dollars: In U.S. dollars: In U.S. dollars: t Dividends................. 0 t Dividends................. 0 t Dividends................. 0 t Dividends................. 0 u Rents and royalties....... 0 u Rents and royalties....... 0 u Rents and royalties....... 0 u Rents and royalties....... 0 v Interest.................. 0 v Interest.................. 0 v Interest.................. 0 v Interest.................. 0 w Other foreign taxes....... 0 w Other foreign taxes....... 0 w Other foreign taxes....... 0 w Other foreign taxes....... 0 x Total foreign taxes....... x Total foreign taxes....... x Total foreign taxes....... x Total foreign taxes.......▒ 0▒ 0▒ 0▒ 0

Figure Prem-2. Foreign Source Worksheet(Screen 2 of 2)

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for most situations the income to report is 42.86% of the fullamount. The amount you enter here will be multiplied by 0.4286before being included in line 5, below, unless you qualify for the ex-ception as indicated by a Yes answer for “Qualify for adjustmentexception” on screen 2 of Form 1116. If you are required to fileSchedule D, you may have to enter a modified amount here suchthat your entry times 0.4286 produces the proper adjusted amountfor line 5. See pages 7 through 12 of the IRS Instructions for Form1116 for details

Other losses for the country or U.S. possession and category. Enterall other losses not reflected in lines 1 through 4b that apply to theidentified category and country.

5 Losses from foreign sources. (auto-calc) Computed as the “Otherlosses” plus either (a) the full amount of “Capital losses” if youqualify for the “adjustment exception” (described previously andshown at the top of screen 4 of Form 1116), or (b) 0.4286 times“Capital losses” if you do not. In spite of the vague IRS label for theline, this is the total of losses only for the specified country andcategory.

6 Add lines 2, 3g, 4a, 4b, and 5. (auto-calc) Computed as indicated, thisamount is subtracted from line 1 to arrive at the taxable income orloss for the specified country and category.

PART II, FOREIGN TAXES PAID OR ACCRUED. You should have already iden-tified on Form 1116 whether you account for taxes as paid or accrued, whichappears as lines (m) and (n) of Form 1116. All other entries for Form 1116,Part II, are provided here.

(o) Date paid or accrued. Generally enter the date in the standardmo/dy/year format. However, if the amount is reported to you on aForm 1099-INT or 1099-DIV in U.S. dollars, enter only “1099 tax”here and skip lines (p) through (s).

In foreign currency. If the tax is reported to you in foreign currency,you must enter the amount in line (p), (q), (r), or (s). You must thenconvert the amount to U.S. dollars and enter it in line (t), (u), (v), or(w). CAUTION: If you make any entry in this section you must explainyour conversion to U.S. dollars in a separate supporting statement ac-cessible from screen 5 of our Form 1116. Failure to do so will causean e-filed return to be rejected by the IRS.

(p) Dividends.(q) Rents and royalties.(r) Interest.(s) Other foreign taxes.

In U.S. dollars. This section is mandatory for all Forms 1116. You mustenter the foreign tax paid here in U.S. dollars. Only the amounts youreport here are used in figuring the credit for foreign taxes.

(t) Dividends.(u) Rents and royalties.


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(v) Interest.(w) Other foreign taxes.(x) Total foreign taxes. (auto-calc) Computed as the sum of lines (t)through (w), this is the amount of tax upon which your forign taxcredit is figured for this copy of Form 1116.

Itemize statements for worksheet entries. Certain amounts you have enteredon our worksheets must be justified in the supporting statements you createhere. The statements are explanatory only, so no amounts are posted to anyother part of Form 1116. (Note that the IRS will not allow the e-file of a re-turn that reports amounts from more than 3 countries on any one Form1116. Moreover, they will not allow more than one Form 1116 for the samecategory. Therefore, if you have more than 3 countries for any one categoryyou will not be allowed to e-file the return. No such restrictions exist for pa-per returns.)

Allocable expenses for 2. You must explain how you determined ex-penses definitely related to the country and category for each work-sheet you prepare. For the on-screen labels, A, B, and C refer tocolumns in Part I of the printed Form 1116, so you should use theline for 2(A) for amounts entered on the first worksheet, the line for2(B) for amounts entered on the second worksheet, and the line for2(C) for amounts entered on the third and all subsequent work-sheet. CAUTION: Failure to explain here an entry on line 2 of anyworksheet will cause an e-filed return to be rejected by the IRS.

Currency conversion for lines (p) through (s). For any worksheet onwhich you made an entry in line (p), (q), (r), or (s), you must explainhow you converted the foreign currencies in lines (p) through (s) tothe U.S. currency in lines (t) through (w). For the on-screen labels,A, B, and C refer to rows in Part II of the printed Form 1116, soyou should use the line for (A) for amounts entered on the firstworksheet, the line for (B) for amounts entered on the secondworksheet, and the line for (C) for amounts entered on the third andall subsequent worksheet. CAUTION: Failure to explain a currencyconversion here when you have an entry on line (p), (q), (r), or (s)of any worksheet will cause an e-filed return to be rejected by theIRS.

If credit claim is due to filing an amended return or a foreign audit,itemize here and identify the additional taxes claimed. This state-ment is used to support any additional taxes you claim in lines (t)through (w) as a result of an amended return or a foreign audit. Youmust clearly identify the taxes to which these reasons apply.

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PART III, FIGURING THE CREDIT. In this section you figure the credit for thiscopy of Form 1116.

9 Amount from line 8. (auto-calc) Normally computed as indicated, theamount will be zero if for a Form 1116 for category g with a Form4972 election.

10 Carryback or carryforward. If you had a foreign tax that you couldnot claim because it was more than its limitation, you can carrybackthe unused tax 2 years then carry if forward 10 years. You mustmake your entry for this line in a supporting statement for this lineshowing your computation in detail. Failure to provide support foran entry for this line will cause an e-filed return to be rejected bythe IRS. If for a Form 1116 for category g with a Form 4972 elec-tion, an entry here will be ignored in the calculations and printouts.

11 Add lines 9 and 10. (auto-calc) Computed as indicated.12 Reduction in foreign taxes. You may have to reduce the tax shown

for line 11 for a number of special situations, including tax on ex-cluded or exempt income. See the IRS Instructions for Form 1116for specific examples. You must make your entry for this line in asupporting statement for this line explaining the reduction. Failure toprovide support for an entry for this line will cause an e-filed returnto be rejected by the IRS. If for a Form 1116 for category g with aForm 4972 election, an entry here will be ignored in the calculationsand printouts.

13 Subtract line 12 from line 11. (auto-calc) Computed as indicated.14 Amount from line 7. (auto-calc) Normally computed as indicated, the

amount will be zero if for a Form 1116 for category g with a Form4972 election.

15 Adjustments to line 14. You may have to adjust the tax shown online 14 for a number of special situations, including allocation oflosses and recapture of foreign losses. See the IRS Instructions forForm 1116 for specific examples. You must make your entry forthis line in a supporting statement for this line explaining the reduc-tion. Failure to provide support for an entry for this line will causean e-filed return to be rejected by the IRS. If for a Form 1116 forcategory g with a Form 4972 election, an entry here will be ignoredin the calculations and printouts.

16 Combine lines 14 and 15. (auto-calc) Normally computed as indi-cated. For a Form 1116 for category g with a Form 4972 election,the amount you entered as the foreign source part of Form 4972lines 6 and 12 appears here.

17 Amount from Form 1040, line 40. This IRS label for this line is totallymisleading because the indicated amount is only one component of theamount for line 17, and sometimes is not used at all. Instead, line 17 isnormally computed the IRS Worksheet for Line 17 (Worldwide QualifiedDividends and Capital Gains found in the IRS Instructions for Form4972:


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Form 1040, line 40. (auto-calc) Taken from Form 1040 as indicated.Worldwide 28% gains. (auto-calc) Taken from line 32 of the ScheduleD Tax Worksheet.

Worldwide 25% gains. (auto-calc) Taken from line 29 of the ScheduleD Tax Worksheet.

Worldwide 15% gains. (auto-calc) Taken from line 23 of the ScheduleD Tax Worksheet.

Qualify for “adjustment exception.” (auto-calc) Taken from the previ-ous determination (shown at the top of screen 4 of our Form 1116).

Adjustment for line 17. (auto-calc) Computed as zero if the precedinganswer is No or this copy of Form 1116 is for category g with aForm 4972 election. Otherwise computed as the negative of 20%of the “Worldwide 28% gains” plus 28.57% of the “Worldwide25% gains” plus 57.14% of the “Worldwide 15% gains.”

17 Amount from Form 1040, line 40. (auto-calc) Normally computed asForm 1040, line 40, plus the “Adjustment for line 17.” If for a Form1116 for category g with a Form 4972 election, taken as the totalof lines 6 and 12 of all Forms 4972 for the return.

18 Divide line 16 by line 17. (auto-calc) Computed as indicated (but nomore than 1) and shown as a decimal to 4 places.

19 Amount from Form 1040, line 43. (auto-calc) This IRS label for thisline is also misleading. Normally computed as Form 1040, line 43,less Form 1040, line 43b (tax on lump-sum distributions from Form4972). However, for a Form 1116 for category g with a Form 4972election, the tax from Form 4972 is added back to the computationso that the result is Form 1040, line 43 alone. And for a Form1116 for category h, the amount computed here is zero because notax credit is allowed for this category even though you must file theassociated Form 1116.

20 Multiply line 19 by line 18. (auto-calc) Computed as indicated.21 Smaller of line 13 or line 20. (auto-calc) Normally computed as indi-

cated. However, for a Form 1116 for category g with a Form 4972election, computed as the lesser of line 8 or line 20. This is thecredit for the category specified for this copy of Form 1116 alone.

PART IV, SUMMARY OF CREDITS FROM SEPARATE PARTS III. (Used ONLYfor copy 1 of Form 1116. For all other copies, all amounts in Part III will bezero.) In this section you combine the credit from all copies of Form 1116you have prepared and figure the amount to report on line 46 of Form 1040.CAUTION: This part of the form may be inaccurate until the final recalculationof the return. To see an accurate result NOW, press the Recalc Key (ctrl-B orshift-F8). (Note that if this is the only copy of Form 1116 created for the re-turn, lines 22 through 30 will be zero and line 21 will be used for line 31.)

22 Credit for taxes on passive income. (auto-calc) Taken as line 21 ofall Forms 1116 with category a specified.

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23 Credit for taxes on high withholding tax interest. (auto-calc) Takenas line 21 of all Forms 1116 with category b specified.

24 Credit for taxes on financial services income. (auto-calc) Taken asline 21 of all Forms 1116 with category c specified.

25 Credit for taxes on shipping income. (auto-calc) Taken as line 21 ofall Forms 1116 with category d specified.

26 Credit for taxes on dividends from a DISC or former DISC and cer-tain distributions from a FSC or former FSC. (auto-calc) Taken asline 21 of all Forms 1116 with category e or f specified.

27 Credit for taxes on lump-sum distributions. (auto-calc) Taken as line21 of all Forms 1116 with category g specified.

28 Credit for taxes on certain income re-sourced by treaty. (auto-calc)Taken as line 21 of all Forms 1116 with category i specified.

29 Credit for taxes on general limitation income. (auto-calc) Taken asline 21 of all Forms 1116 with category j specified.

30 Add lines 22 through 29. (auto-calc) Computed as indicated.31 Smaller of line 19 or line 20. (auto-calc) Normally computed as indi-

cated. However, if this is the only copy of Form 1116 for the re-turn, taken as line 21.

32 Reduction of credit for international boycott operations. You mayhave to reduce your credit if you cooperated with an internationalboycott. See the IRS instructions and IRS Form 5713 for theamount to enter here. CAUTION: Any required reduction must beentered on copy 1 of Form 1116. An entry on any other copy ofForm 1116 is ignored in the calculations and printouts in accor-dance with IRS instructions.

33 FOREIGN TAX CREDIT. (auto-calc) Computed as line 31 less line 32,but no less than zero, this is the credit for Form 1040 from allForms 1116 combined.

The result on line 33 of Form 1116, copy 1, is posted to line 46 of Form1040.

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.


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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 72a. It is accessible through the Road Map from theline below line 72a, and 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 Form 1040,this is the tax year for the return for which a refund is claimed.

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).

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, as required 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.

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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: (a) for “City” enter APO or FPO, (b) for “State” enter AA,AE, or AP, and (c) forr “ZIP code” enter the ZIP code defined foryour APO or FPO addressees.

Stateside military address. Answer Yes if stationed abroad but using aU.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.

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.

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 cannot


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claim 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.

HowardSoft

Form 2120

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Form 2120 / Multiple Support Declaration

Purpose. This form must be filed by those who claim dependents for whomthey did not provide more than 50% of their support. You must have pro-vided more than 10% of the support, no-one else can have provided morethan 50% of the support, and you must have signed statements from all oth-ers who provided more than 10% of the support relinquishing their claim toan exemption for the dependent in the current tax year.

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 2004, 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 2004:

Eligible supporters (itemize). (Supported by the Eligible Person Work-sheet, Figure Prem-3.) The number of persons you properly identifyin the supporting worksheets for this line appears here.

Eligible Person Worksheet, Figure Prem-3. 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-3. Eligible Person Worksheet


Form 2350

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Form 2350 / Application for Extension of Time to File U.S.Income Tax Return

Purpose. In spite of the rather broad name of this form, this is a very special-ized kind of extension that is rarely appropriate. It is appropriate only for U.S.citizens and resident aliens living abroad who need extra time in order to meetresidency tests for the special tax treatment that is afforded them. The spe-cial treatment includes the foreign earned income exclusion, the foreignhousing exclusion, and the foreign housing deduction, all claimed throughForm 2555. If your request for an extension is approved, the IRS will gener-ally grant an extension to a date 30 days after you expect to meet either thebona fide residence test or the physical presence test (but see line 3, below,for an exception). If your request is denied, you must file your return on timereporting all income from both U.S. and foreign sources and pay tax on thatincome without benefit of the special tax treatment. (“On time” in this con-text means by the due date of your return, not including extensions. If yourtax home and residence are outside the U.S. and Puerto Rico on April 15,2005, your due date is June 15, 2005 instead of April 15, 2005.) If you latermeet one of the residency tests, you can file an amended return (Form1040X) to claim a refund, backed by a revised return that reflects a foreignearned income exclusion and/or foreign housing benefit. For more details, seeIRS Pub. 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad). Form2350 is accessible through the Road Map above line 68 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 15, 2005,even when you are allowed until June 15, 2005 to file the return.

Gift/GST section removed. The gift or generation-skipping transfer (GST) taxsection of this form has been eliminated by the IRS, but an extension of timeto file your U.S. Individual Income Tax Return (Form 1040) now also extendsthe time to file Form 709 (Gift or GST tax return). However, you must usethe new 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 2004, 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.

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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. Enter the address in 50 characters orless. (35-character and 15-character entry fields are provided forthis purpose. They are concatenated on the official printout.)

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 62 of Form 1040, less the total payments online 70 of Form 1040 (excluding any amount from Form 2350), plusthe estimated tax penalty on line 75 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 theform 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...


Form 2350

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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.


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 above lines 21 and 35 of Form1040, and 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 if you satisfy all of the followingconditions:

(1) You meet the qualifications for 2555.(2) Your foreign earned income does not exceed $80,000.(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.

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 (Cuba for all of 2004, Iraq through July 29, 2004, andLibya through September 20, 2004) does not count in any of the time tests,and any income earned or housing expenses are not qualified.

QUALIFICATIONS.Social security number for this copy. (auto-calc) One copy of Form

2555 is available for each spouse. The social security number en-tered on Form 1040 for the spouse whose copy you chose whenyou entered Form 2555 appears here.

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

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 rathervague on what constitutes “bona fide” residency, but you are gen-erally considered a bona fide resident if you are in the foreign coun-


Form 2555/2555-EZ

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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 address in the two 25-character en-try lines provided, including the name of the country.

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 a table on pages 22 through 24 of IRS Pub.1345A for tax year 2004. If you do not have this publication, youcan download it from the IRS forms and publications web site,which is accessible from the Downloads page of our 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.4a Employer’s U.S. address. Enter the U.S. address, if any, of the em-

ployer, using the two 25-character entry lines provided.4b Employer’s foreign address. Enter the foreign address of the em-

ployer, using the two 25-character entry lines provided.

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Form 2555/2555-EZ

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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 to claim an exclusion,enter the last year you filed the form. Enter zero if the entry doesnot 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, 366 or less).

9 List your tax home(s) during your tax year and date(s) established.(Supported by the Tax Home Worksheet, Figure Prem-4.) You mustsupply the required information in the supporting worksheet pro-vided, which is detailed next.


Form 2555/2555-EZ

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Tax Home Worksheet.(Figure Prem-4; 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 that you meet the Bona Fide Residence Test andyou 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, youare 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 by

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

Date established.......... 0 Date established.......... 0 Date established.......... 0 Date established.......... 0 (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-4. Tax Home Worksheet

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Form 2555/2555-EZ

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the U.S. Income Worksheet, Figure Prem-5.) 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-6.) You must supply all required information on the supportingworksheet for this line.

U.S. Income Worksheet.(Figure Prem-5; supportsline 14 of Form 2555)Use a separate work-sheet for each separatevisit to the United Statesduring the tax year.

a Date arrived inU.S. Enter the arrival date in the standard xx/xx/xxxx format.

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.

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. 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-5. U.S. Income Worksheet


Form 2555/2555-EZ

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U.S. Home MaintainedWorksheet. (Figure Prem-6; 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.

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.

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-7.) 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-

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-6. U.S. Home Maintained Worksheet

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Form 2555/2555-EZ

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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-7;supports line 18 of Form2555) Use a separateworksheet for each sepa-rate trip. You can ex-clude travel for less than24 hours that did not in-volve travel over interna-tional waters 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.2004 Foreign Earned Income. Your 2004 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 2004 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: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.

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-7. Travel Abroad Worksheet


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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 2004 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.

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.

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29 Number of days in your qualifying period that fall within your 2004tax year. Enter the number of days within the tax year that youmeet both the tax home test and the bona fide residence or physicalpresence test. (Up to 366 days can be entered for tax year 2004because 2004 was a leap year.)

30 Multiply $31.64 by the number of days on line 29. (auto-calc) Com-puted as indicated except when line 29 is 366, for which$11,581.00 is used in accordance with IRS instructions.

