EO - Determination of Tax Liability

Examiners may rely on the following resources to help determine income taxes:

GCM 39813.

1990 CPE Text, Topic B, The Synanon Case.

CCH U.S. Master Tax Guide.

IRM Chapters 4.10, 4.11 and 4.12.

Income tax training textbooks.

Training Pub 11361–002, LMSB Corporate Taxation Participant Guide (Catalog 50286Q).

Consult with fellow examiners with strong income tax background.

Lexis-Nexis® and Westlaw®.

SB/SE or LB&I websites. See SB/SE’s Issues and Procedures website.

Form 990 to Form 1120 Conversion Table

Contributions, gifts, grants, and other receipts

Form 990 Description

Form 1120 Description

Direct public support

Non-taxable or Gross Receipts or Sales 1 & 2

Indirect public support

Non-taxable or Gross Receipts or Sales

Government contributions

Gross Receipts or Sales 3

Program service revenue including government fees and contracts

Gross Receipts or Sales

Membership dues and assessments

Gross Receipts or Sales 4

Interest on savings and temporary cash investments

Interest

Dividends and interest from securities

Dividends

Gross rents

Gross Rents 5

Less: rental expenses

Other Deductions 5

Other investment income

Other Income

Gross amount from sales of assets other than inventory

Capital Gain Income (net with Cost)

Less: cost or other basis and sales expenses

Capital Gain Income (net with Cost)

Net gain or (loss)

Capital Gain Income

Gross revenue from special events and activities

Gross Receipts or Sales

Cost of goods sold from special events and activities

Cost of Goods Sold

Gross sales of inventory, less returns and allowances

Gross Receipts or Sales

Less: cost of goods sold

Cost of Goods Sold

Other Revenue

Other Income

Expenses 6, 7 & 8

Form 990 Description

Form 1120 Description

Grants and allocations

Charitable Contributions, if qualified

Specific assistance to individuals

Other Deductions, if qualified

Benefits paid to or for members

Other Deductions, if qualified 4

Compensation of officers, directors, etc.

Compensation of Officers

Other salaries and wages

Salaries and Wages

Pension plan contributions

Pension, profit-sharing, etc., plans

Other employee benefits

Employee benefits programs

Payroll taxes

Taxes and Licenses

Professional fund-raising fees

Other Deductions, if qualified

Accounting fees

Other Deductions

Legal fees

Other Deductions

Supplies

Other Deductions

Telephone

Other Deductions

Postage and shipping

Other Deductions

Occupancy

Rents

Equipment rental and maintenance

Repairs and Maintenance

Printing and publications

Other Deductions

Travel

Other Deductions

Conferences, conventions, and meetings

Other Deductions

Interest

Interest

Depreciation, depletion, etc.

Depreciation or Depletion, if qualified

Other expenses

Other Deductions

1

IRC 61, Gross Income Defined. As a general rule, all income is taxable unless proven otherwise.

2

IRC 102, Gift and Inheritances. As a general rule, gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. *See also: Synanon Church v. Commissioner, T.C. Memo. 1989-270 (Docket No. 20015-84). See Exhibit CPE 1990, Taxation of Revoked Tax-Exempt Organizations: The Synanon Case, and General Counsel Memorandum 39813. (Not citable as legal precedent)

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Issues Examiner should consider:

Was there a good faith solicitation?

Was there a good faith contribution?

3

Government Grants are not excludable income under IRC 102.

4

IRC 277, Deductions by Certain Membership Organizations [non 501(c)(3)]. As a general rule, deductions shall be allowed only to the extent of income derived during such year from members or transactions with members.

501(c)(3) - generally deductible

**

Examiners need to distinguish between contributions and gross receipts. Scenarios would be:

All classified as contributions with member benefits all deductible.

Quid-pro-quo - only partially contributions and only partially deductible.

Member services for member benefits - where no part is attributable to charitable purpose, would not be deductible.

5

IRC 470, Property Leased to an Exempt Organization. If a corporation leases property to a governmental or other tax-exempt entity, the corporation cannot claim deductions related to the property to the extent that they exceed the corporation's income form the lease payments.

6

IRC 162, Trade of Business Expenses. Examiners should be aware of the "Income Offset Rules" for deductibility of expenses.

7

IRC 263 and IRC 263A, Capital Expenditures. Generally requires corporations to capitalize, or include in inventory certain costs incurred in connection with real property and inventory. Please be aware that this section applies to Form 990 as well

8

IRC 183, Activities not engaged in for profit. As a General Rule, in the case of an activity engaged in by an individual or an S Corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter [26 USCS §§ 1 et. seq.] except as provided in this section.