21.7.7  Exempt Organizations and Tax Exempt Bonds (Cont. 1)

21.7.7.4 
Exempt Organization Procedures

21.7.7.4.2 
Form 990-PF, Return of Private Foundation or
IRC 4947(a)(1) Nonexempt Charitable Trust Treated as A Private Foundation

21.7.7.4.2.1  (01-01-2014)
Elimination of Advance Ruling Period

  1. On September 9, 2008, the IRS issued temporary Income Tax Regulations, which eliminate the advance ruling process for a section 501(c)(3) organization. Under the new regulations, a new 501(c)(3) organization will be classified as a publicly supported charity, and not a private foundation, if it can show that it reasonably can be expected to be publicly supported when it applies for tax-exempt status.

  2. Under the old regulations, an organization that wanted to be recognized by the IRS as a publicly supported charity instead of a private foundation had to go through an extended two-step process. First, the organization had to declare that it expected to be publicly supported on an on-going basis. Then, after five years, it had to file Form 8734, Support Schedule for Advance Ruling Period, showing that it actually met the public support test. If it failed to meet the test, it was designated a tax-exempt private foundation and subject to stricter rules.

  3. The new rules no longer require the organization to file Form 8734 after completing its first five tax years. Moreover, the organization retains its public charity status for its first five years regardless of the public support actually received during that time. Instead, beginning with the organization's sixth taxable year, it must establish that it meets the public support test by showing that it is publicly supported on its Schedule A.

  4. Transition rules apply to organizations that have previously received advance rulings. Section 501(c)(3) organizations that have received advance rulings that expired on or after June 9, 2008, were classified as publicly supported charities. These organizations and their donors may rely on the organizations' advance ruling determination, and the organizations no longer need to file Form 8734 with the IRS. Organizations whose advance rulings expired before June 9, 2008, and that did not submit Form 8734 to the IRS will be reclassified as private foundations unless they submit documentation to the IRS establishing that they met the public support test during the advance ruling period.

  5. CP 158, Advance Ruling Period Follow-up, was issued to organizations that have an advance ruling period prior to June 2008. Inquiries or replies to this notice must be routed to Entity for resolution.

21.7.7.4.2.2  (01-01-2014)
Definitions

  1. A Private Foundation is a domestic or foreign organization exempt from income tax under IRC 501(a) ; described in IRC 501(c)(3); and is other than an organization described in IRC 509(a)(1) , IRC 509(a)(2), IRC 509(a)(3), or IRC 509(a)(4). In general, churches, hospitals, schools, and broadly public supported organizations are excluded from private foundation status by these sections. .

  2. A Non Operating Private Foundation is a private foundation that is not a private operating foundation.

  3. A Nonexempt Charitable Trust is treated as a private foundation. It is a trust that is not exempt from tax under IRC 501(a), that has all its unexpired interests devoted to religious, charitable, or other purposes described in IRC 170(c)(2)(B) and that may take a deduction under IRC 4947(a)(1) .

  4. A Taxable Private Foundation is an organization that is no longer exempt under IRC 501(a) as an organization described in IRC 501(c)(3). Though it may operate as a taxable entity, it will continue to be treated as a private foundation until that status is terminated under IRC 507.

  5. A Private Operating Foundation is an organization that is described under IRC 4942(j)(3) or IRC 4942(j)(5). It is a private foundation that meets the income test, which means spending at least 85% of its adjusted net income or its minimum investment return, whichever is less, directly on the operations of its exempt activities. Additionally, the foundation must also meet one of the following tests:

    • Assets test

    • Endowment test

    • Support test

    Some private foundations qualify as private operating foundations. These are types of private foundations that, although lacking general public support, make qualifying distributions directly for the active conduct of their educational, charitable, or religious purposes, as distinct from merely making grants to other organizations for these purposes. Most of the restrictions and requirements that apply to private foundations also apply to private operating foundations.