31 Subtract line 30 from line 28. (auto-calc) Computed as indicated.32 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.

33 Divide line 32 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.)

34 HOUSING EXCLUSION. (auto-calc) Computed as line 31 multipliedby line 33, but no more than line 32.

The result on line 34 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 35.

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 36 in order to figure the exclusion.

Elect OUT of this exclusion? If you elect NOT to claim the foreignearned income exclusion, lines 36 through 40 will be forced to zero.Otherwise, these lines are computed as described below.

35 Maximum foreign earned income exclusion. (auto-calc) Computedas $80,000, this is the maximum exclusion allowed.

36 Number of days in your qualifying period that fall within your 2004tax year. If you completed Part VI, your entry for line 29 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 366 days canbe entered for tax year 2004 because 2004 was a leap year.)

37 Divide line 36 by the number of days in your tax year. (auto-calc)Computed as indicated, but no more than 1.0. (We carry the resultto four places, one place more accurate than the IRS requires.)

38 Multiply line 35 by line 37. (auto-calc) Computed as indicated.39 Subtract line 34 from line 27. (auto-calc) Computed as indicated.


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40 FOREIGN EARNED INCOME EXCLUSION. (auto-calc) Computed asthe smaller of line 38 or line 39.

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

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

41 Add lines 34 and 40. (auto-calc) Computed as indicated.42 Deductions allowed in figuring your adjusted gross income (Form

1040, line 36) 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.

43 FOREIGN EARNED INCOME EXCLUSION. (auto-calc) Computed asline 41 less line 42.

The result on line 43 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 34 is not fully reflected in line 43, you may be ableto take a deduction at Form 1040, line 35, as figured here. (A deduction willresult only if line 31 is more than line 34 and line 27 is more than line 41.)

44 Subtract line 34 from line 31. (auto-calc) Computed as indicated.45 Subtract line 41 from line 27. (auto-calc) Computed as indicated.46 Enter the smaller of line 44 from line 45. (auto-calc) Computed as in-

dicated.47 Housing deduction carryover from 2003. If line 45 is more than line

44 and you could not deduct all of your 2003 housing deductionbecause of the 2003 limit, see IRS instructions for the amount toenter here. (If line 44 is more than line 45 you may be able to de-duct some or all of the excess on your return for tax year 2005.)

48 HOUSING DEDUCTION. (auto-calc) Computed as the sum of lines46 and 47..

The result on line 48 is posted to the Form 2555 component of Form 1040,line 35, thereby deducting the amount from adjusted gross income computedat Form 1040, line 36.

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.

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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.

Is foreign earned income more than $80,000? (auto-calc) Computed as“Yes” only if the amount on line 27 exceeds $80,000. 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.

Are you claiming any moving expenses on your return? (auto-calc)Computed as “Yes” if an amount appears on Form 1040, line 29.

Are you claiming the housing exclusion? (auto-calc) Computed as“Yes” if an amount appears on Form 2555, line 34.

Are you claiming the housing deduction? (auto-calc) Computed as“Yes” if an amount appears on Form 2555, line 48.

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.



Form 2688

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Form 2688 / Application for Additional Extension of Time toFile U.S. Individual Income Tax ReturnPurpose. This form applies usually only if you have already filed Form 4868(Application for Automatic Extension of Time to File U.S. Individual IncomeTax Return) but you need more than the automatic 4-month extension thatform provides. However, unlike Form 4868, you need to justify to the IRSyour need for the extra time. You can request up to 6 additional months withthis form.. Form 2688 is accessible through the Road Map above line 68 ofForm 1040.

Extension of time to file, not extension of time to pay. Like other extensionforms, Form 2688 does not grant you any extra time to pay any tax due.Therefore, to avoid penalties you pay the tax you expect to owe before theregular due date of the return. If you filed Form 4868 first, you should havepaid at that time. However, you can send more money with this form to pre-vent further penalty if your original estimate of tax liability was low.

Gift/GST section removed. The gift or generation-skipping transfer (GST) taxsection of this form has been eliminated by the IRS, but an extension of timeto file your U.S. Individual Income Tax Return (Form 1040) now also extendsthe time to file Form 709 (Gift or GST tax return). However, you must usethe new 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 a date no more than 6

months after the regular due date of the return. The IRS cannot ex-tend the date further than this with this form. TIP: If living abroad,you may qualify to use Form 2350 for a longer extension.

...to file Form 1040EZ, Form 1040A, Form 1040, Form 1040NR-EZ, orForm 1040NR for the calendar year 2004, or other tax year ending...Usually, leave this line blank. An entry is appropriate here only ifyour tax year is other than the calendar year, which is rarely al-lowed.

2 Explain why you need an extension. Eight 25-character entry lines areprovided for your explanation, which will fit on the form, but youcan itemize the first of these lines (via F10) to provide a longer ex-planation for a separate supporting statement.

3 Have you filed Form 4868 to request an automatic extension of timeto file for this tax year? If you answer No, the IRS will grant the ex-tension only for undue hardship. You must explain the hardship fullyin line 2.

Estimate of Amount You Owe. (auto-calc) Computed from Form 1040as the total tax on line 62 of Form 1040, less the total payments online 70 of Form 1040 (excluding any amount from Form 2688), plusthe estimated tax penalty on line 75 of Form 1040, but no less thanzero. Any payment you made with Form 4868 will be reflected inthis amount, so a penalty may apply if an amount appears here.

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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.

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 2688 by signing and dating that form, and, if marriedfiling jointly, both spouses must generally sign. A person who prepared theform 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 2688, 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.



Form 2848

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Form 2848 / Power of Attorney and Declaration of Repre-sentative

Purpose. 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. For Form 1040 software, the name,address, phone, and SSN you supplied on Form 1040 page 1 areused automatically for the printed Form 2848, including thespouse’s name and SSN if the filing status on Form 1040 is marriedfiling jointly. In addition, you can supply an Employer ID number ifyou are giving power of attorney over an employment return foryour self-employed business. For Form 1065 software, the partner-ship’s name, address, phone, and EIN you supplied on Form 1065page 1 are used automatically for the printed Form 2848.

Employer ID number. Enter in the standard xx-xxxxxxx format. (Thisentry is automatic for Form 1065 software.)

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

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

2 Representative(s). You must fully identify the representatives you ap-point. The form provides space for only three representatives, butyou can appoint more in a supporting statement for a special linethat follows these entries. Note that the first representative carries aspecial importance because that person will ordinarily receive a copyof notices and communications sent to you by the IRS. See line 7for details. For each representative you must supply the followinginformation:

Name. Enter the full name in 35 characters or less.

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Address. Enter the street address or P.O. box in 35 characters orless.

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. Use this line to supply the same informa-

tion 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. Use this line to supply the same informa-tion as 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, pro-vide more changes to authorized acts in a supporting statement forthis 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.


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Form 4136

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Form 4136 / Credit for Federal Tax Paid on Fuels

Purpose. This form is used to claim a refundable credit for taxes paid on fuelused (or sold) for certain nontaxable purposes. Nontaxable uses include useon a farm (for farming purposes), off-highway business use, export, for aboat used for commercial fishing, etc. The form must be attached to yourForm 1040 return to claim the credit. However, you can get payment for thecredit earlier if you use Form 8849 to claim it periodically rather than waitingto file Form 4136 with your annual tax return. If you do so, you must notclaim credit on Form 4136 for any amounts you already claimed on Form8849. The IRS instructions for Form 4136 are brief and provide little help indefining the various categories. You should therefore consult IRS Pub. 378(Fuel Tax Credits and Refunds) if you need more information on nontaxableuses and definition of terms. Also see IRS Pub. 225 (Farmer’s Tax Guide) formore information on credits. Form 4136 is accessible through the Road Mapat line 69b of Form 1040.

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, so we provide special worksheets to support those lines:

Fuel Use Worksheet (Figure Prem-8). This worksheet supports lines 1c,1d, 1e, 1f, 2b, 3a, 4, 5b, and 5c, all of which require you to spec-ify the type of use for each number of gallons entered. (Type of useis identified by an IRS-defined 2-digit number, shown later in TablePrem-1.) All other lines in lines 1 through 5 require only a totalnumber of gallons for the entire category, so no worksheet is re-quired.

Fuel Sale Worksheet (Figure Prem-9). This worksheet supports lines 6a,6b, 7a, and 7b, all of which require you to provide, for each sepa-rate buyer, the name of the buyer, the tax identification number ofthe buyer, and the gallons sold to that buyer.

We provide details for these worksheets later in this section. CAUTION:When a worksheet is provided for a line, you MUST use the worksheet toclaim ANY credit on that line because the worksheet collects additional in-formation required by the IRS for those lines.

1 Nontaxable Use of Gasoline and Gasohol:a Off-highway business use of gasoline. Enter in line (c) the total num-

ber of gallons used for the year. No itemizing is required. (AllowedType of Use for this line is 02.)

b Use of gasoline on a farm for farming purposes. Enter in line (c) thetotal number of gallons used for the year. No itemizing is required.(Allowed Type of Use for this line is 01.)

c Other nontaxable use of gasoline. (Supported by the Fuel Use Work-sheet, Figure Prem-8.) You must use the supporting worksheets for


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all other nontaxable uses of gasoline, identifying the type of use foreach annual total entered. (Allowed Type of Use for this line is 03,04, 05, or 07.)

Credit for lines 1a through line 1c. (auto-calc) Computed as the totalnumber of gallons entered for lines 1a, 1b, and 1c times 18.4 centsper gallon, this result appears in column (d) of the official printout.

d 10% gasohol. (Supported by the Fuel Use Worksheet, Figure Prem-8.)You must use the supporting worksheets to identify the type of usefor each annual total entered for gallons of this class of gasohol.The tax rate for this class is 13.2 cents per gallon. (Allowed Type ofUse for this line is 01, 02, 03, 04, 05, or 07.)

e 7.7% gasohol. (Supported by the Fuel Use Worksheet, Figure Prem-8.)You must use the supporting worksheets to identify the type of usefor each annual total entered for gallons of this class of gasohol.The tax rate for this class is 14.396 cents per gallon. (Allowed Typeof Use for this line is 01, 02, 03, 04, 05, or 07.)

f 5.7% gasohol. (Supported by the Fuel Use Worksheet, Figure Prem-8.)You must use the supporting worksheets to identify the type of usefor each annual total entered for gallons of this class of gasohol.The tax rate for this class is 15.436 cents per gallon. (Allowed Typeof Use for this line is 01, 02, 03, 04, 05, or 07.)

2 Nontaxable Use of Aviation Gasoline:a Use in commercial aviation (other than foreign trade). Enter in line (c)

the total number of gallons used for the year. No itemizing is re-quired. The credit for line (d) is computed at the rate of 15 centsper gallon.

b Other nontaxable use. (Supported by the Fuel Use Worksheet, FigurePrem-8.) You must use the supporting worksheets for all other non-taxable uses of aviation gasoline, identifying the type of use foreach annual total entered. The credit for line (d) is computed at therate of 19.4 cents per gallon. (Allowed Type of Use for this line is01, 03, 09, or 10.)

3 Nontaxable Use of Undyed Diesel Fuel. For a claim in this section you musthave a record of the name and address of the seller, the dates of purchase,and, if exported, the required proof of export.

Did any of the diesel fuel included in this claim contain visible evi-dence of dye? If Yes, you must provide a detailed explanation in asupporting statement for this line. Otherwise you are certifying thatnone of the diesel fuel contained any visible evidence of dye.

a Nontaxable use. (Supported by the Fuel Use Worksheet, Figure Prem-8.) You must use the supporting worksheets to identify the type ofnontaxable use for each annual total entered. The credit for line (d)is computed at the rate of 24.4 cents per gallon. (Allowed Type ofUse for this line is 02, 03, 06, 07, or 08.)

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b Use in trains. Enter in line (c) the total number of gallons used for theyear. No itemizing is required. The credit for line (d) is computed atthe rate of 20 cents per gallon.

c Use in certain intercity and local buses. Enter in line (c) the totalnumber of gallons used for the year. No itemizing is required. Thecredit for line (d) is computed at the rate of 17 cents per gallon.

4 Nontaxable Use of Undyed Kerosene. For a claim in this section you musthave a record of the name and address of the seller, the dates of purchase,and, if exported, the required proof of export.

Did any of the kerosene included in this claim contain visible evidenceof dye? If you answer Yes, you must provide a detailed explanationin a supporting statement for this line. Otherwise you are certifyingthat none of the kerosene contained any visible evidence of dye.

Nontaxable use. (Supported by the Fuel Use Worksheet, Figure Prem-8.) You must use the supporting worksheets to identify the type ofnontaxable use for each annual total entered. The credit for line (d)is computed at the rate of 24.4 cents per gallon. (Allowed Type ofUse for this line is 02, 03, 07, or 08.)

5 Nontaxable Use of Aviation Fuel:a Use in commercial aviation (other than foreign trade). Enter in line (c)

the total number of gallons used for the year. No itemizing is re-quired. The credit for line (d) is computed at the rate of 17.5 centsper gallon.

b Other nontaxable use. (Supported by the Fuel Use Worksheet, FigurePrem-8.) Use this line only for fuel taxed at 21.9 cents per gallon.You must use the supporting worksheets to identify the type ofnontaxable use for each annual total entered. The credit for line (d)is computed at the rate of 21.9 cents per gallon. (Allowed Type ofUse for this line is 01, 03, 09, 10, or 11.)

c Other nontaxable uses. (Supported by the Fuel Use Worksheet, FigurePrem-8.) Use this line only for fuel taxed at the reduced rate of 4.4cents per gallon. You must use the supporting worksheets to iden-tify the type of nontaxable use for each annual total entered. Thecredit for line (d) is computed at the rate of 4.4 cents per gallon.(Allowed Type of Use for this line is 01, 03, 09, 10, or 11.)

Fuel Use Worksheet.(Figure Prem-8) Use aseparate worksheet foreach separate type ofuse.

a. Type of use. En-ter the 2-digitIRS code forthe type of use

as shown in Table Prem-1. Also refer to our instructions for each

FUEL USE WORKSHEETFUEL USE WORKSHEETFUEL USE WORKSHEETFUEL USE WORKSHEET a. Type of use............... a. Type of use............... a. Type of use............... a. Type of use............... 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 c. Gallons................... 0 c. Gallons................... 0 c. Gallons................... 0 c. Gallons................... 0Enter �Type� as 2-digit #Enter �Type� as 2-digit #Enter �Type� as 2-digit #Enter �Type� as 2-digit #From IRS Type of Use TableFrom IRS Type of Use TableFrom IRS Type of Use TableFrom IRS Type of Use Table(such as 01, 02, 03, etc.)(such as 01, 02, 03, etc.)(such as 01, 02, 03, etc.)(such as 01, 02, 03, etc.)

Figure Prem-8. Fuel Use Worksheet


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supported line to see if there are any restrictions on the Type of Usethat can be claimed on that line. For an e-file return you must entera leading zero for codes 1 through 9.

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.

c. Gallons. Enter the total number of gallons for the year for the use en-tered in line a. Only whole numbers are allowed here.

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.

Did any of the diesel fuel included in this claim contain visible evi-dence of dye? If you answer Yes, you must provide a detailed ex-planation in a supporting statement for this line. Otherwise you arecertifying that none of the diesel fuel contained any visible evidenceof dye.

Itemize HERE for lines 6a and 6b. (Supported by the Fuel Sale Work-sheet, Figure Prem-9.) You must use the supporting worksheets to

Table Prem-1. Type of Use for Nontaxable Uses of FuelIRS-DEFINEDTYPE-OF-USE CODE TYPE OF USE*

01 On a farm for farming purposes

02 Off-highway business use (for business use other than a highway vehicle registered or required to be registered for highway use)

03 Export

04 In a boat engaged in commercial fishing

05 In certain intercity and local buses

06 For diesel fuel in a qualified local bus

07 In a bus transporting students and employees of schools (school buses)

08 For diesel fuel and kerosene used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use)

09 In foreign trade

10 Certain helicopter and fixed-wing air ambulance uses

11 For aviation fuel used other than as a fuel in the propulsion engine of an aircraft

*See line instructions for restrictions on Type of Use for certain lines of Form 4136.

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identify the buyer and the buyer’s use of the fuel for each annualtotal entered.

a Use on a farm for farming purposed. See preceding “Itemize” line.b Use by a state or local government. See preceding “Itemize” line.Credit for lines 6a and 6b. (auto-calc) Computed as the total number of

gallons entered on the preceding worksheets times 24.4 cents pergallon, this result appears in column (d) of the official printout.

7 Sales by Registered Ultimate Vendors of Undyed Kerosene. 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.

UV Registration Number. For a claim on line 7a or 7b you must enteryour UV registration number here. Your entry should be the lettersUV followed by up to 9 digits.

UP Registration Number. For a claim on line 7c you must enter your UVregistration number here. Your entry should be the letters UP fol-lowed by up to 9 digits.

Did any of the kerosene included in this claim contain visible evidenceof dye? If you answer Yes, you must provide a detailed explanationin a supporting statement for this line. Otherwise you are certifyingthat none of the kerosene contained any visible evidence of dye.

Itemize HERE for lines 7a and 7b. (Supported by the Fuel Sale Work-sheet, Figure Prem-9.) You must use the supporting worksheets toidentify the buyer and the buyer’s use of the fuel for each annualtotal entered. For a claim on these lines you must have obtained therequired certificate from the buyer and have no reason to believe itcontains any false information.

a Use on a farm for farming purposed. See preceding “Itemize” line.b Use by a state or local government. See preceding “Itemize” line.c Sales from a blocked pump. Enter in line (c) the total number of gal-

lons sold for the year. No itemizing is required. For a claim on thisline you must have the Regulations section 48.6427-10(e)(4)statement, if required.

Credit for lines 7a through 7c. (auto-calc) Computed as the total num-ber of gallons entered in this section times 24.4 cents per gallon,this result appears in column (d) of the official printout.

Fuel Sale Worksheet.(Figure Prem-9) Use aseparate worksheet foreach separate buyer.

