Specific Instructions

Table of Contents

Period Covered

A designated or qualified settlement fund's tax year is the calendar year.

Address

Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address and the fund or the administrator has a P.O. box, show the box number instead.

Employer Identification Number (EIN)

Enter the fund's EIN. If the fund does not have an EIN, it must apply for one. An EIN may be applied for online, by telephone, by fax, or by mail, depending on how soon the fund needs to use the EIN. Use Form SS-4, Application for Employer Identification Number.

If the fund has not received its EIN by the time the return is due, write “Applied for” in the space for the EIN. For more details, see the Instructions for Form SS-4.

Final Return, Name Change, Address Change, or Amended Return

Indicate a final return, name change, address change, or amended return by checking the appropriate box. If a change in address occurs after the return is filed, use Form 8822, Change of Address, to notify the IRS of the new address.

Part I. Income and Deductions

Income

Note.

Amounts transferred to the fund by or on behalf of a transferor are generally excluded from income.

Line 1. Taxable interest.   Enter total taxable interest received or accrued during the tax year, including original issue discount. Do not include any tax-exempt interest. Do not offset interest expense against interest income.

Note.

Report tax-exempt interest on line 2 of Additional Information (on page 2 of Form 1120-SF).

Line 3. Capital gain net income.   Every sale or exchange of a capital asset must be reported in detail on Schedule D (Form 1120), Capital Gains and Losses, even if there is no gain or loss.

Line 5. Other income.   Enter any other taxable income not reported on lines 1 through 4. List the type and amount of income on an attached schedule. If the fund has only one item of other income, describe it in parentheses on the dotted line next to the entry space for line 5.

Deductions

Do not deduct:

  • Expenses allocable to tax-exempt income (see section 265);

  • Payments of claims made by the fund; and

  • Expenses incurred by, or on behalf of, claimants or transferors.

Line 11. Other deductions.   Enter the total of other deductions not entered on lines 7 through 10. List the type and amount of deduction on an attached schedule. If the fund has only one item of other deduction, describe it in parentheses on the dotted line next to the entry space for line 11.

Line 12. Net operating loss deduction (NOL).   Enter the total NOL carryovers from prior tax years, but do not enter more than the fund's taxable income. See Regulations section 1.468B-2(b)(4) for details.

Part II. Tax Computation

Line 14. Modified gross income.   Modified gross income of a designated or qualified settlement fund is its gross income, as defined in section 61, computed with certain modifications. See Regulations section 1.468B-2(b) for more information.

Line 16. Credits and payments.   Generally, no credits or payments are allowed other than those on lines 16a through 16e.

Line 17. Estimated tax penalty.   A fund that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a fund is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller of:

  • Its current year tax liability or

  • Its prior year's tax.

See section 6655 for details and exceptions, including special rules for large funds.

  Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the fund owes a penalty and to figure the amount of the penalty. Generally, the fund does not have to file this form because the IRS can figure the amount of any penalty and bill the fund for it. See Form 2220 for other information that may apply.

  If Form 2220 is attached, check the box on line 17 and enter the amount of any penalty on that line.

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