  6. Exempt Operating Foundation is an operating foundation that meets three other requirements (see IRM 21.7.7.4.2.2(4) below). In addition, the foundation must obtain a letter ruling from the IRS recognizing special status.

21.7.7.4.2.3  (01-01-2014)
Tax Rates

  1. A private foundation is subject to different taxes on its investment income under IRC 4940 or 4948 depending on various factors. Most private foundations are subject to a 2% tax on their investment income under IRC 4940(a). Different rules apply to private foundations that meet certain distribution requirements (IRC 4940(e)), taxable private foundations and 4947(a)(1) nonexempt charitable trusts (IRC 4940(b)), exempt operating foundations (IRC 4940(d)), and foreign private foundations (IRC 4948(a)). In addition, private operating foundations are not subject to tax under IRC 4942 for failure to distribute income.

  2. Domestic Exempt Private Foundations are subject to a 2% tax on net investment income under IRC 4940(a) . However, certain private foundations that meet the requirements of IRC 4940(e) may qualify for a reduced tax of 1% (see Form 990-PF, Part V instructions). Specific requirements must be met before the reduced tax rate is allowed. Qualifications for 1% tax rate are:

    • Subsection 03

    • Foundation Code 03 or 04

    • It is not the organization's first year of existence

    • The box on Part VI, line 1b is checked

    • Part V must be completed: Line 8 must be greater than or equal to line 7 in order to qualify for the 1% tax rate

    • Must be a U.S. domestic organization

      A separate computation must be made for each year in which the foundation wants to qualify for the reduced tax rate of 1%. A private foundation cannot qualify under IRC 4940(e) for its first year of existence, nor can a former public charity qualify for the first year it is treated as a private foundation. This is an annual election and the taxpayer must meet the above criteria each year to qualify for the reduced tax rate.

    Note:

    No tax on net investment income shall be imposed by IRC 4940 on any exempt operating foundations described in IRC 4940(d)(2) for the taxable year.

  3. Domestic Taxable Private Foundations and IRC 4947(a)(1) Nonexempt Charitable Trusts are subject to a modified 2% tax rate on net investment income under IRC 4940(b). If they meet the requirements of IRC 4940(e), they may qualify to use a modified 1% tax on net investment income (see Form 990-PF, Part V instructions). Qualifications for the 2% tax rate:

    • Subsection 03 or 92

    • Foundation Code 03 or 04

    • Must be a U.S. domestic organization

  4. Private Operating Foundation – A private foundation may qualify for treatment as a Private Operating Foundation (POF). These foundations generally are still subject to the tax on net investment income and to the other requirements and restrictions that generally apply to private foundation activity. However, operating foundations are not subject to the excise tax on failure to distribute income. Private Operating Foundation as described in IRC 4942(j)(3) refers to any private foundation that spends at least 85% of its adjusted net income or its minimum investment return, whichever is less, directly for the active conduct of its exempt activities (the income test), and also meets one of the following tests:

    • Assets test

    • Endowment test

    • Support test

    Income Test - To qualify as an operating foundation, the organization must make qualifying distributions directly for the active conduct of its exempt activities equal to at least 85% of the lesser of its adjusted net income or minimum investment return.

    Certain private foundations that provide long-term care facilities are treated as operating foundations only for the purposes of the excise tax on failure to distribute income.

    Private Operating Foundations are taxed at either 2% or 1% if they qualify for a reduced rate under IRC 4940(e). Qualifications for these tax rates are the same as for Domestic Taxable Private Foundations as shown above.

  5. Exempt Operating Foundations described in IRC 4940(d)(2) that have a determination letter from IRS establishing its exempt operating foundation status have a 0% tax. These letters specifically refer to the organization as an "exempt operating foundation" and are issued from the rulings groups in Cincinnati or Washington D.C. If the organization does not have this letter, the organization does not qualify for the 0% rate. There are additional qualifications that must be met as well, which are listed below.