Buyer is a farmeror harvester?Answer Yes ifthe fuel wassold for use

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 Buyer is farmer/harvester.? No Buyer is farmer/harvester.? No Buyer is farmer/harvester.? No Buyer is farmer/harvester.? No Buyer is government unit.. Buyer is government unit.. Buyer is government unit.. Buyer is government unit..▒ Yes▒ Yes▒ Yes▒ Yes 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 to buyer.. 0 c. Gallons sold to buyer.. 0 c. Gallons sold to buyer.. 0 c. Gallons sold to buyer.. 0

Figure Prem-9. Fuel Sale Worksheet


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on a farm for farming purposes.Buyer is a government unit? (auto-calc) Automatically the opposite of

the preceding answer. A Yes answer is appropriate if the fuel wassold for use by a state or local government (including essential gov-ernment use by an Indian tribal government). If neither question de-scribes the buyer, you cannot take the credit for this sale andshould not complete this worksheet for the sale.

a. Name of buyer. Enter the name in 30 characters or less.b. Buyer;s Tax ID Number. Enter in the standard formats: xxx-xx-xxxx

for SSN or xx-xxxxxxx for EIN.c. Gallons sold to buyer. Enter total gallons sold to this buyer for the

year for the purposes of the line itemized.

8 Nontaxable Use of Liquefied Petroleum Gas (LPG) in Certain Buses:a Use in certain intercity and local buses. Enter in line (c) the total

number of gallons used for the year. No itemizing is required. Thecredit for line (d) is computed at the rate of 6.2 cents per gallon.

b Use in qualified local buses or school buses. Enter in line (c) the totalnumber of gallons used for the year. No itemizing is required. Thecredit for line (d) is computed at the rate of 13.6 cents per gallon.

9 Gasohol Blending. For a claim in this section you must have bought gaso-line taxed at the full rate and blended it with alcohol to make gasohol, thensold it or used it in your trade or business. You must have complete batch-by-batch records on the purchase of both the gasoline and the alcohol.

a 10% gasohol. Enter in line (b) the total number of gallons of gasolineused for the year for this blend, and in line (c) the total number ofgallons of alcohol used for the year for this blend. No itemizing isrequired. The credit for line (d) is computed based on the gallons ofgasoline at the rate of 3.734 cents per gallon.

b 7.7% gasohol. Enter in line (b) the total number of gallons of gasolineused for the year for this blend, and in line (c) the total number ofgallons of alcohol used for the year for this blend. No itemizing isrequired. The credit for line (d) is computed based on the gallons ofgasoline at the rate of 2.804 cents per gallon.

c 5.7% gasohol. Enter in line (b) the total number of gallons of gasolineused for the year for this blend, and in line (c) the total number ofgallons of alcohol used for the year for this blend. No itemizing isrequired. The credit for line (d) is computed based on the gallons ofgasoline at the rate of 2.031 cents per gallon.

10 TOTAL INCOME TAX CREDIT CLAIMED. (auto-calc) Computed as the sumof all amounts in column (d) of the form, this is the total credit posted to line69b of Form 1040.


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Form 4137

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Form 4137 / Social Security and Medicare Tax on Unre-ported Tip Income

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 at line 58 of Form 1040, and 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.


Name of employer(s) to whom you were required to, but did not, report yourtips. Name all applicable employers. Six 25-character entries are provided forthis purpose. If you need more space, leave all six entries blank and supply all


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names in a supporting statement for the first entry only, accessing the sup-port with the F10 key.

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.

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 2004. (auto-calc) Com-puted as the sum of “Total taxable unreported tips” and “Total tipsreported to your employer.”

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2 Total cash and charge tips you REPORTED to your employer in 2004.(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 2004 this amount is $87,900.

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-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.


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12 Add lines 10 and 11. (auto-calc) Computed as indicated, this is thetotal tax to be posted to line 58 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 62 Form 1040.

ORIGINAL INVESTMENT CREDIT. All information for this entire section (Form4255 lines 1 through 6) plus lines 7 and 8 of the next section are entered onthe supporting worksheets accessed by itemizing line 3, below. (Except forline 3, no totals are shown on the screen for lines 1 through 8, in confor-mance with the IRS form.)

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-10.) All information for this form must be entered on the sup-porting worksheets. The sum of original credits shown on the work-sheets appears here when you return from the worksheets.

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

ITC Recapture Work-sheet. (Figure Prem-10)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......▒ 0▒ 0▒ 0▒ 0 8 Tentative recapture tax... 8 Tentative recapture tax... 8 Tentative recapture tax... 8 Tentative recapture tax...▒ 0▒ 0▒ 0▒ 0

Figure Prem-10. 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 IRC line above line 62 of Form 1040and is reflected in the total for line 62.


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Form 4952

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Form 4952 / Investment Interest Expense DeductionPurpose. This form is used to figure the amount of interest expense that youcan deduct each year for investment loans. The deduction is limited to be nomore than qualified investment income each year. However, that investmentincome does not include income from passive activities nor tax-exempt inter-est. It also does not include qualified dividends and capital gains unless youelect to include them (or a portion of them), in which case they are taxed atregular tax rates rather than the more favorable capital gains tax rates. Theallowed deduction computed on this form is normally reported as an itemizeddeduction at line 13 of Schedule A, but there are some exceptions as detailedlater. Form 4952 is accessible through the Road Map at line 13 of ScheduleA. (This form is not used for interest on business or personal loans. Intereston business loans is deducted on the form used to report the business in-come, such as Schedule C. Interest on personal loans is not deductible at all,except for home mortgages, which are reported directly on Schedule A.)

CAUTION: If you have investment income other than interest, dividends, andcapital gain distributions, YOU must enter that income manually. Other thaninterest, dividends, and capital gain distributions, the software has no way ofknowing what other income on the return is qualified investment income.This is an unfortunate result of the IRS design in which disposition of per-sonal, investment, and business property are all reported on the same forms,such as Schedule D and Form 4797, and not separately identified. Therefore,if you have any investment gains and losses on Schedule D or Form 4797,you must (except for capital gain distributions) enter them yourself as com-ponents of lines 4a and 4d.

PART I, TOTAL INVESTMENT INTEREST EXPENSE. The interest you want toconsider for deduction is reported here.

Investment interest expense from Sch. K-1. Enter the interest paid oraccrued in 2004 as reported to you on a Schedule K-1 from a part-nership or S corporation.

Other investment interest expense. Enter here all other qualified in-vestment interest you paid or accrued in 2004. For the purposes ofthis form, investment interest does not include home mortgage in-terest, interest related to a passive activity, nor interest related totax-exempt income. On the other hand, it usually does include inter-est on a margin account with your brokerage. See IRS instructionsfor other exclusions and more details.

1 Investment interest expense paid or accrued in 2004. (auto-calc)Computed as the sum of the preceding two lines.

2 Disallowed investment interest expense from 2003 Form 4952, line 7.Enter as indicated. This is the amount not deductible for the priortax year but carried over to the 2004 return.

3 TOTAL INVESTMENT INTEREST EXPENSE. (auto-calc) Computed asthe sum of lines 1 and 2.


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PART II, NET INVESTMENT INCOME. The income that can be used to justifythe interest expense is determined here:

Interest on Form 1040, line 8a. (auto-calc) Taken from Form 1040, asindicated, this is ordinary interest received.

Interest on Form 1040, line 9a. (auto-calc) Taken from Form 1040, asindicated, this is ordinary dividends received.

Child interest and dividends in Form 1040, line 21. (auto-calc) Takenfrom the line labeled “Form 8814” at line 21 of Form 1040, but re-duced by any amount in that line that is attributable to Alaska Per-manent Fund dividends. (The amount attributed to Alaska Perma-nent Fund dividends is computed in accordance with a proratedmethod described in IRS Pub. 550.) This is the amount of your chil-dren’s interest and dividend income that you are reporting on yourreturn to avoid having to file returns for the children.

Other gross investment income. Enter here all other qualified in-vestment interest, including nonpassive royalty income and annui-ties. DO NOT include any gains or losses on sales or other disposi-tion of investment assets; these are reported on line 4d instead.Also, do not include any amount from Form 8814 (interest and divi-dends of your children) because they are already included in thepreceding line.

4a Gross investment income. (auto-calc) Computed as the sum of thepreceding four lines.

4b Qualified dividends included on line 4a. (auto-calc) Taken from line9b of Form 1040, this is the part of line 9a identified as qualifieddividends. They are eligible for low capital gains tax rates and arenot automatically included in investment income for this form.However, you can elect to have them included in investment in-come on this form (so that you can deduct more interest) if youidentify them to be taxed at ordinary tax rates instead of capitalgains tax rates. You make that election at line 4g, below.

4c Subtract line 4b from line 4a. (auto-calc) Computed as indicated.Capital gain distributions (Schedule D, line 13). (auto-calc) Takenfrom Schedule D, as indicated, this amount includes any amountfrom your children by means of Form 8814.

Other net gain or loss from investment property. Enter here anyother gain or loss on the return that stems from qualified investmentproperty. This amount is typically found on Schedule D and/or Form4797, and includes both long-term and short-term amounts. It alsoincludes the sale of both capital assets and other assets, as long asthey were held for investment. (Do not include any capital gain dis-tributions from Schedule B or Form 8814; they are already includedin the preceding line.)

4d Gross investment income. (auto-calc) Computed as the sum of thepreceding two lines, but no less than zero, this is the net gain fromthe disposition of property held for investment.

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Form 4952

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Capital gain distributions (Schedule D, line 13). (auto-calc) Takenfrom the corresponding line above line 4d. Capital gains are inten-tionally included in both line 4d and 4e.

Other long-term capital gain or loss from investment property. Enterhere any other long-term capital gain (or loss) on the return. Thisamount is usually found in Part II of Schedule D, but be sure to ex-clude the capital gain distributions already shown on the precedingline.

Net short-term capital gain or loss from investment property. Enterhere any short-term capital gain (or loss) on the return. This amountis usually found in Part I of Schedule D.

4e Smaller of line 4d or your net capital gain from the disposition ofproperty held for investment. (auto-calc) First the net long-termcapital gain is computed (as the sum of the first two of the preced-ing three lines, but no less than zero); then the net short-term capi-tal loss is computed (as the preceding line only if negative); then thetwo are combined to arrive at the net capital gain. Line 4e is thenthe lesser of this result and the gain on line 4d. This is the maxi-mum amount of capital gain that is excluded from investment in-come for this form, because of its favorable tax treatment, butwhich can be included back at line 4g by electing to forego the fa-vorable tax treatment.

4f Subtract line 4e from line 4d. (auto-calc) Computed as indicated.4g Amount from lines 4b and 4e that you elect to include in investment

income. Thus far, investment income is the sum of lines 4c and 4f.The qualified dividends in line 4b have been excluded in arriving atline 4c, and the capital gains in line 4e have been excluded in arriv-ing at line 4f. However, as noted above, you can elect to includeany or all of the amounts in lines 4b and 4e in investment income,but will have to forego their favorable tax treatment in the process.This is accomplished through your entry here, which affects the taxcomputation on Schedule D. Your entry here causes some or all ofqualified dividends in 4b and/or capital gains in 4e to be taxed atordinary rates, but allows their reinclusion in investment income onthis form (in order to allow a greater investment interest deduction)so that potentially more interest can be deducted. Before making anentry here you should carefully consider the tax consequences. It isa good idea to make your final decision only after the entire return iscomplete. You can then experiment with entries on this line by us-ing our Recalculate Key (shift-F8 or ctrl-B) to recompute the entirereturn after each change. (CAUTION: NEVER make an entry here ifthe investment income total at line 4h is greater than or equal toline 3. An entry in this case will never lower your tax and will usu-ally increase it.)

Default attributable to line 4e. (auto-calc) Computed as the lesser ofline 4g and line 4e, this is the maximum amount of line 4g that you


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can attribute to line 4e. Unless you make another election on thenext line, the IRS will attribute this part of your entry on line 4g tocapital gains, and not qualified dividends. For most taxpayers thiswill be the optimum choice because it results in the lowest tax atline 43 of Form 1040.

Amount of attribution you elect to shift to line 4b. If you use Form1116, you may find it beneficial to attribute a lesser amount to line4e and a greater amount to line 4b because it could result in enoughof an increase in the credit from Form 1116 to reduce the overalltax after credits even through line 43 of Form 1040 is increased.Your entry here is limited by the software so that the amount at-tributed to line 4b does not exceed line 4b, and the amount attrib-uted to 4b and 4e combined is equal to the amount on line 4g.

Modified line 4e for Schedule D. (auto-calc) If you make no entry onthe preceding line, the amount on line 4e appears here unmodified,and is used that way in the Schedule D tax computations. However,if you do make an entry, and it is accepted by the software, a lesseramount will appear here and used in the Schedule D tax computa-tions to compute a lesser amount of capital gains at favorable taxrates. In the latter case, this amount will appear on the dotted linefor line 4e on the official printout of Form 4952 along with theword ”Elec” to flag to the IRS that this special election is beingmade.

4h Investment income. (auto-calc) Computed as the sum of lines 4c, 4f,and 4g.

Total on Schedule A, line 22. (auto-calc) Taken from Schedule A, asindicated. This total includes both investment expenses and job ex-penses, so you must identify the investment expense part on thefollowing three lines.Part for investment expense from Schedule B. (auto-calc) Takenfrom the corresponding part of Schedule A, line 22, this is theamount of investment expense you identified on the 1099-INT and1099-DIV worksheets that you completed for Schedule B.Part from Schedule E, line 38(e). (auto-calc) Taken from the corre-sponding part of Schedule A, line 22, this is income from a REMICthat is reported as taxable income on Schedule E but deductible onSchedule A, line 22.Other investment expense in Schedule A, line 22. Enter other in-vestment expenses included in Schedule A, line 22, but not re-flected in the preceding two lines. TIP: Be sure to include deprecia-tion or amortization related to qualified investment property that isincluded in line 22 of Schedule A. (CAUTION: Do not include theamounts from Forms 4684 and 4797 that appear on Schedule A,line 22. These amounts relate to property used as an employee, notinvestment property. Investment expenses from these forms arereported at Schedule A, line 27, and are included below.)

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Limitation from Schedule A, line 26. (auto-calc) The deduction forlines 20 through 22 of Schedule A is limited to the part that ex-ceeds 2% of AGI, as reflected in line 26. The same limitation ap-plies to your application of amounts in line 22 to line 5, below.

Part of Schedule A, line 22, for line 5. (auto-calc) Computed as thelesser of the preceding limitation and the sum of the three invest-ment expense amounts that precede it, this is the only part ofSchedule A, line 22, that is allowable for line 5 of Form 4952.

Total on Schedule A, line 27. (auto-calc) Taken from Schedule A, asindicated. This total also includes both investment expenses and jobexpenses, so you must identify the investment expense part on thefollowing three lines.Part for investment expense from Form 4684, lines 32 and 38b. (auto-calc) Taken from the corresponding part of Schedule A, line 27, thisis the loss from casualty or theft on Form 4684 associated with in-vestment property.Part for investment expense from Form 4797, line 18b(1). (auto-calc)Taken from the corresponding part of Schedule A, line 27, this isalso the loss from casualty or theft on Form 4797 associated withinvestment property.Other investment expense in Schedule A, line 27. Enter other in-vestment expenses included in Schedule A, line 27, but not re-flected in the preceding two lines.

Part of Schedule A, line 27, for line 5. (auto-calc) Computed as the to-tal of the preceding three lines, this is the only part of Schedule A,line 27, that is allowable for line 5 of Form 4952.

Other investment expense for line 5. Enter any other investment ex-penses that are qualified for inclusion in line 5, below.

5 Investment expenses. (auto-calc) Computed as the sum of “Part ofSchedule A, line 22, for line 5,” “Part of Schedule A, line 27, forline 5,” and “Other investment expense for line 5.”

6 NET INVESTMENT INCOME. (auto-calc) Computed as line 4h less line5, but no less than zero, this is the maximum amount of interestyou can deduct this year.

PART III, INVESTMENT INTEREST EXPENSE DEDUCTION. The final result iscomputed here:

7 Disallowed investment interest expense. (auto-calc) Computed as line3 less line 6, but no less than zero, this is the amount disallowedthis year but carried forward to your Form 4952 for tax year 2005.

8 INVESTMENT INTEREST EXPENSE DEDUCTION. (auto-calc) Com-puted as the smaller of line 3 or line 6, this is the amount you candeduct on your return for tax year 2004.

Allocation of line 8. Where you report your deduction depends on the specif-ics of the interest expenses:


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Not-at-risk activities. If any of your investment interest expense is at-tributable to an activity for which you are not at risk, you will haveto complete Form 6198 to determine the amount you are allowed todeduct for that activity. Enter here the part of line 8 that you can-not deduct, as determined from Form 6198.

Royalties (for Schedule E line 12 or 13). If any of the interest expenseis attributable to royalties reported in Part I of Schedule E, you mustenter here the part of line 8 attributable to those royalties and alsoenter it on line 12 of 13 of the appropriate worksheet that supportsline 4 of Schedule E.

Nonpassive business. If any part of the amount in line 8 is attributableto a nonpassive trade or business, enter that amount here and onthe schedule you use to report other income and expenses for theactivity.

Other not for Schedule A. If any other part of the amount in line 8 is at-tributable to an activity for which a deduction on Schedule A is notappropriate, enter that amount here and report it on the appropriateform for that activity.

Balance for Schedule A, line 13. (auto-calc) Computed as line 8 less thesum of the preceding four amounts, this amount is automaticallyposted to line 13 of Schedule A for inclusion in itemized deductions.

Caution. Except for Schedule A, no amounts in the preceding allocations areposted elsewhere automatically. You must enter the appropriate amountselsewhere as instructed above.


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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 62 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 62 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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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 2003 TAX RETURN. Make the following entriesbased on your return for tax year 2003.

13(a) 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).Filing status for 2003. Enter the filing status number you used onyour return for tax year 2003, where 1=Single, 2=Married FilingJointly, 3=Married Filing Separately, 4=Head of Household,5=Qualifying Widow(er).

Capital gains and qualified dividends. If you did not prepare aSchedule D and/or Schedule D Tax Worksheet for the year but youhad capital gains or qualified dividends, you should enter theamounts that would have appeared on Schedule D and its work-sheet had you prepared the schedule for the return. (Skip this sec-tion if you had neither capital gains nor qualified dividends for theyear.)2003 Schedule D Tax Worksheet, line 9.2003 Schedule D, line 20.2003 Schedule D, line 19.2003 Schedule D, line 35.2003 Schedule D, line 17b.2003 Qualified dividends. These are shown on Form 1040, line 9b.2003 Form 4952, line 4e.2003 Form 4952, line 4g.