    • Subsection 03

    • Foundation Code 02

    • Check the box on Line 1a in Part VI and enter the ruling date

    • It is an operating foundation described in IRC 4942(j)(3)

    • It has been publicly supported for at least 10 years

    • Its governing body during the tax year consists of individuals fewer than 25% of whom are disqualified individuals and it is broadly representative of the general public

    • It has no officer who was a disqualified individual at any time during the tax year

    Note:

    If the organization is claiming IRC 4940(d)(2) status and the Foundation Code (FC) is other than 02, request a copy of the determination letter from the organization. The determination letter is issued by the rulings groups in Washington D.C. or Cincinnati and will provide specific information with regards to determining whether the FC should be updated. If the FC needs to be updated, route a copy of the determination letter to the EO Entity Unit, requesting the FC be corrected.

    If an organization enters into a 60-month termination, it does not lose its tax exempt operating foundation status if it continues to meet all the requirements described above.

  6. Foreign Organizations are exempt foreign private foundations that have been granted tax-exempt status under U.S. tax law. They are required to pay an excise tax equal to 4% of their gross investment income received from sources in the United States, any territory, any political subdivision of a territory, or the District of Columbia. An exception to this rule is made when a tax treaty between the United States and the foreign country of which the private foundation is a resident specifically exempts income received by these organizations from any tax and the organization meets a limitations on benefits test in the treaty. Qualification for the 4% tax rate:

    • Subsection 03 or 92

    • Foundation Code 03 or 04

    • Box D1 on page 1 must be checked to indicate the organization is a foreign organization.

      Note:

      Foreign private foundations receiving at least 85% of their support (excluding gross investment income) from sources outside the U.S. are not subject to the excise taxes on self-dealing, failure to distribute income, excess business holdings, investments that jeopardize charitable purposes, and taxable expenditures. Such foundations are also not subject to IRC 507, relating to termination of private foundation status, and IRC 508, regarding special rules for giving notice when they are applying for recognition of exempt status.

      Some other unique requirements for foreign organizations are:

      • Foreign organizations do not have to have a foreign address.

      • Foreign organizations do not have to complete Parts XI, XIII, or XV and also do not have to complete Part X if they are not private operating foundations (SC 03 with FC 02 or FC 03).

      • If they say they are a domestic organization and should be taxed at a lower tax rate, the organizations need to provide us with a copy of their determination letter and complete all parts of the return.

      • A Canadian foundation may or may not be treated as a foreign organization depending on what treaty it falls under. They will usually reference the treaty on the return. A foreign organization cannot claim expenses against its income.

21.7.7.4.2.3.1  (01-01-2014)
Section 511 Tax

  1. In order to determine its 4940 tax, a domestic IRC 4947(a)(1) nonexempt charitable trust or taxable private foundation (SC 92) must compute its unrelated business income tax if it has UBTI (unrelated business taxable income).

  2. The computation of tax must be attached to the Form 990-PF and reported on line 2 in Part VI.

  3. Form 990-T may be used as the attachment.

21.7.7.4.2.3.2  (01-01-2014)
Subtitle A Tax

  1. Domestic IRC 4947(a)(1) nonexempt charitable trusts and taxable private foundations must enter the amount of subtitle A (income) tax reported on Form 1120 or Form 1041.

  2. A copy of the tax computation should be attached.

  3. This is a non refundable credit against tax. Before the credit is allowed, verify that the taxpayer has filed either a Form 1041 or Form 1120 reporting the tax amount. The credit is allowed with a TC 291.

21.7.7.4.2.3.3  (01-01-2014)
Credit/Payment for U.S. Tax Withheld at Source

  1. A foreign organization claiming U.S. tax withheld at source may claim a credit on Form 990-PF, Part VI, line 6b. In order for an organization to receive a credit for "tax withheld at source" on line 6b, box D1 on the front of the return must be checked.