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 13.2003 tax on line 13(a). (auto-calc) The tax computed here shouldmatch the tax shown on line 41 of Form 1040 for tax year 2003(as corrected, if applicable). This result will be used for one of thecolumns of line 18 if the taxable income entered for line 13(a) isneither the highest nor the lowest taxable income for the 5 yearsused in line 13.2003 tax on line 13(a) 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 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.


13(b) 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).Filing status for 2002. Enter the filing status number you used onyour return for tax year 2002, where 1=Single, 2=Married FilingJointly, 3=Married Filing Separately, 4=Head of Household,5=Qualifying Widow(er).

Capital gains. If you did not prepare a Schedule D and/or Schedule DTax Worksheet for the year but you had capital gains, you shouldenter the amounts that would have appeared on Schedule D and itsworksheet had you prepared the schedule for the return. (Skip thissection if you had no capital gains for the year.)2002 Schedule D Tax Worksheet, line 4.2002 Schedule D Tax Worksheet, line 6.2002 Schedule D, line 19.2002 Schedule D, line 29.

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 13.2002 tax on line 13(b). (auto-calc) The tax computed here shouldmatch the tax shown on line 42 of Form 1040 for tax year 2002(as corrected, if applicable). This result will be used for one of thecolumns of line 18 if the taxable income entered for line 13(b) isneither the highest nor the lowest taxable income for the 5 yearsused in line 13.2002 tax on line 13(b) 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(b) is neither the highest northe lowest taxable income for the 5 years used in line 13.


13(c) 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).

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Capital gains. If you did not prepare a Schedule D and/or Schedule DTax Worksheet for the year but you had capital gains, you shouldenter the amounts that would have appeared on Schedule D and itsworksheet had you prepared the schedule for the return. (Skip thissection if you had no capital gains for the year.)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?2001 Schedule D Tax Worksheet, line 4.2001 Schedule D Tax Worksheet, line 6.2001 Schedule D, line 19.2001 Schedule D, line 29.

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 13.2001 tax on line 13(c). (auto-calc) The tax computed here shouldmatch the tax shown on line 40 of Form 1040 for tax year 2001(as corrected, if applicable). This result will be used for one of thecolumns of line 18 if the taxable income entered for line 13(c) isneither the highest nor the lowest taxable income for the 5 yearsused in line 13.2001 tax on line 13(c) 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(c) is neither the highest northe lowest taxable income for the 5 years used in line 13.


13(d) Enter your taxable income before this distribution for tax year2000. Enter the taxable income shown on line 39 of your Form1040 for tax year 2000 (or a corrected amount, if applicable).Filing status for 2000. Enter the filing status number you used onyour return for tax year 2000, where 1=Single, 2=Married FilingJointly, 3=Married Filing Separately, 4=Head of Household,5=Qualifying Widow(er).

Capital gains. If you did not prepare a Schedule D for the year butyou had capital gains, you should enter the amounts that wouldhave appeared on Schedule D had you prepared the schedule for thereturn. (Skip this section if you had no capital gains for the year.)2000 Schedule D, line 22.2000 Schedule D, line 24.2000 Schedule D, line 25.


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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 13.2000 tax on line 13(d). (auto-calc) The tax computed here shouldmatch the tax shown on line 40 of Form 1040 for tax year 2000(as corrected, if applicable). This result will be used for one of thecolumns of line 18 if the taxable income entered for line 13(d) isneither the highest nor the lowest taxable income for the 5 yearsused in line 13.2000 tax on line 13(d) plus line 12. (auto-calc) This is your 2000 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.


13(e) Enter your taxable income before this distribution for tax year1999. Enter the taxable income shown on line 39 of your Form1040 for tax year 1999 (or a corrected amount, if applicable).Filing status for 1999. Enter the filing status number you used onyour return for tax year 1999, where 1=Single, 2=Married FilingJointly, 3=Married Filing Separately, 4=Head of Household,5=Qualifying Widow(er).

Capital gains. If you did not prepare a Schedule D for the year butyou had capital gains, you should enter the amounts that wouldhave appeared on Schedule D had you prepared the schedule for thereturn. (Skip this section if you had no capital gains for the year.)1999 Schedule D, line 22.1999 Schedule D, line 24.1999 Schedule D, line 25.

Tax computations. The amounts computed here will be used in Part IIif the taxable income entered for line 13(e) is neither the highest northe lowest taxable income for the 5 years used in line 13.1999 tax on line 13(e). (auto-calc) The tax computed here shouldmatch the tax shown on line 40 of Form 1040 for tax year 1999(as corrected, if applicable). This result will be used for one of thecolumns of line 18 if the taxable income entered for line 13(e) isneither the highest nor the lowest taxable income for the 5 yearsused in line 13.1999 tax on line 13(e) plus line 12. (auto-calc) This is your 1999 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.

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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 above, this result shouldmatch the tax shown on your Form 1040 for the year above (or acorrected 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.

21 Subtract line 20 from line 19. (auto-calc) Computed as indicated.22 Alternative minimum tax adjustments. If subject to the AMT forthe tax year you must recompute the AMT for the year (based onthe tax 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 yearnot eliminated.


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

Total tax.24 Add columns (a), (b), and (c), line 23. (auto-calc) Computed as indi-cated.

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 of Form 4970was greater than one, you must enter the result of all other Forms4970 here so that Form 1040 will reflect the tax on all Forms 4970combined. See the boxed paragraph at the beginning of these Form4970 instructions for further instruction. An entry here will makethe return unacceptable for e-file because the IRS supports only onecopy of Form 4970 for e-file returns.Total tax for Form 1040. (auto-calc) Computed as line 28 plus thepreceding entry, this total is posted to the ADT line above line 62 ofForm 1040.


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Form 4972

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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 4255 is accessible through the Road Map atline 43b 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. On the line that follows line 3, “Reporting box 3 on4972?,” make sure that your answer is No. (If a taxable amount is notshown in box 2a, or you question the accuracy of the calculation, youmay need to use IRS Pub. 939 to determine the proper amount 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. But this time you must an-swer “Yes” to the line that follows line 3. The amount will then be re-moved from line 2a before it is posted to line 16b of Form 1040 becausethat 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 this Form 1099-R on the work-sheets 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.


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

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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 (69 for tax year2004).

(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.

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 is


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greatly 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. Enter your share as apercentage from 0 to 100.

If shared, your percentage of the lump-sum distribution as shown inForm 1099-R, box 9. Enter your share as a percentage from 0 to100.

When there are multiple recipients of the lump-sum distribution, as indicatedby percentages under 100% in boxes 8 and 9, 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.

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 43b.

PART III, COMPLETE THIS PART TO CHOOSE THE 10-YEAR TAX OPTION.Except for one entry, describe 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 43b, 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.



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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 the 5884 line for line 54c of Form 1040 andline 1b of Form 3800. (In the Form 1065 software, Form 5884 is accessiblethrough the Road Map at the component of line 15f of Schedule K labeled“5884 Work opportunity credit.”)

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, 2005. The credit formerly applied only towages paid or incurred before 2005. However, the credit was retroactivelyreinstated in October, 2004 by the Working Families Tax Relief Act of 2004.As a result, it now applies to wages paid or incurred before 2006.

PART I, CURRENT YEAR CREDIT. The full credit is computed in this partbased on qualifying wages, before applying any limitations.

1 Total qualified first-year wages paid or incurred during the tax yearfor services of employees who are certified as members of a tar-geted group, and:

a Worked for you at least 120 hours but fewer than 400 hours. Enteronly wages paid or incurred in 2004 within the tax year of the re-turn. CAUTION: Do not include wages reported on Form 8861(Welfare-to-Work Credit).

X 25%...1a. (auto-calc) Computed as the wage on line a times 0.25.b Worked for you at least 400 hours. Employees who you retain inyour employment 400 hours or more qualify you for a higher credit.CAUTION: Do not include wages reported on Form 8861 (Welfare-to-Work Credit)

X 40%...1b. (auto-calc) Computed as the wages on line b times 0.40.2 Add lines 1a and 1b. (auto-calc) Computed as indicated. CAUTION:

You must generally reduce your deduction for wages and salaries(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.

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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 Credits from pass-through entities. Enter any workopportunity credit from a pass-through entity (S corporation, part-nership, estate, trust, or cooperative) identified as code G, H, or J inbox 13 of Schedule K-1 (Form 1120S) or box 15 of Schedule K-1(Form 1065), line 14 of Schedule K-1 (Form 1041), or a writtenstatement from a cooperative.

4 CURRENT YEAR CREDIT. (auto-calc) Computed as the sum of lines 2and 3, this is the credit for before any limitations are applied.

Posted to Form 3800 (vs. Form 1040). (For Form 1040 returns only;auto-calc) If Yes, the credit flows from this line to Form 3800,where all limitations are applied, and the remainder of Form 5884 isblank. If No, the limitations are applied here and you must continuewith your data entry for this form; the result on line 15 will then beposted to the appropriate line for line 54c of Form 1040.

In the Form 1040 software, the amount on line 4 is posted to line 1b of Form3800. (In the Form 1065 software, the amount on line 4 is posted to thecredit component of line 15f of Schedule K labeled “5884 Work opportunitycredit.”)

PART II, ALLOWABLE CREDIT. The credit allowed for the current year is lim-ited by your tax liability for the year. It may be applied to the first $25,000 ofadjusted tax liability plus 75% of the excess above $25,000. This part will beblank if a Form 3800 exists, and a similar section on Form 3800 will be usedto determine the limitation instead. (Part II is not applicable to Form 1065 re-turns because the full credit on line 4 is passed through to partners.)

5 Regular tax before credits. (auto-calc) From Form 1040, line 43.6 Alternative minimum tax. (auto-calc) From Form 6251, line 35.7 Add lines 5 and 6. (auto-calc) Computed as indicated.8a Foreign tax credit. (auto-calc) Taken from Form 1040, line 46.8b Credit from Form 1040, lines 47 through 53. (auto-calc) Taken from

Form 1040 as indicated.


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8c Possessions tax credit (Form 5735, line 17 or 27). (auto-calc) Com-puted as zero, this line is applicable only to corporate returns, notindividual or partnership returns.

8d Credit for fuel from nonconventional source. (auto-calc) Taken fromthe special FNS line at line 54c of Form 1040.

8e Qualified electric vehicle credit (Form 8834, line 20). (auto-calc)Taken from the special Form 8834 line at line 54c of Form 1040.

Other eligible credits. This line is provided for any other credits notlisted above that can be used to reduce regular tax before the crediton this form. These credits should have been included in line 55 ofForm 1040, but not all credits on that line can be used here. Youmust itemize any entries in a supporting statement for this line.

8f Add lines 8a through 8e (auto-calc) Computed as indicated plus theabove extra credit, this is total credit the credit for this form.

9 Net income tax. (auto-calc) Computed as line 7 less line 8f.10 Net regular tax. (auto-calc) Computed as line 5 less 8f, 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 11.

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.

11 25% of the excess of line 10 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.

12 Tentative minimum tax. (auto-calc) Taken from Form 6251, line 33.13 Greater of line 11 or line 12. (auto-calc) Computed as indicated.14 Subtract line 13 from line 9. (auto-calc) Computed as indicated, but

no less than zero, this is the credit limitation.15 CREDIT ALLOWED FOR CURRENT YEAR. (auto-calc) Computed as

the smaller of line 4 or line 14.Carryover. (auto-calc) Computed as line 4 less line 15, this balancecan be carried back 1 year and then forward up to 20 years.

The credit on line 15 is posted to the proper part of line 54c of Form 1040


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Forms 6198

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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 theIRS as “at-risk activities” are subject to the at-risk limitations, but the IRSdefinitions are so broad that most activities carried on as a trade or businessor for the production of income are subject to these limitations when financedin a way that makes you not fully at risk for the loans. A separate Form 6198is used for each separate activity for which you have a net loss for which youare not fully at-risk, and the activity may have amounts reported on a numberof different forms for different aspects of the activity. As a result, Form6198 is not tied to any particular form or schedule but is instead a stand-alone form, so no results on this form are posted to any other form or sched-ule. Nevertheless, Form 6198 is accessible through the Road Map from someof the forms that may have amounts not at risk: Schedule C (below line 32b),Schedule E (below line 27), 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.)

New rules apply to amounts borrowed after May 3, 2004. See the IRS instruc-tions for Form 6198 for new rules on certain amounts borrowed after May 3,2004. New rules apply to borrowed amounts that are secured by real estate.


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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. In other words, your en-tries on other forms and schedules must reflect the limitations resulting fromForm 6198 so that other limitations, such as passive activity loss limitations,are applied to amounts that have already been subjected to the at-risk limita-tions.

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

Description of activity. The IRS provides a wide space on the form to de-scribe the activity to which a particular Form 6198 relates. We therefore pro-vide three 25-character entries, which are concatenated on the official print-out. If the activity stems from your status as a partner in a partnership or ashareholder in an S corporation, also include the name and identifying numberof the partnership or S corporation. (See page 2 of the IRS Instructions forForm 6198 for details on what constitutes a single activity. A separate Form6198 must be prepared for each separate activity unless the aggregate rulesdescribed 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 informa-tional line to help you complete the following entries. If you trans-lated the return from the prior year with the tax year on the prior re-turn retained at 2003, the excess of line 5 over line 21 of the prior-year Form 6198 will appear here if any loss was disallowed on theprior-year Form 6198. CAUTION: You must include this amount inyour entries for lines 1 through 4. The carryover is not automaticallyreflected in Part I because it must be allocated among your entriesin 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 2004 Schedule K-1 (Form 1065)you receive or from line 1 or 2 of the 2004 Schedule K-1 (Form1065-B) you receive. If you are a shareholder in an S corporation,enter the amount from line 1 of the 2004 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 disallowed

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here. 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 2004 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 2003 tax year here. This will generally bethe prorated amount for this activity of the above “Loss carryoverfrom prior Form 6198.”

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 for2004 any amounts disallowed for the 2003 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 positivenumber all deductions and losses not included in lines 1 through 2c.The amount is surrounded by parentheses on the official printedform to indicate a loss, and the amount reduces the net profit orloss resulting for line 5.


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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 2004 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.

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 page 4of the IRS Instructions for Form 6198 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 page 4 of the IRS Instructions for Form6198 for detailed 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 proceedto line 20 in Part IV. However, it may be to your benefit to complete Part IIIanyway for a possibly larger amount at risk, and therefore a larger alloweddeductible 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 2003 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.

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 on page 5 of the IRSInstructions for 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 page5 through 6 of the IRS Instructions for Form 6198 for detailed ex-amples and a special Line 12 Worksheet.

13 Add lines 11 and 12. (auto-calc) Computed as indicated.

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14 Decreases for the tax year. Enter here decreases, such as additionalnonrecourse loans taken. See page 5 of the IRS Instructions forForm 6198 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 2003 Form 6198, line 19b. Enter the indicated amount if youcompleted Part III of a prior-year Form 6198 for the activity.

16 Increases since:.a Effective date. Enter as detailed on pages 6 and 7 of the IRS In-structions for Form 6198.

b End of your 2003 tax year. Enter the increase as detailed on pages6 and 7 of the IRS Instructions for Form 6198, but substitute thewords “since the end of your 2003 tax year” in place of “since ef-fective 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 on pages 7 and 8 of the IRS In-structions for Form 6198.

b End of your 2003 tax year. Enter the increase as detailed on pages7 and 8 of the IRS Instructions for Form 6198, but substitute thewords “since the end of your 2003 tax year” in place of “since ef-fective date” 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, show-ing you how much of your deductions or losses are allowable in the currenttax 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. Seepage 8 of the IRS Instructions for Form 6198 for details.


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CAUTION: If less than 100%, you must reduce your entries on appropriateforms and schedules. Because Form 6198 is a stand-alone form that summa-rizes amounts reported throughout the return, no amounts can be postedautomatically to the related forms and schedules. You must reflect the reduc-tion indicated by the preceding percentage on all appropriate forms andschedules yourself!


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Forms 6478

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Form 6478 / Credit for Alcohol Used as Fuel

Purpose. This form is used to claim credit for alcohol used as fuel. Three dif-ferent credits are integrated into this form: the alcohol mixture credit, the al-cohol credit, and the small ethanol producer credit. In the Form 1040 soft-ware, Form 6478 is accessible through the Road Map at the 6478 line forline 54c of Form 1040 and line 1d of Form 3800. (In the Form 1065 soft-ware, Form 6478 is accessible through the Road Map at the credit compo-nent of line 15f of 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 etha-nol produced by an eligible small ethanol producer, who, as definedin the IRS instructions, cannot have more than 30 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.

New rules affect subsequent lines starting January 1, 2005. The AmericanJobs Creation Act of 2004 change a number of details of this credit for fuelsold or used after December 31, 2004. A minor change affects lines 2a and2b: slightly lower rates for straight alcohol and alcohol mixtures after 2004.But a big change affects lines 4 through 8: certain types and uses for the fuelare no longer excluded from the credit. These changes are reflected in thesoftware as described in the following line-by-line instructions. For Form1040 returns none of the changes will affect returns you file in 2005 for taxyear 2004. By contrast, for Form 1065 returns with a fiscal year starting af-ter January, 2004, the new rules apply for part of the 2004 fiscal year.


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2 Straight alcohol and alcohol mixtures:2a 190 proof or greater:

(a) Number of gallons from ethanol. Enter here the number of gallonsonly for alcohol from ethanol. (For lines 2 and 7 the rates for alcoholfrom other than ethanol are higher than the preprinted rates, so thetwo types of alcohol must be separately entered for these lines sothat the proper credit can be computed.)**post-12/31/2004 part of above. This line is used to handle the newrules that go into effect on January 1, 2005. For a Form 1040 re-turn this line is automatically zero for tax year 2004 and equal tothe preceding amount for tax year 2005. (The same is true for aForm 1065 return if the partnership’s fiscal year is the calendaryear. However, if the partnership’s tax year starts in any monthother than January, part of tax year 2004 must follow the old rulesand part must follow the new rules. In this case you are allowed toenter any amount up to the preceding amount for tax year 2004.For tax year 2005, however, the entry is automatically equal to thepreceding amount for all fiscal years.)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 this type is 52 centsper gallon until December 31, 2004, and 51 cents per gallon there-after.Rate from other than ethanol. (auto-calc) The rate for this type is 60cents per gallon, irrespective of the date used or sold.