  2. If the organization is a domestic organization (box D1 is not checked) and is trying to claim a credit for business conducted in a foreign country, the credit cannot be allowed on Part VI, line 6b. However, it can claim the amount as an expense against its unrelated business taxable income (UBIT) in order to reduce its liability.

  3. If the credit claimed ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , secure Form 1042-S, or a written statement with similar information, from the organization before allowing the credit.

  4. If the organization states the credit for U.S. tax withheld at source was claimed on the original return, but was not allowed, request the original return from Files or secure a copy from OL-SEIN prior to sending it to the Field. TXMOD and BRTVU prints alone are not acceptable.

21.7.7.4.2.3.4  (01-01-2014)
Calculating Gross Receipts

  1. Gross Receipts reported on Form 990-PF are calculated as follows:

    • Total Part I, Line 12, column (a), then add to it lines 6b and 10 b, then subtract line 6a from that amount.

21.7.7.4.2.4  (01-01-2014)
Methods of Terminating PF Status

  1. Once an organization is determined to be a private foundation, its status may be terminated only under the provisions of IRC 507 . Under IRC 507, an organization's status as a private foundation may be terminated voluntarily or involuntarily. IRC 507 provides four methods of changing or terminating an organization's status as a private foundation. If the organization's status is terminated either voluntarily or involuntarily under IRC 507(a), the organization becomes liable for tax under IRC 507(c).

    • IRC 507(a)(1) - Voluntary Termination

    • IRC 507(a)(2) - Involuntary Termination

    • IRC 507(b)(1)(A) - Transfer of Assets to a Public Charity

    • IRC 507(b)(1)(B) - Operation as a Public Charity

21.7.7.4.2.4.1  (01-01-2014)
IRC 507(a)(1) Terminations - EO Status 23

  1. In order for a private foundation to terminate under IRC 507(a)(1), the following conditions must be met:

    • The foundation must submit a statement to Cincinnati that it intends to terminate its private foundation status under IRC 507(a)(1) .

    • The statement must set forth in detail the computation of termination tax imposed by IRC 507(c). The tax is the lesser of the "aggregate tax benefit" or the net fair market value of its assets.

  2. Unless the foundation requests abatement of tax under IRC 507(g), full payment of the tax must be made at the time the statement is filed.

21.7.7.4.2.4.2  (01-01-2014)
IRC 507(a)(2) Terminations - EO Status 23

  1. An involuntary termination under IRC 507(a)(2) occurs when the Service notifies an organization that its private foundation status is being terminated because it has willfully committed repeated acts or violations of Chapter 42 provisions. A computation of the termination tax must be attached.

21.7.7.4.2.4.3  (01-01-2014)
IRC 507(b)(1)(A) Terminations - EO Status 24

  1. A private foundation terminating under IRC 507(b)(1)(A) must distribute all of its net assets to one or more public charities described in IRC 509(a)(1) and these charities must have been in existence for a period of at least 60 months immediately preceding the distribution.

  2. The private foundation is not required to submit notice to the Service of its intent to terminate and does not incur a termination tax under IRC 507(c). It is required to file a complete Form 990-PF.

21.7.7.4.2.4.4  (01-01-2014)
IRC 507(b)(1)(B) Terminations - EO Status 25

  1. An organization may voluntarily terminate its status under IRC 507(b)(1)(B) either by transferring all its net assets to one or more public charities or by meeting the requirements set forth below. In order for a private foundation to terminate under IRC 507(b)(1)(B), the following conditions must be met:

    • The foundation must notify TE/GE Determinations of its intention to operate as a public charity in advance of the 60-month termination period.

    • The foundation conducts its operations over a continuous 60-month period meeting the requirement of IRC 509(a)(1), IRC 509(a)(2), or IRC 509(a)(3) in accordance with its notice.

    • The foundation furnishes TE/GE Determinations sufficient information to allow a determination that it met the requirements of IRC 509(a)(1), IRC 509(a)(2), or IRC 509(a)(3) within 90 days after the 60-month period.