(c) Column (a) X Column (b). (auto-calc) Computed as the rate timesthe corresponding gallons for each type, taking into account thepost-12/31/2004 part and summed into one number for the officialprintout.

2b Less than 190 proof but at least 150 proof:(a) Number of gallons from ethanol. Enter here the number of gallonsonly for alcohol from ethanol.**post-12/31/2004 part of above. This line is used to handle the newrules that go into effect on January 1, 2005. For a Form 1040 re-turn this line is automatically zero for tax year 2004 and equal tothe preceding amount for tax year 2005. (See the discussion belowline 2a(a) for partnerships.)

Other than from ethanol. Enter here the number of gallons only for al-cohol other than from ethanol.

(b) Rate from ethanol. (auto-calc) The rate for this type is 38.52cents per gallon until December 31, 2004, and 37.78 cents pergallon thereafter.Rate from other than ethanol. (auto-calc) The rate for this type is 45cents per gallon, irrespective of the date used or sold.

(c) Column (a) X Column (b). (auto-calc) Computed as the rate timesthe corresponding gallons for each type, taking into account the

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post-12/31/2004 part and summed into one number for the officialprintout.

3 Add lines 1, 2a, and 2b in both columns:(a) Gallons. (auto-calc) Computed as the sum of all gallons enteredfor lines 1, 2a, and 2b.

(b) Credit. (auto-calc) Computed as the sum of all credits computedfor lines 1, 2a, and 2b.

4 Other fuels blended with the alcohol on lines 2a and 2b. Enter thenumber of gallons for other, including gasoline and special fuel. (Noentry is allowed for tax year 2005 or later. Fiscal year partnershipsshould not enter any amount for tax year 2004 for fuel used or soldafter December 31, 2004.)

5a Total gallons of fuel. (auto-calc) Computed as the sum of lines 3and 4 in column (a).

5b Total gallons containing less than 5.7% of 190-proof alcohol or thatare exempt from excise taxes. Enter the part of the line 5a totalthat falls into the described category. (No entry is allowed for taxyear 2005 or later. Fiscal year partnerships should not enter anyamount for tax year 2004 for fuel used or sold after December 31,2004.)

6 Subtract line 5b from line 5a. (auto-calc) Computed as indicated.

7 Break down line 6 into the number of gallons of:7a Aviation fuel for use in noncommercial aviation containing at least

10% alcohol. (No entry is allowed in this section for tax year 2005or later. Fiscal year partnerships should not enter any amounts fortax year 2004 for fuel used or sold after December 31, 2004.)

(a) Number of gallons from ethanol. Enter here the number of gallonsonly for alcohol from ethanol. Note that your entry for gallons incolumn (a) of all parts of line 7 combined cannot exceed the resulton line 6, and the software ensures this by limiting your entries ac-cordingly.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 this type is 13.2 centsper gallon.Rate from other than ethanol. (auto-calc) The rate for this type is 14cents per gallon.

(c) Column (a) X Column (b). (auto-calc) Computed as the rate timesthe corresponding gallons for each type, summed into one numberfor the official printout.

7b Gasohol (and other fuels) containing less than 85% alcohol. (An en-try is appropriate in this section for fuel used or sold after 2004only if already taxed at a reduced rate before 2005)

10% gasohol:(a) Number of gallons from ethanol. Enter here the number of gallonsonly for alcohol from ethanol.


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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 this type is 5.2 centsper gallon.Rate from other than ethanol. (auto-calc) The rate for this type is 6cents per gallon.

7.7% gasohol:(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 this type is 4.004cents per gallon.Rate from other than ethanol. (auto-calc) The rate for this type is4.62 cents per gallon.

5.7% gasohol:(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.



7c Special motor fuel containing 85% or more alcohol. (No entry is al-lowed in this section for tax year 2005 or later. Fiscal year partner-ships should not enter any amounts for tax year 2004 for fuel usedor sold after December 31, 2004.)

(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.



8 Add lines 7a through 7c, column (c). (auto-calc) Computed as indi-cated.

9 Subtract line 8 from line 3. (auto-calc) Computed as indicated.

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Forms 6478

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CAUTION: Line 9 must be reported as income in order to qualify for thecredit. The credit on Form 6478 is allowed only as an offset to income re-ported on the return for the claimed fuel. Therefore, you must be sure to in-clude the amount on line 9 as income on the appropriate “other income” lineof the appropriate form. For a Form 1040 return the amount may be reportedon Schedule C, Schedule F, or line 21 of Form 1040. You must report thefull amount of income even if you are not allowed the full credit resulting atline 11 because of limitations to tax liability.

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 supportprovide 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.

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

10 Alcohol fuel credit from the above. (auto-calc) Computed as the sumof the preceding two lines.

11 CURRENT YEAR CREDIT. (auto-calc) Computed as the sum of lines 9and 10.


In the Form 1040 software, the amount on line 11 is posted to line 1d ofForm 3800. (In the Form 1065 software, the amount on line 11 is posted tothe credit component of line 15f of Schedule K labeled “6478 Alcohol usedas 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 a Form 3800 exists, and a similar section on Form 3800 will be usedto determine the limitation instead. (Part II is not applicable to Form 1065 re-turns because the full credit on line 11 is passed through to partners.)


Form 1040 as indicated.


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15c Possessions tax credit (Form 5735, line 17 or 27). (auto-calc) Com-puted as zero, this line is applicable only to corporate returns, notindividual or partnership returns.




15f Add lines 15a through 15e (auto-calc) Computed as indicated plusthe above extra credit, this is total credit the credit for this form.

16 Net income tax. (auto-calc) Computed as line 14 less line 15f.17 Net regular tax. (auto-calc) Computed as line 12 less 15f, 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 18.







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

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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 the 6765 line forline 54c of Form 1040 and line 1e of Form 3800. (In the Form 1065 soft-ware, Form 6765 is accessible through the Road Map at the credit compo-nent of line 15f of Schedule K labeled “6765 Increasing research.”)

Extended to December 31, 2005. The research credit expired on June 30,2004, so research expenses paid or incurred after that date were not eligiblefor the credit. However, the credit was retroactively reinstated in October,2004 by the Working Families Tax Relief Act of 2004. As a result, it now ap-plies to expenses paid or incurred before 2006.

Entries for Part I, Sections A and B. Two methods for computing the creditare defined by the IRS, a regular method (Section A) and an alternativemethod (Section B). The regular method is used until you elect the alternativemethod. Once you elect the alternative method, it must be used for all futuretax years as well unless you receive written consent from the IRS to go backto the regular method. While the computations for Sections A and B arequite different, information required for each section is nearly identical. There-fore, in order to avoid duplicate data entry and make it easy to compare theresults of the two methods, we collect the data for both sections here.CAUTION: The law for this credit is relatively narrow and applies only to thetype of research defined in the IRS instructions. For example, research forcustomization of an existing product, research for internally used software,research in social sciences, surveys, studies, and research into an existingproduct are all disallowed. You should therefore consult the IRS Instructionsfor Form 6765 for detailed 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.

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 will by reduced to 75% ofthe full amount when used in Section A or B of Form 6765, unlessyou make an entry on the next line.

Part to a qualified research consortium. Enter the part of the pre-ceding entry that was used for a qualified research consortium (asdefined in the IRS instructions for line 7 of Form 6765). The amount


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you enter here is subject to a reduction to 65% of your cost, andthe remainder of the preceding entry is subject to a reduction to75% of your cost.

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 line 9 of Form 6765for 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 42 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 computedeither at line 52 of this form or, if a Form 3800 exists for the re-turn, at line 19 of Form 3800. CAUTION: If you are claiming theresearch credit for more than one business, you may have to over-ride line 52 of this form or line 19 of Form 3800 because the limita-tion must be applied separately for each business.

Elections. There are two elections available, each of which has a significanteffect on the results of this form and your responsibilities for data entry.

Electing 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, ifyou 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 following line 16 or 39, a scheduleof the reduced deductions you implemented because of this rule.

Elected section B in the past? The election to use the alternativemethod of computing the credit (Section B – Alternative IncrementalCredit) is a lifetime election. Once you make the election you mustuse the alternative method every tax year thereafter unless you re-ceived consent from the IRS to revoke your election. If you receivedsuch consent and now choose to use Section A, you must answerNo here and attach a copy of the consent to your return.

Electing section B for the first time? If you want to elect the alternativemethod for the first time with this return, answer Yes here. Beforedeciding whether to answer Yes or No, you may want to see the re-sults for each choice by looking at the result on line 41 for each

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choice. However, you should also consider the fact that the electionis generally a 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 forthe computation of the credit in Part I; otherwise Section A is used.CAUTION: If Section A is used, you must enter a percentage for theline “Fixed-base percentage” described previously.

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 15 (or 17through 38) but report only your share on line 16 (or line 39). You are alsorequired to explain how you arrived at your share. To accomplish this withthe software, enter the full amounts on screen 1, note the computed credit atline 16 (or 39) then use the Override Key to access the computed credit atline 16 (or 39) and itemize the line to report your share of the computedcredit. In the description column of the support describe how you computedyour share, which should be a prorated amount based on the ratio of yourshare the qualified research expenses to the total qualified research expenses.The supporting statement will then be printed with the return and cross-referenced above the reduced amount printed for line 16 (or 39). CAUTION:If you must follow this procedure you are not allowed to e-file the return.

PART I, CURRENT YEAR CREDIT. The full credit is computed in this partwithout regard to limitations based on the tax liability limit or the taxable in-come limit.

Section A, Regular Credit. The regular credit is based on a simplified compu-tation in which all research credits are combined and one rate is applied tothe overall eligible expense. This version of the credit is computed unless youelected to use Section B instead (or elected Section B in the past).

1 Basic research payments paid or incurred to qualified organizations.(auto-calc) Automatically zero because this line relates only to cor-porations, not to individuals preparing a Form 1040 return nor part-nerships preparing a Form 1065 return.

2 Qualified organization base period amount. (auto-calc) Automaticallyzero because this line relates only to corporations, not to individualspreparing a Form 1040 return nor partnerships preparing a Form1065 return.

3 Subtract line 2 from line 1. (auto-calc) Computed as indicated but noless than zero.

4 Wages for qualified services. (auto-calc) Taken from your prior entryfor this category if Section A is used; otherwise zero.

5 Cost of supplies. (auto-calc) Taken from your prior entry for this cate-gory if Section A is used; otherwise zero.


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6 Rental or lease costs of computers. (auto-calc) Taken from your priorentry for this category if Section A is used; otherwise zero.

7 Applicable percentage of contract research expenses. (auto-calc) IfSection A is used, computed as 75% of your prior entry for “Con-tract research expenses” (reduced by “Part to qualified consortium”)plus 65% of your prior entry for “Part to qualified consortium.”

8 Total qualified research expenses. (auto-calc) Computed as the sumof lines 4 through 7.

9 Fixed-base percentage. (auto-calc) Taken from your prior entry forthis category if Section A is used; otherwise zero.

10 Average annual gross receipts. (auto-calc) Taken from your priorentry for this category if Section A is used; otherwise zero.

11 Multiply line 10 by the percentage on line 9. (auto-calc) Computed asindicated.

12 Subtract line 11 from line 8. (auto-calc) Computed as indicated, butno less than zero.

13 Multiply line 8 by 50%. (auto-calc) Computed as indicated.14 Smaller of line 12 or line 13. (auto-calc) Computed as indicated.15 Add lines 3 and 14. (auto-calc) Computed as indicated.

SEC 280C. (auto-calc) Answered Yes if you elected the reducedcredit by your prior entry. If Yes, the phrase “SEC 280C” is printedon the dotted line for line 16 to indicate the election to the IRS.

16 REGULAR CREDIT. (auto-calc) Computed as 20% of line 15 if thepreceding answer is No and 13% if the answer is Yes.

If SEC 280C is No, itemize to provide schedule of reduced deduc-tions. (auto-calc) When you claim the full credit (indicated by a Noanswer for “SEC 280C”), you are required to reduce any deductionsfor research expenses on your return (such as Schedule C) by theamount on line 16. The IRS requires you to attach a scheduleshowing in detail where you reduced your deductions, and the totalof those reductions must match the amount on line 16, even if thecredit is later limited at line 52 of this form or line 19 of Form 3800.You must provide the schedule in a supporting statement for thisline so that it is printed with the return and cross-referenced on theofficial printed Form 6765.

Section B, Alternative Incremental Credit. The alternative credit involvesseparate computations for various parts of the credit, and may result in moreor less credit than computed in Section A. This version of the credit is used ifyou elected this alternative on screen 1 (or elected it in any previous year).

17 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.

18 Qualified organization base period amount. (auto-calc) Automati-cally zero because this line relates only to corporations, not to indi-

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viduals preparing a Form 1040 return nor partnerships preparing aForm 1065 return.

19 Subtract line 18 from line 17. (auto-calc) Computed as indicated butno less than zero.

20 Multiply line 19 by 20%. (auto-calc) Computed as indicated.21 Wages for qualified services. (auto-calc) Taken from your prior entry

for this category if Section B is used; otherwise zero.22 Cost of supplies. (auto-calc) Taken from your prior entry for this

category if Section B is used; otherwise zero.23 Rental or lease costs of computers. (auto-calc) Taken from your prior

entry for this category if Section B is used; otherwise zero.24 Applicable percentage of contract research expenses. (auto-calc) If

Section B is used, computed as 75% of your prior entry for “Con-tract research expenses” (reduced by “Part to qualified consortium”)plus 65% of your prior entry for “Part to qualified consortium.”

25 Total qualified research expenses. (auto-calc) Computed as the sumof lines 21 through 24.

26 Average annual gross receipts. (auto-calc) Taken from your priorentry for this category if Section B is used; otherwise zero.

27 Multiply line 26 by 1%. (auto-calc) Computed as indicated.28 Subtract line 27 from line 25. (auto-calc) Computed as indicated, but

no less than zero.29 Multiply line 26 by 1.5%. (auto-calc) Computed as indicated.30 Subtract line 29 from line 25. (auto-calc) Computed as indicated, but

no less than zero.31 Subtract line 30 from line 28. (auto-calc) Computed as indicated.32 Multiply line 26 by 2%. (auto-calc) Computed as indicated.33 Subtract line 32 from line 25. (auto-calc) Computed as indicated, but

no less than zero.34 Subtract line 33 from line 30. (auto-calc) Computed as indicated.35 Multiply line 31 by 2.65%. (auto-calc) Computed as indicated.36 Multiply line 34 by 3.2%. (auto-calc) Computed as indicated.37 Multiply line 33 by 3.75%. (auto-calc) Computed as indicated.38 Add lines 20, 35, 36, and 37. (auto-calc) Computed as indicated.

SEC 280C. (auto-calc) Answered Yes if you elected the reducedcredit by your prior entry. If Yes, the phrase “SEC 280C” is printedon the dotted line for line 39 to indicate the election to the IRS.

39 ALTERNATIVE INCREMENTAL CREDIT. (auto-calc) Computed as line38 if the preceding answer is No and 65% of line 38 if the answeris Yes.

If SEC 280C is No, itemize to provide schedule of reduced deduc-tions. (auto-calc) When you claim the full credit (indicated by a Noanswer for “SEC 280C”), you are required to reduce any deductionsfor research expenses on your return (such as Schedule C) by theamount on line 39. The IRS requires you to attach a scheduleshowing in detail where you reduced your deductions, and the total


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of those reductions must match the amount on line 39, even if thecredit is later limited at line 52 of this form or line 19 of Form 3800.You must provide the schedule in a supporting statement for thisline so that it is printed with the return and cross-referenced on theofficial printed Form 6765.

Section C, Current Year Credit. The full credit is summarized here.Credit from line 16 or 39. (auto-calc) Computed as the sum of lines16 and 39 (one of which will always be zero), this is the credit foryour sole-proprietorship(s) before any limitations are applied.

40 Pass-through research credits from a partnership, S corporation, es-tate, or trust. Enter any Form 6765 credits allocated to you from apass-through entity as shown on Schedule K-1 (Form 1120S) froman S corporation, Schedule K-1 (Form 1065) from a partnership, orSchedule K-1 (Form 1041) from an estate or trust.

Taxable income for the line 40 activity. (For Form 1040 returns only)You must determine how much of the taxable income on line 40 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 either at line 52 of this form or, if a Form 3800exists for the return, at line 19 of Form 3800. CAUTION: If you areclaiming the research credit for more than one business, you mayhave to override line 52 of this form or line 19 of Form 3800 be-cause the limitation must be applied separately for each business.

41 CURRENT YEAR CREDIT. (auto-calc) Computed as the sum of lines16, 39, and 40, this is the credit for before any limitations are ap-plied.


In the Form 1040 software, the amount on line 41 is posted to line 1e ofForm 3800. (In the Form 1065 software, the amount on line 41 is posted tothe credit component of line 15f of Schedule K labeled “6765 Increasing re-search.”)


42 Regular tax before credits. (auto-calc) From Form 1040, line 43.43 Alternative minimum tax. (auto-calc) From Form 6251, line 35.

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44 Add lines 42 and 43. (auto-calc) Computed as indicated.45a Foreign tax credit. (auto-calc) Taken from Form 1040, line 46.45b Credit from Form 1040, lines 47 through 53. (auto-calc) Taken from

Form 1040 as indicated.45c Possessions tax credit (Form 5735, line 17 or 27). (auto-calc) Com-

puted as zero, this line is applicable only to corporate returns, notindividual or partnership returns.





46 Net income tax. (auto-calc) Computed as line 44 less line 45f.47 Net regular tax. (auto-calc) Computed as line 42 less 45f, 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 48.




no less than zero, this is the credit limitation.Taxable income on Form 1040, line 42. (auto-calc) Taken from Form1040 as indicated, this is the taxable income for the entire return.

Taxable income limit reduction to line 16 or 39. (auto-calc) This re-duction in credit is computed in accordance with the formula in theIRS instructions under the assumption that the credits on lines 1through 39 relate to only one sole-proprietorship, for which you en-tered the taxable income for the activity on our line at the bottom ofscreen 1. It is a prorated part of the excess of line 46 over line 48,based on the ratio of taxable income for this activity to taxable in-come for the entire return. CAUTION: If the credits involved on lines1 through 39 relate to more than one business, you must determine


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the taxable income limit (and this reduction) separately for eachbusiness, using the formula in the IRS instructions for line 52. Youmay therefore have to override this line to enter the proper reduc-tion of the overall credit for line 16 or 39.

Taxable income limit reduction to line 40. (auto-calc) This reductionin credit is computed in accordance with the formula in the IRS in-structions under the assumption that the credit on line 40 comesfrom only one pass-through entity, for which you entered your in-terest in the taxable income for entity on our line below line 40. It isa prorated part of the excess of line 46 over line 48, based on theratio of taxable income for this activity to taxable income for the en-tire return. CAUTION: If the credits involved on line 40 relates tomore than one pass-through entity, you must determine the taxableincome limit (and this reduction) separately for each entity, usingthe formula in the IRS instructions for line 52. You may thereforehave to override this line to enter the proper reduction of the overallcredit for line 40.

52 CREDIT ALLOWED FOR CURRENT YEAR. (auto-calc) Computed asthe smaller of line 41 (reduced by the preceding two amounts) orline 51.

Carryover. (auto-calc) Computed as line 41 less line 52, this balancecan be carried back 1 year and then forward up to 20 years.



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Forms 6781

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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 Con-tracts Worksheet, Figure Prem-11.) You must identify all accountsin the worksheets that support this line, showing the gain or loss foreach.

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), thisis the net gain or loss for section 1256 contracts before adjust-ments.

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 be

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removed from the loss used in the current tax year, and file amend-ed returns for the prior years to include the elected carry back.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.

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-11) This work-sheet supports line 1 ofForm 6781, for report-ing gains and losses,but all other details areentered in a separatesupporting statement

for 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 2004,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-11. 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 sup-porting statements for the special lines provided below for Form 4797amounts, and report these amounts in worksheets for line 10 of Form 4797.(There is no automatic link between this form and Form 4797. You must cre-ate 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-12.) 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 Form 4797,line 10. You must separately report here losses that must be reported on Form4797 instead of Schedule D, as detailed in the shaded paragraph above. Youmust also report the loss on a worksheet for line 10 of Form 4797; posting toForm 4797 is not automatic.

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Losses from StraddlesWorksheet. (FigurePrem-12) This work-sheet supports line 10of Form 6781.

a. Description ofproperty. De-scribe theproperty a-long with thedelivery dateand whetherit is a long orshort posi-tion.

CAUTION: We allow the entry of 35 characters here because it isaccommodated by the IRS for an e-filed return. However, the IRSprovides space for only 18 characters on a paper Form 6781, soyou 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 musttherefore 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.

Prior unallowed loss. Make an entry here only for a loss not allowedin the prior year, but only to the extent of the unrecognized gain forthe 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.

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-12. Losses from Straddles


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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.

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-13.) 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 Form 4797,line 10. You must separately report here gains that must be reported on Form4797 instead of Schedule D, as detailed in the shaded paragraph on the pagebefore last. You must also report the gain on a worksheet for line 10 of Form4797; posting to Form 4797 is not automatic.

Gains from StraddlesWorksheet. (FigurePrem-13) This work-sheet supports line 12of Form 6781.

a. Description ofproperty. De-scribe thepropertyalong withthe deliverydate andwhether it isa long orshort 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.

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-13. Gains from Straddles

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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 musttherefore 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-14.) You must generally list all positionsheld at the end of the tax year for which the fair market value(FMV) exceeds your adjusted basis. See IRS instructions for excep-tions.

Itemize here to file additional information. This line is provided foryour use in providing any other memorandum-type information tothe IRS.

Unrecognized GainsWorksheet. (FigurePrem-14) 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.

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-14. Unrecognized Gains


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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.

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).


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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-15.) The number of shelters you prop-erly identify in the supporting worksheets for this line appears here.

Tax Shelter Registration Worksheet, Figure Prem-15. 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 Registra-tion Number (11-digit). The tax shelterregistration number isan 11-digit numberassigned by the IRS.If you have no num-ber, skip this line andsee the questions be-low 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-15. Tax Shelter RegistrationWorksheet


Forms 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, each and very year he or she claims theexemption. (The noncustodial parent who claims the exemption must stillmeet all other requirements for an exemption; only the custody requirement isexcepted 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 and noncustodial parents for this copy of Form 8332.Two 25-character entry lines are provided to fill the 50-characterspace provided on the official form.

Itemize more names here. If the 50-character space on the form is notsufficient, itemize here to supply more names. The supportingstatement will 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.

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Form 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 2004: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?” the address will be takenfrom your preceding entries; if you answered No the address will betaken 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?” 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 willautomatically be printed in the proper columns of the official Form 8332 irre-spective 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 that has alreadybeen identified by taxpayer (that is, you vs. spouse). However, you must al-locate 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. This total must be allocated by category in the re-maining 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 therefor 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 reported onlines 23 through 35 of Form 1040. The software automatically allocates ad-justments that has already been identified by taxpayer (that is, you vs.spouse). However, you must allocate all other adjustments in the sole dataentry line for this section.

IRA deduction (Form 1040, line 25). (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 25, identified as “spouse’s” on the return.

Half of self-employment tax (Form 1040, line 30). (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 30, identified as “spouse’s” on the return.

Self-employed SEP, SIMPLE, etc. (Form 1040, line 32). (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 32, identified as “spouse’s” on the return.

Other adjustments (Form 1040, line 23 through 35). (auto-calc) Takenfrom Form 1040, this is the total on line 35 of Form 1040 less theamounts already allocated, lines 25, 30, and 32.Allocated to 2nd spouse. Enter the part of Form 1040 lines 23, 24,26 through 29, 31, 33 through 34a, and the “write-in” amounts forline 35 attributable to the 2nd spouse.

TOTAL ADJUSTMENTS FOR LINE 8. (auto-calc) Computed as the sum ofthe preceding four totals.

9 through 11, Deductions and Exemptions. You must allocate itemized deduc-tions, if applicable, and exemptions here.

Itemized deductions used. (auto-calc) Automatically Yes if deduc-tions from Schedule A are used in place of the Standard Deductionat line 39 of Form 1040; otherwise, No.

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9 Standard deduction. (auto-calc) Taken from Form 1040, line 39, ifthe answer to the preceding question is No; otherwise, zero.Allocated to 2nd spouse. (auto-calc) Computed as one-half of line 9in accordance with IRS instructions.

10 Itemized deductions. (auto-calc) Taken from Form 1040, line 39, ifthe answer to the preceding question is Yes; otherwise, zero.Allocated to 2nd spouse. You must enter here the part of line 10that is attributable to the 2nd spouse.

11 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 11 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.

12 Credits. You must allocate here the credits included in line 55 of Form1040 and the additional child tax credit on line 67 of Form 1040.

Child tax credit. (auto-calc) Taken from Form 1040, line 51.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 47.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 54.Allocated to 2nd spouse. Enter the part of Form 1040, line 54, at-tributable to businesses of the 2nd spouse.

Other credits in Form 1040, line 55. (auto-calc) Computed as Form1040, line 55, less the totals for lines 47, 51, and 54.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 67.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.

TOTAL CREDITS FOR LINE 12. (auto-calc) Computed as the sum of allpreceding totals for line 12, which is the sum of lines 55 and 67 ofForm 1040.

13 Other taxes. You must allocate here taxes other than the regular incometax.

Self-employment tax. (auto-calc) Taken from Form 1040, line 57.Allocated to 2nd spouse. (auto-calc) This is the part of Form 1040,line 57, identified as “spouse’s” on the return.

Alternative minimum tax. (auto-calc) Taken from Form 1040, line 44.


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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 13. (auto-calc) Computed as the sum of thepreceding total self-employment tax, AMT, and other taxes.

14 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 63. (auto-calc) Taken from the line“Fed withholding not elsewhere” above line 63 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 66.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 14. (auto-calc) Computed as the sumof all preceding withholding totals, which is the sum of lines 63 and66 of Form 1040.

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15 Payments. You must allocate here payments in line 70 of Form 1040 thathave not been allocated in the preceding lines.

Estimated tax payments. (auto-calc) Taken from Form 1040, line 64.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 68, 69, and the special line above line70.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 15 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 / 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 51a 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.

Address of Home. To qualify, the home must be your main home and mustbe located in the jurisdiction of the state or local government that issued theMortgage Credit Certificate. If the address you entered on Form 1040 is astreet address for the same home, you do not need to identify it again here.However, if the address on Form 1040 is a P.O. box or a different locationfrom the home to which the certificate applies, you must enter the street ad-dress for the home below.

Address on Form 1040. (auto-calc lines) The mailing address you en-tered on Form 1040 appears here for reference.

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 first 22characters are accepted by the IRS.)

State. Enter the 2-character state code.ZIP code. Enter the ZIP code in the standard xxxxx-xxxx format.

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.

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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%.

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 en-try on the line “Interest held by others (%).” However, if you item-ized the special line “Explain special calc for line 3,” neither compu-


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tation is used and the result here is taken from your supportingstatement for the special line. The amount of mortgage interest youclaim as an itemized deduction on Schedule A cannot include theamount claimed here. Therefore, the amount on this line is auto-matically posted above line 10 of Schedule A so that the amountyou report on Schedule A, line 10 from box 1 of Form 1098 isautomatically reduced by this amount. However, if you deduct theinterest you paid on Schedule A, line 11 instead of Schedule A, line10, you must enter the amount from line 3 of Form 8396 on theline above line 11 yourself.

4 2001 credit carryforward from line 18 of your Form 2003 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 45. (auto-calc) Computed as indicated,

this is your total tax before credits.9 Total of amounts from Form 1040, lines 46 through 51. (auto-calc)

Computed as indicated, this is the total of credits that must be ap-plied before the credit on Form 8396 can be claimed.

10 Subtract line 9 from line 8. (auto-calc) Computed as indicated, this isthe maximum available credit 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 53 of Form 1040.

PART II, MORTGAGE INTEREST CREDIT CARRYFORWARD TO 2005. If line 11is less than line 7, you may have a carryforward to 2005.

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.

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16 2003 CREDIT CARRYFORWARD TO 2005. (auto-calc) Computed asthe 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 2002 CREDIT CARRYFORWARD TO 2005. (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 2004 CREDIT CARRYFORWARD TO 2005. (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 2005.



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Form 8582-CR / Passive Activity Credit Limitations

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 is used to figure credit limitations for credits that relate topassive activities. Once installed, Form 8582-CR will be accessible throughthe Road Map from the credit forms to which it applies.

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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 the 8586 line for line 54c of Form 1040 and line 1fof Form 3800. (In the Form 1065 software, Form 8586 is accessible throughthe Road Map at a special access line below line 13 of Schedule K.)

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 the approved Form 8609 and Schedule A(Form 8609) must be sent with the return when you claim a credit using lines1 through 4 of Form 8586, e-file is not allowed if there is any entry on lines 1through 4. If you must use lines 1 through 4 then you must file a paper re-turn instead.

PART I, CURRENT YEAR CREDIT. The full credit is computed in this part.(The allowable part is computed in Part II for Form 1040 returns if no Form3800 exists for the return. For partnership Form 1065 returns, Part II is notapplicable because the full credit is passed through to partners.)

1 Number of Forms 8609 attached. If you use lines 1 through 4 youmust attach copies of the associated Form 8609 and a Schedule A(Form 8609) for each building. The Form 8609 you attach must besigned by an authorized housing credit agency official, so you can-not e-file a return for which a copy of Form 8609 must be attached.

Itemize if multi-building projects. If any Form 8609 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 (notline 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 Eligible basis of buildings. Enter the total from line 1 of the Sched-ules A (Form 8609) you attach to the return.

3a Qualified basis of low-income buildings. Enter the total from line 3of the Schedules A (Form 8609) you attach to the return.

3b 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:


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(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 3b 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.

4 Current year credit from attached Schedules A (Form 8609). Enterhere the sum of credit on all Schedules A (Form 8609) you attachto the return. (The credit is figured on these schedules.)

5 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)and box 15 of Schedule K-1 (Form 1065), box 8 of Schedule K-1(Form 1065-B), and line 14 of Schedule K-1 (Form 1041).

Part of line 5 under section 42(j)(5). You must enter here any amounton line 5 that is reported to you by a section 42(j)(5) partnership.The partnership should tell you with the Schedule K-1 (Form 1065)you receive whether it is a section 42(j)(5) partnership. (A partner-ship is generally treated under section 42(j)(5) if it has 35 or morepartners, where a husband and wife who are partners are togethertreated as one partner. However, a partnership that exercised aspecial election within a short period after the enactment of section42(j)(5) late in 1988 is not treated under section 42(j)(5).)

EIN of pass-through entity. Enter the EIN in the standard xx-xxxxxxxformat if only one entity applies. Otherwise leave this line blankand itemize the entities in a supporting statement for line 5.

6 Add lines 4 and 5. (auto-calc) Computed as indicated, this is the totalcredit before passive activity or tax limitations are applied.


Disallowed passive activity credit. (For Form 1040 returns only) Ifany credit is subject to the passive activity credit limitations youmust complete Form 8582-CR to determine the amount to enterhere. Your entry will be forced to zero if Form 3800 exists for thereturn because all limitations must be applied on Form 3800 when itexists.

Part of line 6 under section 42(j)(5). (For Form 1065 returns only;auto-calc) The proper amount is computed as the amount you en-

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tered for “Part of line 5 under section 42(j)(5)” plus, if the partner-ship for this return is a section 42(j)(5) partnership, the full amounton line 6 less the full amount on line 5. (This partnership is identi-fied below line I of Form 1065, page 1, as a section 42(j)(5) part-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).)

7 CURRENT YEAR CREDIT OR PASSIVE ACTIVITY CREDIT. (auto-calc)Computed as line 6 less, for Form 1040 returns, the “Disallowedpassive activity credit.” For a Form 1040 return, you must continueto Part II when this result is nonzero.

In the Form 1040 software, the amount on line 6 is posted to line 1f of Form3800.

In the Form 1065 software, the amount on the line “Part of line 6 under sec-tion 42(j)(5)” is posted to line 15a of Schedule K (Form 1065), and the re-mainder of line 6 is posted to line 15b of Schedule K (Form 1065). If any ofthe credit is attributable to additions to qualified basis property placed inservice before 1990, you must separately identify the amount attributable tothat property, and the amount attributable to property placed in service after1989, in a supporting statement for line 15a or 15b of each partner’s Sched-ule K-1. (You cannot add support for these lines at Schedule K because theseare Road Map lines that access Form 8586.)







Other eligible credits. This line is provided for any other credits notlisted above that can be used to reduce regular tax before the crediton this form. These credits should have been included in line 55 of


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Form 1040, but not all credits on that line can be used here. Youmust itemize any entries in a supporting statement for this line.









The credit on line 18 is posted to the proper part of line 54 of Form 1040


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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 in-structions for details on exclusion of debts to related parties andcontingent debt.



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 ClassVI.

Aggregate FMV. Enter here the fair market value on the date of salefor all intangible assets combined.

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Allocation of sales price. Enter the part of the sales price on line 3that you attribute to intangibles.

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.

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 “2002 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).

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.


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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.


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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 62 Form 1040. (In the Form 1065software, 5 independent copies of Form 8586 are accessible through theRoad Map at two credit recapture lines for line 15f 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. You must thereforehave handy Form 8609 and its Schedule A in order to complete this form.

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-16.)You must complete a separate supporting worksheet for each prioryear for which line 7 of Form 8609 Schedule A was completed.The result on line i of all worksheets combined is posted here.

3 Credits subject to recapture. (auto-calc) Computed as line 1 less line2.

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 2004 would be the 5th year, so 5 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 precedingpercentage expressed in decimal form to 4 decimal places (1 moreplace than the minimum allowed by the IRS). (The IRS erroneouslycalls this a percentage, but it is really a ratio with 1.0 as the maxi-mum.)

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 a

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result of the current reduction in basis. However, the computationof 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-16; 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 from

line 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-16. 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 62, and reflected in the Total Tax for the re-turn at line 62

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 15f. (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 line 15a of Schedule K.

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 line15b of Schedule K.



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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.

3 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 54b 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 2003 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 2003, these amounts should already be correct. Otherwise, youmust enter them all yourself because the computation of Form 8801 dependscritically on these amounts.

2003 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).

2003 Form 6251, line 1. This is the prior-year AGI less itemized de-ductions taken, if any.

2003 Form 6251, line 2. This is the part of prior-year medical and den-tal expense that is treated as a preference.

2003 Form 6251, line 3. This is the total of prior-year deductible taxes.2003 Form 6251, line 4. This is the part of prior-year home mortgageinterest not used to buy, build, or improve your home.

2003 Form 6251, line 5. This is the total of prior-year miscellaneousdeductions.

2003 Form 6251, line 6. This is the amount of itemized deductionsdisallowed in 2003 because of high income, but which are allowedfor the purposes of this form.

2003 Form 6251, line 7. This is the prior-year tax refund reported onthe 2003 Form 1040.


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2003 Form 6251, line 8. This is the prior-year investment interest ex-pense difference between the regular tax and the AMT.

2003 Form 6251, line 9. This is the prior-year depletion difference be-tween the regular tax and the AMT.

2003 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.

2003 Form 6251, line 11. This is the prior-year tax-exempt interestfrom certain private activity bonds.

2003 Form 6251, line 12. This is the prior-year preference from thesale of small business stock.

Other exclusion items. Enter here any 2003 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.

2003 Form 6251, line 34. This is the prior-year regular tax (2003 Form1040, line 41) less any tax from Form 4972 included (2003 Form1040, line 41b) less foreign tax credit (2003 Form 1040, line 44).

2003 Form 6251, line 35. This is AMT on the prior-year return.

Information for 2003 Form 6251, line 29. The following information is requiredfor a taxpayer who was under age 14 in 2003, and is automatically trans-lated from the prior-year Form 6251 as long as the tax year on the return wasretained at 2003. 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 2003 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 2003 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 2003 Form 1040. This is your age on January 1, 2004.Both parents deceased by 2004? Answer Yes if neither parent wasalive on January 1, 2004.

The special limitation applies if your age was under 14 for the 2003 returnand at least one parent was alive.