    • Although an organization terminating its private foundation status under IRC 507(b)(1)(B) may be regarded as a public charity for certain purposes, it is still considered a private foundation for purposes of the filing requirements and must file an annual return on Form 990-PF. The return must be filed for each year if the 60-month termination period has not expired before the due date of the return. If the organization is in the last year of the 60-month termination, it may file Form 990 instead of Form 990-PF .

  2. During the 60-month termination period, the private foundation may file Form 990-PF without paying the tax on net investment income if it filed a consent (Form 872-B) to extend the statute under IRC 6501(c)(4) with TE/GE Determinations and received an approval. Upon approving the consent, TE/GE Determination places the private foundation in status 25, indicating a termination under IRC 507(b), and an Advance Ruling Expiration Date (ARED) is entered. The status code date is also updated to reflect the beginning of the 60-month period.

  3. If the private foundation did not file a consent, the tax must be paid and a claim for refund filed after completing a successful termination.

  4. A private foundation may also obtain an advance ruling under Reg. 1.507-2T(d) that it can be expected to satisfy the 507(b)(1)(B) requirements during the 60-month termination period. The effect of such ruling is that contributors may generally treat the organization as a public charity, and the organization will not be assessed penalties under section 6651 for failure to pay 4940 tax during the 60 months. The advance ruling on IRC 507(b)(1)(B) termination does not mean that the organization necessarily will qualify as a public charity during the advance ruling period (except for purposes of contributor reliance and penalties).

  5. When Form 990-PF is received with Box "F" in the entity section checked, Part VI is zero or blank (no tax), and an approved consent is attached, Code & Edit edits a Termination Code " 1 " on the Form 5800 (EO edit sheet). The Termination Code " 1 " suppresses the generation of tax until the end of the 60-month termination period.

  6. Any foundation not paying the tax when it filed Form 990-PF must attach a copy of the signed consent to the return. If the foundation did not file the consent, the tax must be paid in the normal manner and a claim for refund may be filed after completing the 60-month termination. The claim for refund must be filed on time and the organization must supply information establishing that it qualified as a public charity for the period for which it paid the tax.

  7. Effective January 01, 2005, programming was established that prevents the tax from being assessed to a module during the five year advance-ruling period. As such, it is no longer necessary to manually monitor status 25 modules. If an organization does not meet the requirements to become a public charity, the EO status code is updated (reverts back to Status 01 from Status 25) and Form 990-PF filing requirements remain in place. Any tax (if applicable) previously reported on the Form 990-PF for the past five years is assessed to the module and balance due notices are issued. If the organization does become a public charity, the filing requirements are updated to "990" and the EO status code is changed to "01" .

  8. At the end of the 60-month termination, if the organization has met the requirements to terminate their PF status, the EO Status is updated to 01 and the filing requirements changed to Form 990.

21.7.7.4.2.5  (01-01-2014)
Notice 2004-35 and 2004-36

  1. A private foundation may submit an amended Form 990-PF or Form 4720 return indicating it is being filed pursuant to Notice 2004–35 or Notice 2004–36. These returns should be adjusted according to existing amended return and tolerance guidelines. They do not require any special processing.

21.7.7.4.3  (01-01-2014)
Form 990-T, Exempt Organization Business Income Tax Return
(and proxy tax under section 6033(e))

  1. Form 990-T is used to:

    • Report "Unrelated Business Income" (UBI);

    • Figure and report "Unrelated Business Income Tax" (UBIT) liability;

    • Report proxy tax liability; or

    • Claim a refund of income tax paid by a regulated investment company (RIC) or a real estate investment trust (REIT) on undistributed long-term capital gain.

  2. Any domestic or foreign organization exempt under IRC 501(a) or IRC 529(a) (except an organization described in IRC 501(c)(1)) must file Form 990-T if it has gross income from an unrelated trade or business of $1,000 or more or is liable for proxy tax on lobbying and political expenditures. Any college or university of a state or other governmental unit as well as any subsidiary corporation wholly owned by such college or university, must file Form 990-T if it has gross income from an unrelated trade or business of $1,000 or more.