Information for 2003 Form 6251, Part III. The following information was re-quired on the prior-year Form 6251 when capital gains rates applied to theAMT – that is, when Part III of Form 6251 was required to be used to com-pute the AMT. All entries are automatically translated from the prior-yearForm 6251 as long as the tax year on the return was retained at 2003. If you

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had to adjust any entries for the purposes of the AMT, the refigured amountsare used here rather than the amounts on Schedule D or the Schedule D TaxWorksheet. Note that the Schedule D Tax Worksheet was present in Tax Pre-parer for all calculations involving capital gains, whether or not that work-sheet was required to be used; therefore, all worksheet entries are availablefrom any prior-year return created using Tax Preparer.

2003 Form 1040, line 9b. This is qualified dividends reported on theprior-year return.

2003 Schedule D, minimum of line 16 or 17a. This is the net capitalgain on the prior-year return. If either this or the preceding entry isgreater than zero, Part III of the 2003 Form 6251 was used tocompute the AMT, and Part III of the current-year Form 8801 willbe used as a result.

2003 Schedule D, line 17b. This is the post-May 5 net capital gain for2003.

2003 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 2003.

2003 Schedule D, line 35. This is the qualified 5-year gain for theprior-year return.

2003 Schedule D Tax Worksheet, line 6. Enter zero if you were notrequired to complete the worksheet last year.

2003 Schedule D Tax Worksheet, line 10. Enter zero if you were notrequired to complete the worksheet last year.

2003 Schedule D Tax Worksheet, line 13. If you did not complete theSchedule D Tax Worksheet for 2003, enter line 26 of the 2003Schedule D.

CAUTION: Required for Part III but NOT translated for 2003:2003 Form 1040, line 40. This is the taxable income on the prior-yearreturn, which is NOT automatically translated to this line from theprior-year return. Your entry here is critical when Part III is used tocompute the tax on line 11.

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 2003 Form 6251 lines 1, 6, and 10. (auto-calc) Computed as “2003Form 6251, line 1” less “2003 Form 6251, line 6” plus “2003 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.


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2 Adjustments and preferences treated as exclusion items. (auto-calc)Computed as the sum of 2003 Form 6251 amounts on lines 2, 3,4, 5, 8, 9, 11, 12, and “Other exclusion items” (entered on screen1), less the 2003 Form 6251 amount on line 7.

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) Computed as line 1 plus line 2less line 3.

5 $58,000, $40,250, or $29,000. (auto-calc) Based on the previous entryfor “2003 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 “2003 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 2003 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 2003 earned in-come” plus “Adjustment for special businesses” plus $5,600.


Part III required for line 11 calculation. (auto-calc) Answered Yes ifeither “2003 Form 1040, line 9b” or “2003 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,this tax is computed as .26 times line 10 for amounts up to$175,000 ($87,500 if married filing separately) plus .28 times theamount by which line 10 exceeds that level. But if Part III is usedfor line 11 calculations, the result for line 58 (in Part III of this form)is used 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 2003 Form 6251, line 34. (auto-calc) Taken from the prior entry forthis amount, it is the prior-year regular tax (2003 Form 1040, line41) less any tax from Form 4972 included (2003 Form 1040, line41b) less any foreign tax credit (2003 Form 1040, line 44).

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 2005. 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 2003 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 2003 MINIMUM TAX CREDIT CARRYFORWARD. Enter the amountfrom your 2003 Form 8801, line 26. This is the carryforward to2004 computed on the prior-year Form 8801. CAUTION: This entryis NOT automatically translated from the prior-year return. Your en-try here is required to get any credit for a carryover from the prior-year Form 8801.

2003 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).

2003 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 2003 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.

2004 Form 1040, line 43. (auto-calc) Taken from Form 1040 as indi-cated, this is the regular tax on the return.

2004 Form 1040, lines 46 through 54. (auto-calc) Taken from line 55of Form 1040, this is the total credit claimed for the current year.

Form 8801 amount in the above. (auto-calc) Taken from 54b of Form1040, this is the amount of Form 8801 credit including in the pre-ceding total, which will be recomputed here.


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22 2004 regular income tax liability minus allowable credits. (auto-calc)Computed as “2004 Form 1040, line 43” less “2004 Form 1040,lines 46 through 54” plus “Form 8801 amount in the above.”

23 2004 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 54bof Form 1040.

26 MINIMUM TAX CREDIT CARRYFORWARD TO 2005. (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 2003 Schedule D Tax Worksheet. (auto-calc) Takenfrom the corresponding entry on screen 2 when Part II is required;otherwise, zero.

29 Amount from 2003 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.33 Usually, multiply line 32 by .26. (auto-calc) Computed as .26 times

line 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.

34 $56,800, $28,400, or $38,050. (auto-calc) Based on your previous entryfor “2003 filing status,” computed as $56,800 for filing status 2 or5, $28,400 for 1 or 3, or $38,050 for 4.

35 Line 14 of the 2003 Schedule D Tax Worksheet. (auto-calc) When PartIII is required, computed as “2003 Form 1040, line 40” less “2003

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Schedule D Tax Worksheet, line 13,” which results in line 14 of the2003 Schedule D Tax Worksheet (not used directly because it is notavailable on the prior-year Form 6251 for translation to this form).


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 Line 32 of the 2003 Schedule D Tax Worksheet. (auto-calc) When Part

III is required, computed as the sum of “2003 Schedule D, line 17b”and “2003 Schedule D Tax Worksheet, line 6,” which results in line32 of the 2003 Schedule D Tax Worksheet (or line 20 if line 32 iszero). (Line 32 is not used directly here because it is not availableon the prior-year Form 6251 for translation to this form).

40 Smaller of line 38 or line 39. (auto-calc) Computed as indicated.41 Multiply line 40 by 5% (.05). (auto-calc) Computed as indicated.42 Subtract line 40 from line 38. (auto-calc) Computed as indicated, but

no less than zero.43 2003 Schedule D, line 35. (auto-calc) Taken from the corresponding

entry on screen 2 when Part II is required; otherwise, zero.44 Smaller of line 42 or line 43. (auto-calc) Computed as indicated.45 Multiply line 44 by 8% (.08). (auto-calc) Computed as indicated.46 Subtract line 44 from line 42. (auto-calc) Computed as indicated.47 Multiply line 46 by 10% (.10). (auto-calc) Computed as indicated.48 Subtract line 40 from line 39. (auto-calc) Computed as indicated.49 Subtract line 38 from line 37. (auto-calc) Computed as indicated.50 Smaller of line 48 or line 49. (auto-calc) Computed as indicated.51 Multiply line 50 by 15% (.15). (auto-calc) Computed as indicated.52 Subtract line 50 from line 49. (auto-calc) Computed as indicated.53 Multiply line 52 by 20% (.20). (auto-calc) Computed as indicated.54 Subtract line 37 from line 31. (auto-calc) Computed as indicated.55 Multiply line 54 by 25% (.25). (auto-calc) Computed as indicated.56 Add lines 33, 41, 45, 47, 51, 53, and 55. (auto-calc) As indicated.57 Usually, multiply line 56 by .26. (auto-calc) Computed as .26 times

line 56 for amounts up to $175,000 ($87,500 if married filing sepa-rately) plus .28 times the amount by which line 56 exceeds that level.

58 Smaller of line 56 or line 57. (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-17.) 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 2004. (auto-calc)Taken from the supporting worksheets for line 1.

3 Nontaxable educational benefits received for 2004. (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 2004. Enter total proceeds including both in-terest and principal.

Face value of post-1989 series EE bonds cashed in 2004. 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 2004. 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 Line 6 Worksheet as half of the series EE face value plus allof 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 2004. 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-17) 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 the

bond 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 2004. Enter the tuition and fees paid or con-tributions to the ESA or QTP.

Nontaxable benefits received in 2004. 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 2004.”

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 2004 Qlfd expenses paid in 2004 Qlfd expenses paid in 2004 Qlfd expenses paid in 2004 Nontaxable benis rcvd 2004 0 Nontaxable benis rcvd 2004 0 Nontaxable benis rcvd 2004 0 Nontaxable benis rcvd 2004 0 Person counted....... Person counted....... Person counted....... Person counted.......▒ Yes▒ Yes▒ Yes▒ Yes

Figure Prem-17. 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.

9 Modified adjusted gross income. (auto-calc) As shown on-screen inthe lines above line 9, modified AGI is computed using IRS Pub.550 rather than the abbreviated (and less accurate) Line 9 Work-sheet in the IRS Form 8815 Instructions, based on amounts onSchedule B and our expanded Form 1040. See IRS Pub. 550 for de-tails. You are allowed no exclusion if the amount on this line is$119,750 or more ($74,850 or more if single or head of house-hold).

10 $59,850 if single or head of household, $89,750 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.

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

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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

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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.

19 REALIZED GAIN OR LOSS. (auto-calc) Computed as line 17 less line18.

20 Smaller of line 15 or line 19. (auto-calc) Computed as indicated, butno less than zero.

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 youidentified 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.

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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.)

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, YOU


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must 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

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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 line62 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-calc) 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.

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. If you owned the home with someone else, besure to enter only you share here and throughout this form.

10 Expenses of sale. Include sales commissions, advertising , legal fees,etc. (If owned with someone else, enter only the part allocable toyour share of the home.)

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 (only your share if owned with someone else).

Purchase commissions, fees, etc. Enter expenses of the purchasethat increased your cost of the property (only your share if ownedwith someone else).

Improvements. Enter improvements made to sell the home (only yourshare if owned with someone else).


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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.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 37. (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 37” 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 original

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loan. The table shows your “adjusted qualifying income” based onyour family size and the number of years and months shown in line7 of this form.

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, line62.



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$4,000 or 10% of the cost of the vehicle (after reduction for any section 179deduction claimed for it). In the Form 1040 software, Form 8834 is accessi-ble through the Road Map at the 8834 line for line 54c of Form 1040. (In theForm 1065 software, Form 8834 is accessible through the Road Map at thecredit line for line 15f of Schedule K labeled “8834 Qlf. Electric vehicle.”)

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.)

Full credit extended through December 31, 2005. The credit was formerlyslated to drop from 10% of the basis for 2003 to 7.5% of the basis for 2004and 5.0% for 2005, with the maximum credit dropping from $4,000 for2003 to $3,000 for 2004 and $2,000 for 2005. However, the full 10%credit (with a $4,000 maximum) was retroactively reinstated in October,2004 by the Working Families Tax Relief Act of 2004.

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-18.) The credit is computed on the sup-porting worksheets at a rate of 10% of the basis after section 179deductions, subject to a maximum credit per vehicle of $4,000.

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 Form8834 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.

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Schedule K-1 (Form 1120S), lines 12d through 13. If you are a share-holder in an S corporation, the credits passed on to you are reportedto you on a Schedule K-1 (Form 1120S). You should enter here thepart of lines 12d through 13 of the schedule that stems from theQualified Electric Vehicle Credit.

Schedule K-1 (Form 1065), lines 12c through 13. If you are a partner,the credits passed on to you are reported to you on a Schedule K-1(Form 1065). You should enter here the part of lines 12c through13 of the schedule 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 to determine the amount you can claim thisyear. Enter on this line the full amount of credit before passive ac-tivity limitations. (This line is not applicable to partnerships, so theentry is automatically zero for the Form 1065 software.)

12 Subtract line 11 from line 10. (auto-calc) Computed as indicated.13 Passive activity credits allowed for 2004. 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-18)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 10% (.10). (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 $4,000 for alltax years before 2006.

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 41.16 Credits that reduce regular tax before the qualified electric vehicle

credit:16a Foreign tax credit. (auto-calc) Taken from Form 1040, line 46.16b Credit from Form 1040, lines 47 through 53. (auto-calc) Takenfrom 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 line 4 by 10%(.10) 5 Multiply line 4 by 10%(.10) 5 Multiply line 4 by 10%(.10) 5 Multiply line 4 by 10%(.10)▒ 0▒ 0▒ 0▒ 0 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-18. Electric Vehicle Worksheet

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16c Possessions tax credit (Form 5735, line 17 or 27). (auto-calc)Computed as zero, this line is applicable only to corporate returns,not individual or partnership returns.

16d Credit for fuel from nonconventional source. (auto-calc) Takenfrom the special FNS line at line 54c of Form 1040.


16e Add lines 16a through 16d (auto-calc) Computed as indicatedplus the above extra credit, this is total credit the credit for thisform.

17 Net regular tax. (auto-calc) Computed as line 15 less 16e, 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 2004 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 54c 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 $10,390 per adopted child, or the full $10,390 ir-respective of expenses for a child with special needs. Form 8839 is accessi-ble through the Road Map at line 52 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-19.) 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-19) 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-19.)

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 notknow the full name of the child before you file the return, enter“See page 2” and, after you exit the worksheets, supply the nameand address of the adopting agent or agency on the entry lines be-low 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 codedinto a 4-character name control, usually the first four characters ofthe last name. This result is used only in the e-file output for a re-turn.

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.

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-1987 & disabled.. c. Born pre-1987 & disabled.. c. Born pre-1987 & disabled.. c. Born pre-1987 & 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 2004? No Lived w/you over half 2004? No Lived w/you over half 2004? No Lived w/you over half 2004? 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-19. Adoption Expense (Screen 1)

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c. Born before 1987 and was disabled? (auto-calc) Answered Yes onlyif the preceding answer is Yes and your entry for line b precedes1987 (if preparing the return for tax year 2004).

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 2004? 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

1987 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-20.)

Qualified expense paid in 2002. Enter the amount paid in 2002. Donot include any amount covered by an employer-provided benefit orreimbursed by any other person and organization. (An entry is re-


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quired here only if the child is a foreign child and the adoption wasfinal in 2004. This line was inadvertently omitted from releases priorto 2005.01b, so it is placed here instead of in the foreign child sec-tion, below, to ensure compatibility with data created by releasesprior to 2005.01b.)

Qualified expense paid in 2003. Enter the amount paid in 2003. Donot include any amount covered by an employer-provided benefit orreimbursed by any other person and organization.

Qualified expense paid in 2004. Enter the amount paid in 2004. 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 2004. Enter quali-fied amount received for this child. The total you received for theyear should be shown in box 12 of your 2004 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-20.)

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-

ADOPTION EXPENSE(Scr 2of4)ADOPTION EXPENSE(Scr 2of4)ADOPTION EXPENSE(Scr 2of4)ADOPTION EXPENSE(Scr 2of4) Qlfd. expense pd. in 2002. 0 Qlfd. expense pd. in 2002. 0 Qlfd. expense pd. in 2002. 0 Qlfd. expense pd. in 2002. 0 Qlfd. expense pd. in 2003. 0 Qlfd. expense pd. in 2003. 0 Qlfd. expense pd. in 2003. 0 Qlfd. expense pd. in 2003. 0 Qlfd. expense pd. in 2004. 0 Qlfd. expense pd. in 2004. 0 Qlfd. expense pd. in 2004. 0 Qlfd. expense pd. in 2004. 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 2004 0 Employer beni rcvd in 2004 0 Employer beni rcvd in 2004 0 Employer beni rcvd in 2004 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 2002 & 2003. 0 Employer beni 2002 & 2003. 0 Employer beni 2002 & 2003. 0 Employer beni 2002 & 2003. 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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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.

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 and 2003.Enter qualified amount received for this child for tax years 2002 and2003 alone. The total you received each year should be shown inbox 12 of your 2002 and 2003 Form W-2 with the code T, but youmust allocate that total among all worksheets if more than one childis 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-20.)

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” plus “Qualified. expense paid in 2003” plus “Qualified.expense paid in 2004” plus “Additional qualified expense forline 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 the sum of “Qualified.expense paid in 2003.”

(4) If the child is not a foreign child and the adoption was final in aprior tax year, computed as “Qualified. expense paid in 2003.”


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(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 2003” plus“Qualified. expense paid in 2004.”

(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 (indicatedby line d), computed $10,390 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 2004” plus“Additional employer-provided benefit for line 22” plus “Employer-provided benefits received in 2003.” Otherwise, computed as “Em-ployer-provided benefits received in 2004” 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-21.)

2 Maximum exclusion per child. (auto-calc) If the child was counted aseligible on screen 1, the maximum exclusion for tax year 2004,$10,390, 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 $10,390 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 $10,390.

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.

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..▒ 10,390.▒ 10,390.▒ 10,390.▒ 10,390. 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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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.

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-22.)

19 Maximum ex-clusion perchild. (auto-calc) If thechild wascounted aseligible onscreen 1, themaximum ex-clusion for taxyear 2004,$10,390, ap-pears hereautomatically.

Amount allo-cated to an-other. If youand anotherperson (otherthan a spouse who files jointly with you) adopt the child, you canboth claim the exclusion but must allocate the $10,390 maximumamong the two of you. Enter here that part of the maximum that isused to the other person on his or her tax return.

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: 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 2004) & adoption final in 2004) & adoption final in 2004) & adoption final in 2004)



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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 $10,390. (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 asnoted 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 $10,390 then it ap-pears here and is printed on the official printout of Form 8839above the preprinted maximum of $10,390.)

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:

2003 Form 8839, lines 20 plus line 24. Enter as indicated if 2003 wasthe most recent tax year for which you received benefits for thischild.






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.)


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22 Employer-provided adoption benefits you received in 2004. (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.

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 37. (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 35 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 hous-ing exclusion via Form 2555 or 2555-EZ. This amount appears as anegative number on Form 1040 (because it is a deduction from in-come), but appears here as a positive number (because it is beingadded back to income for purposes of the modified 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 26.

Tuition and fees deduction. (auto-calc) Taken from Form 1040, line 27.Worksheet totals for line 23. (auto-calc) Taken as the total shown on

the 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 the sum of thepreceding three amounts less the “Adoption benefits in Form 1040,line 7.”

Carryforward from past years. If you have unused carryforwards from prioryears, you can include here any carryforwards from 1998 or later. The infor-mation for this section is found on the “Credit Carryforward Worksheet” forcarryforward to 2004, which you should have completed after preparing yourForm 8839 for tax year 2003. Even if you are ineligible this year for credit


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based on new expenses because of a high AGI for 2004, you may still qualifyfor the carryforward.

Complete these lines from 2003 Credit Carryforward Worksheet:Worksheet line 12 (carryforward from 1999). This is the earliest carry-forward you can claim on a return for tax year 2004. Any unusedcarryforward from prior years is lost forever.

Worksheet line 14 (carryforward from 2000). Enter as indicated.Worksheet line 16 (carryforward from 2001). Enter as indicated.Worksheet line 18 (carryforward from 2002). Enter as indicated.Worksheet line 20 (carryforward from 2003). Enter as indicated.