  3. Form 990-T is MFT 34 and the tax class is 4. Form 990-T has two possible due dates:

    • An employee plan's trust defined in IRC 401(a), an IRA (including SEP) and (SIMPLE), a Roth IRA, and an Education IRA, and a MSA must file Form 990-T by the 15th day of the 4th month after the end of the tax year.

      Note:

      An Employee Plan Trust under 401(a) must attain and use a separate EIN for Form 990-T. EINs for corporate returns Form 1120, Form 940, Form 941, Form 5500 and Form 990 cannot be used for Trusts defined in IRC 401(a)

    • All other organizations must file Form 990-T by the 15th day of the 5th month after the end of the tax year.

    The computer uses the "Type of Org" code shown on BRTVU to determine the return due date.

21.7.7.4.3.1  (01-01-2014)
Unrelated Trade or Business Income

  1. Unrelated trade or business income is the gross income derived from any trade or business that is regularly carried on and not substantially related (other than through the production of funds) to the organization's exempt purpose or function except that the organization uses the profits derived from this activity. Refer to Publication 598, Tax on Unrelated Business Income of Exempt Organizations, for additional information.

  2. Fiduciaries for the following trusts that have $1,000 or more of unrelated trade or business gross income must file Form 990-T :

    • Individual Retirement Accounts (IRAs) described under IRC 408(a)

    • Simplified Employee Pensions (SEPs) described under IRC 408(k)

    • Simple Retirement Accounts (SIMPLEs) described under IRC 408(p)

    • Roth IRAs described under IRC 408A(b)

    • Education IRAs described under IRC 530(b)

    • Medical Savings Accounts (MSAs) described under IRC 220(d)

    • Qualified tuition programs described under section 529.

21.7.7.4.3.2  (01-01-2014)
Form 990-T IRC 511(a)(1) Filers

  1. IRC 511(a)(1) states that the unrelated business taxable income of every organization described in paragraph (2) of IRC 511(a) shall be taxed at the corporate rate. Individual IRAs are exempt from taxation under IRC 408(e). An IRA that has UBTI is taxable under IRC 511(a)(1) and is taxed at the corporate rate. These accounts can be identified by researching ENMOD to verify that the entity has the word " IRA" in the name line (i.e., John Smith IRA) and the FR is "2" .

  2. If correspondence is received from a taxpayer indicating their Form 990-T is an individual IRA account filed under IRC 511(a)(1), but was assessed tax at the trust rate, the tax will need to be adjusted. Refer to the procedures outlined below:

    1. Verify taxpayer is a IRC 511(a)(1) filer (see paragraph (1) above).

    2. Recompute tax based on applicable corporate tax rate (see IRM 21.7.7.4.3.3).

    3. Input TC 291 for appropriate dollar amount.

21.7.7.4.3.3  (01-01-2014)
Tax Rates

  1. The tax rate charged on Form 990-T varies according to the type of organization. IRC 501(c) corporations, associations and state colleges and universities are taxed using corporate tax rates (Form 1120). IRC 501(c) trusts, IRC 401(a) trusts and IRC 408(a) trusts are taxed using trust tax rates (Form 1041). Form 990-T returns filed for the Proxy tax under IRC 6033(d)(2) on nondeductible lobbying and political expenditures should have a copy of the tax computation attached. The following tax rates are applicable for tax years 1993 to present.