TOTAL carryforward to 2004 (worksheet line 23). (auto-calc) Computedas the sum of the preceding five lines.

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.

9 If line 8 more than $155,860? (auto-calc) Answered as indicated.If Yes, subtract from line 8. (auto-calc) Computed as line 8 less$155,860, 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 (worksheet line 23)” shown on screen 2, based onyour entries from the 2003 Credit Carryforward Worksheet. .

14 Add lines 12 and 13. (auto-calc) Computed as indicated.15 Amount on Form 1040, line 45. (auto-calc) Taken from Form 1040 as

indicated, this is your tax liability before credits.Form 1040, lines 46 through 51. (auto-calc) Computed as the sum oflines 46 through 51 of Form 1040, as indicated, this is the sum ofcredits deducted on Form 1040 before the Adoption Credit.

Plus Form 8396, line 11. (auto-calc) Taken from Form 8396, as indi-cated, this is the Mortgage Interest Credit for Form 1040, line 53a.Even though it appears on Form 1040 after the Adoption Credit, it

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is subject to a special calculation that gives it precedence over theAdoption Credit.

16 1040 filers: Total of amounts from Form 1040. (auto-calc) Computedas the sum of the preceding two lines.

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 52 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). Note that amounts for lines 19through 22 and line 24 are not shown here because they apply individually toeach child, and therefore are seen only on the worksheets for line 1 and theofficial printouts 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 worksheet for line 26 on page 5 of the 2004 Instructionsfor Form 8839.

27 If line 26 more than $155,860? (auto-calc) Answered as indicated.If Yes, subtract from line 26. (auto-calc) Computed as line 26 less$155,860, 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 aflag on the official printout of Form 1040 to indicate that the reduc-tion stems from a child with Special Needs.

Pre-2004 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 2004(subject to limitations computed on the worksheet) appear here. The


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amount 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 2005 and variousamounts that will be needed for the Credit Carryforward Worksheet to beused next year for computing any carryforward to tax year 2006. The work-sheet is fully automatic based on prior entries.

1 Amount from Form 8839, line 12. (auto-calc) Computed as indicated.2 1999 credit carryforward (line 12 of your 2003 worksheet). (auto-calc)

Taken from your entry on screen 2 for this line.3 2000 credit carryforward (line 14 of your 2003 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 2000 credit carryforward to 2005. (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.

14 2001 credit carryforward to 2005. (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.


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20 2004 credit carryforward to 2005. (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 2005. (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 2005 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 atthe 8846 line for line 54c of Form 1040 and line 1k of Form 3800. (In theForm 1065 software, Form 8846 is accessible through the Road Map at thecredit 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.

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), theportion of those tips used to reach the minimum wage is not eligiblefor the credit. You must determine the amount of ineligible tipsseparately for each individual as the amount by which the totalhours worked times the minimum wage rate exceeds the actualwages paid (excluding tips), but no more than the amount of tipsreceived by the employee.

3 Creditable tips. (auto-calc) Computed as line 1 less line 2.Part subject only to Medicare tax. If the sum of wages and tips forany employee exceeds the maximum amount subject to social secu-rity tax ($87,900 for tax year 2004), you must figure for each suchemployee the amount of tips that make the total of wages plus tipsexceed this maximum. Enter in a supporting statement for this linethis excess for each employee in the amount column and show howyou figured the amount in the text column. If you make an entryhere, a check box is checked on the official printout and the calcula-tion at line 4 is modified.

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, if

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you 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.



In the Form 1040 software, the amount on line 6 is posted to line 1k 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.”)

PART II, ALLOWABLE CREDIT. The credit allowed for the current year is lim-ited by your tax liability for the year. It may be applied to the first $25,000 ofadjusted tax liability plus 75% of the excess above $25,000. This part will beblank if a Form 3800 exists, and a similar section on Form 3800 will be usedto determine the limitation instead. (Part II is not applicable to partnership re-turns because the full credit on line 6 is passed through to partners.)








11 Net income tax. (auto-calc) Computed as line 9 less line 10f.


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12 Net regular tax. (auto-calc) Computed as line 7 less 10f, but no lessthan zero.

Does spouse have credit too? Used only if married filing separately,your proper answer ensures the proper limitations at line 13.








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Form 8853 / Archer MSAs and Long-Term Care InsuranceContracts

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 MSA line above line 35of Form 1040, and the MSA and MedMSA lines above line 62 of Form 1040.

Beware complexities. So many aspects of the form defy intuition, especiallyfor joint returns where both spouses have MSAs or LTCs, that you may betempted to use overrides on illogical results. If you experience such a tempta-tion, it is very important that you read these instructions and the 8-page IRSinstructions for this form, because our calculations and printouts may bemuch more sophisticated than you realize. Unexpected results can arise whenboth spouses have MSAs, or a taxpayer inherits an MSA, or there is only apartial exception to the 50% penalty, or there is more than one LTC policy-holder. (The difficulties arise because the form is physically designed to han-dle only the simple cases, but it is used for much more through convolutedIRS 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. CAUTION: Because your age is saved in the software to just2 decimal places, this number is precise only to 1/100th of a year(3.65 days). Therefore, if your 65th birthday was in 2004 and yourbirth date falls near the 1st of the month, you may need to adjustyour entry on Form 1040 up or down by .01 to give the correct re-sult for the next line.

Number of months contributions NOT allowed. (auto-calc) You (andemployer) are not allowed to make contributions if you can beclaimed as a dependent on someone else’s return or you are eligiblefor Medicare. Therefore, the result here will always be 12 if you area dependent of another. With respect to Medicare, eligibility is de-termined on the 1st of each month, which the software determinesbased on your age on Form 1040. The result here is therefore 0 ifyou are age 65.08 or less at yearend, 12 if age 66 or more at year-end, and an integer between 1 and 11 otherwise. This result is usedto proportionately reduce the limitation for line 5 (in accordance


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with the IRS Line 5 Worksheet), as the number rises from 0 to 12.CAUTION: If you first established the HDHP after January 1, 2004,you will have to override this line to reflect the months in which theplan was not in effect (as of the 1st of the month). For example, ifthe plan was established February 15, 2004, you should enter 2here because it was not in effect on January 1 or February 1.

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, the deducti-ble is $3,450 to $5,150 for family coverage and $1,700 to $2,600for self-only coverage. The software ensures that your entry lies inthis 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 2004. Enter only the contributionsyou made to your Archer MSA, including those made for 2004 inthe period January 1, 2005 through April 15, 2005, 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 2004. 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 2004. Enter the total distribu-tions received. This amount should be reported to you in box 1 of aForm 1099-MSA. This amount will be used in line 8a of Section A,Part III of Form 8853. CAUTION: If this amount includes anyamount rolled over into another Archer MSA or includes a timelywithdrawal of a prior excess contribution, be sure to include thatamount in your entry for Form 8853, Sec. A, Part III, line 8b so thatyou will not be taxed on it.

Amount received after died, or disabled, or over 65. Any amountsdistributed after you died, became disabled, or turned 65 are notsubject to a 15% additional tax for not being used for qualified


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medical expenses. If you were 66 by year-end, this entry is auto-matically the same as the preceding entry. Otherwise you can enterany 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 com-prised solely of questions, is automatically completed based on your entrieson the preceding screens. Note that answers in line 2 can be Yes only if mar-ried 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 2004.”

4 Contributions you made for 2004. (auto-calc) Taken from your entryfor “Your Archer MSA contributions for 2004.” 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.

7 Archer MSA deduction. (auto-calc) Normally computed as the smallestof line 4, 5, or 6, the result will nevertheless be zero whenever

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there 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 2004. (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 special MSA line above line 35 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 59.

♦ 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 her, “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 2004 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 62 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 2004. 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 af-ter you died or became disabled are not subject to a 50% additionaltax for not being used for qualified medical expenses. You can enterany amount up to the preceding entry. This amount is taken intoaccount 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 2004 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.

13 Unreimbursed qualified medical expenses. (auto-calc) Computed asthe sum of the preceding two amounts.

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, 2003. 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, 2004. 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 2004 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 62 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-23.) 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-23.) 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-23.) 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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Long-Term Care Work-sheet. (Figure Prem-23)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. Enterin the standard xxx-xx-xxxx format.

17 In 2004, did anyone other than you receive payments? Answer Yesonly 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 $220 by the number of days in the LTC period.. (auto-calc)Computed as 220 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�03,anyone else rcvd pmts? No 17 In�03,anyone else rcvd pmts? No 17 In�03,anyone else rcvd pmts? No 17 In�03,anyone else 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 220 by days in per 23 Multiply 220 by days in per 23 Multiply 220 by days in per 23 Multiply 220 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-23. Long-Term Care Worksheet

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Form 8853

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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.



Form 8859

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Form 8859 / District of Columbia First-Time HomebuyerCredit

Purpose. This form is used to claim a credit for purchasing a home in Wash-ington D.C. You can only claim the credit for the first home you ever buy inWashington D.C. The credit is generally $5,000 ($2,500 if married filingseparately), but is phased out for income above $70,000 ($110,000 if mar-ried filing jointly) and is zero for income above $90,000 ($130,000 if marriedfiling jointly). Form 8859 is accessible through the Road Map at line 53b ofForm 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 2003.

A Address of home qualifying for the credit (if different from Form1040). Because this form must be filed with Form 1040, you do nothave to make an entry unless the mailing address on Form 1040 dif-fers from the address of the property for which the credit isclaimed.

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 2003 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 37. (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.

Foreign earned income excluded. (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, line35. (These amounts are determined on Forms 2555 and 2555-EZ.)

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2 Modified adjusted gross income. (auto-calc) Computed as AGI plusthe preceding two excluded amounts (added back to income for thepurposes of this form).

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 2003. 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 2003 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 45. (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 51, as possible to line 67 (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 46 through 52, plus the credit onForm 8396, line 11. (auto-calc) Computed as indicated after modify-ing the credit of Form 1040, line 49, when necessary, to maximumoverall 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 2005. (auto-calc) Computed as line 6or 7 (depending on whether you used Part II or Part III) less line 11.

The result on line 11 is posted to line 53b of Form 1040.


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 the 8861 line for line 54c of Form 1040and line 1c of Form 3800. (In the Form 1065 software, Form 8861 is acces-sible through the Road Map at the credit line for line 15f of Schedule K la-beled “8861 Welfare-to-work.”)

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, 2005. The credit formerly applied only towages paid or incurred before 2005. However, the credit was retroactivelyreinstated in October, 2004 by the Working Families Tax Relief Act of 2004.As a result, it now applies to wages paid or incurred before 2006.

PART I, CURRENT YEAR CREDIT. The full credit is computed in this partbased on qualifying 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 in2004 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(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.

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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 pass-through entities. Enter any Wel-fare-to-Work Credit from a pass-through entity (S corporation, part-nership, estate, trust, or cooperative) identified as code G, H, or Kin box 13 of Schedule K-1 (Form 1120S) or box 15 of Schedule K-1(Form 1065), or line 14 of Schedule K-1 (Form 1041), or a writtenstatement from a cooperative.



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.”)

PART II, ALLOWABLE CREDIT. The credit allowed for the current year is lim-ited by your tax liability for the year. It may be applied to the first $25,000 ofadjusted tax liability plus 75% of the excess above $25,000. This part will beblank if a Form 3800 exists, and a similar section on Form 3800 will be usedto determine the limitation instead. (Part II is not applicable to partnership re-turns because the full credit on line 4 is passed through to partners.)





Form 8861

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8f Add lines 8a through 8e (auto-calc) Computed as indicated plus theabove extra credit, this is total credit the credit for this form.










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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.


Form 8862

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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 2004 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 184 for 2004 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 184or more, and, if married filing jointly, your answer for line 5 is 184or more. (Note that the minimum requirement is 183, not 184, formost years, but 2004 was a leap year.)

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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 184 for2004 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 184 (for2004) 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-24) 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-25) 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.


Form 8862

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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 184 for2004 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 184 (for2004) 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-24) 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-25) You must identify all other applicable persons in thesupporting worksheets unless you answered “Yes” to the precedingquestion.

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Address Worksheet, Figure Prem-24. 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-25. 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 2005 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-24. 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-25. Other Person Worksheet


Form 8885

Prem-201

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. CAUTION: If you re-ceived advance payments (as reported to you in Form 1099-H, box1) for any month that you made no payment yourself, enter thatadvance payment here so that the month will be checked on the of-ficial Form 8885 that you file.

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.

NOTE: You must attach invoices and proof of payment for the followingamount from the IRS Invoice and Proof of Payment Worksheet.

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Form 8885

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(auto-calc) Computed as line 2 less 1.5385 times the amount en-tered for Form 1099-H, box 1, this is the amount you must justifywith invoices and proof of payment.

MSA 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 in2004. 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 two amounts.

4 Subtract line 3 from line 2. (auto-calc) Computed as indicated.5 Multiply line 4 by 65%. (auto-calc) Computed as indicated.6 Advance payments from Form 1099-H, box 1. (auto-calc) Taken from

your entry above line 2, above.7 HEALTH COVERAGE TAX CREDIT. (auto-calc) Computed as line 5

less line 6, but no less than zero, this is the credit that is posted toline 69c of Form 1040.

Is this insurance for Form 1040, line 31? If you are claiming insur-ance payments reported here as a self-employed health insurancepayments for line 31 of Form 1040, the amount considered for thatline must be reduced by any credit you claim here.

Exclusion for Form 1040, line 31. (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 31 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.


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


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 3501

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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 3504 / Long-Term Care Credit

Purpose. This form is used by taxpayers to claim up to $500 of credit perqualifying individual for whom you provide care. Form 3504 is accessiblethrough the Road Map from line 4 of Schedule P, page 2, which is the line forcredit 214 in Section A1 of Part III.

Qualifications. Each individual for whom you claim a $500 credit must beone of the following:♦ the taxpayer,♦ the taxpayer’s spouse,♦ a person qualified as a dependent of the taxpayer, or♦ a person who would be qualified as a dependent of the taxpayer except

for the gross income limitation or support test for dependents.Furthermore, you must have written certification from a licensed physicianthat the individual has long-term needs that will last at least 180 consecutivedays, some of which is in the tax year. (The certification must occur beforeApril 15, 2005 for a claim for tax year 2004.)

PART I, PERSONS WITH LONG-TERM CARE NEEDS. The persons for whomyou provided care are identified here.

Number of persons counted. (Supported by the Long-Term Care Work-sheet, Figure Prem-26.) The number of persons you properly iden-tify in the supporting worksheets for this line appears here.

Long-term Care Worksheet, Figure Prem-26. You must provide ALL of the in-formation requested or elsethe person will not becounted.

First name. Enter in 10characters or less.

Middle initial. Enter 1-character initial.

Last name. Enter in 15characters or less.

SSN. You MUST identifythe person for whomyou care by that per-son’s social securitynumber.

Certifying physician’s medical license number. You MUST identify bylicense number the physician who certified before April 15, 2005that this individual requires long-term care.

Person counted. (auto-calc) Answered Yes ONLY if you supply the pre-ceding two identifying numbers. No credit is computed on the basisof this person if the answer is No.

LONG-TERM CARE WORKSHEETLONG-TERM CARE WORKSHEETLONG-TERM CARE WORKSHEETLONG-TERM CARE WORKSHEET Use one worksheet for each Use one worksheet for each Use one worksheet for each Use one worksheet for each person w/ long-term care needs person w/ long-term care needs person w/ long-term care needs person w/ long-term care needs First Name ............... First Name ............... First Name ............... First Name ............... Middle initial ........... Middle initial ........... Middle initial ........... Middle initial ........... Last Name ................ Last Name ................ Last Name ................ Last Name ................ SSN ...................... SSN ...................... SSN ...................... SSN ...................... Certifying physician�s no. Certifying physician�s no. Certifying physician�s no. Certifying physician�s no. Use medical license number for Use medical license number for Use medical license number for Use medical license number for above physician identification above physician identification above physician identification above physician identification Person counted ........... No Person counted ........... No Person counted ........... No Person counted ........... No

Figure Prem-26. Long-Term Care Worksheet

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PART II, CREDIT COMPUTATION. The credit is computed here at the rate of$500 per person for whom you provided care.

AGI on Form 540, line 17. (auto-calc) Taken from Form 540 as indi-cated.

Qualify for credit? (auto-calc) Computed as Yes ONLY if at least oneperson with long-term needs is counted in Part I and the precedingAGI is less than $100,000.

1 Caregiver’s AGI from Form 540, line 17. (auto-calc) Normally com-puted as indicated, but zero if not qualified for the credit.

2 Allowable credit for each applicable individual. (auto-calc) Alwayscomputed as $500.

3 Number of individuals from Part I. (auto-calc) Taken as the “Numberof persons counted” in Part I.

4 Multiply the number on line 3 by the amount on line 2. (auto-calc)Computed as indicated, the credit is $500 per person counted.

The result on line 4 is posted to line 4 of Schedule P, Part III. The actualcredit available this year is limited to the amount by tax on Form 540, line24, less the tentative minimum tax on Schedule P, Part II, line 24, and isshown below line 4 of Schedule P, Part III, as “Credit used this year.”



Prem-207

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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Prem-208

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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Prem-212

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 3535 / Manufacturer’s Investment Credit


Purpose. The manufacturer’s investment credit expired at the end of 2003,so the current Form 3535 is used only to report a carryover of the credit fromprior years. When available, Form 3535 will be accessible through the RoadMap through the last line of Form 3540 – the line for credit 199. The creditthen flows through to Schedule P, page 2, at the line for credit 199 in Sec-tion B2 of Part III.

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Form 3548 / Disabled Access Credit


Purpose. This form, which is 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.

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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.


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.

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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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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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Prem-220

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.


California Form 5870A

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Form 5870A / Tax on Accumulation Distribution of Trusts


Purpose. This form, which is analagous 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.

Documents

Premium Level Supplement 2005 - HowardSoft · Form 8396 / Mortgage Interest Credit _____113 Form 8582-CR / Passive Activity Credit Limitations _____117 Form 8586 / Low-Income Housing

Premium Level Supplement 2005 - HowardSoft · Form 8396 / Mortgage Interest Credit _113 Form 8582-CR / Passive Activity Credit Limitations _117 Form 8586 / Low-Income Housing