    Tax Rate Schedule for Corporations
    Tax Periods 200001 to Present
    IRC 11
    If taxable income on Page 1, Line 34 is over: But not over: Tax is:
    $0 $50,000 15%
    $50,000 $75,000 $7,500 + 25%
    $75,000 $100,000 $13,750 + 34%
    $100,000 $335,000 $22,500 + 39%
    $335,000 $10,000,000 $113, 900 + 34%
    $10,000,000 $15,000,000 3,400,000 + 35%
    $15,000,000 $18,333,333 5,150,000 + 38%
    $18,333,333 or greater 35%

  2. Trusts exempt under IRC 501(a) which otherwise would be subject to subchapter J (estates, trusts, etc.) are taxed at trust rates. This rule also applies to employees' trusts that qualify under IRC 401(a). Most trusts figure the tax on the amount on line 34 using the Tax Rate Schedule for Trusts below:

    Tax Rate Schedule for Trusts
    Tax Periods
    201112 - 201211
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,400 15% $0
    $2,400 $5,600 $360 + 25% $2,400
    $5,600 $8,500 $1,160 + 28% $5,600
    $8,500 $11,650 $1,972.50 + 33% $8,500
    $11,650 and greater $3,011.50 + 35% $11,650

    Tax Rate Schedule for Trusts
    Tax Periods
    201012 - 201111
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,300 15% $0
    $2,300 $5,450 $345 + 25% $2,300
    $5,450 $8,300 $1,132.50 + 28% $5,450
    $8,300 $11,350 $1,930.50 + 33% $8,300
    $11,350 and greater $2,937 + 35% $11,350

    Tax Rate Schedule for Trusts
    Tax Periods
    200912 to 201011
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,300 15% $0.00
    $2,300 $5,350 $345.00 + 25% $2,300
    $5,350 $8,200 $1,107.50 + 28% $5,350
    $8,200 $11,200 $1,905.50 + 33% $8,200
    $11,200 and greater $2,895 + 35% $11,200

    Tax Rate Schedule for Trusts
    Tax Periods
    200812 to 200911
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,300 15% $0.00
    $2,300 $5,350 $345 + 25% $2,300
    $5,350 $8,200 $1,107.50 + 28% $5,350
    $8,200 $11,150 $1,905.50 + 33% $8,200
    $11,150 and greater $2,879.00 + 35% $11,150

    Tax Rate Schedule for Trusts
    Tax Periods
    200712 to 200811
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,200 15% $0.00
    $2,200 $5,150 $330.00 + 25% $2,200
    $5,150 $7,850 $1,067.50 + 28% $5,150
    $7,850 $10,700 $1,823.50 + 33% $7,850
    $10,700 and greater $2,764.00 + 35% $10,700

    Tax Rate Schedule for Trusts
    Tax Periods
    200612 to 200711
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,050 15% $0
    $2,050 $4,850 $307.50 + 25% $2,050
    $4,850 $7,400 $1,007.50 + 28% $4,850
    $7,400 $10,050 $1,721.00 + 33% $7,400
    $10,050 and greater $2,596.00 + 35% $10,050

    Tax Rate Schedule for Trusts
    Tax Periods
    200512 to 200611
    If the amount on Page 1, Line 34 is But not over The tax is Of the amount over
    $0 $2,000 15% $0
    $2,000 $4,700 $300.00 + 25% $2,000
    $4,700 $7,150 $975.00 + 28% $4,700
    $7,150 $9,750 $1,661.00 + 33% $7,150
    $9,750 and greater $2,519.00 + 35% $9,750

21.7.7.4.3.3.1  (01-01-2014)
Proxy Tax

  1. Exempt organizations, except IRC 501(c)(3) and certain other organizations, must include certain information regarding lobbying expenditures on Form 990. In addition, organizations may have to provide notices to members regarding their share of dues to which the expenditures are allocated.

  2. If the organization elects not to provide the notices described above, it must pay the proxy tax described in IRC 6033(e)(2) . If the organization does not include the entire amount of allocated dues in the notices, it may have to pay the proxy tax.

  3. Proxy tax is figured by multiplying the aggregate amount not included in the notices by 35%. No deductions are allowed. This amount is entered on Form 990-T, line 37 and a schedule showing the computation must be attached.

21.7.7.4.3.3.2  (01-01-2014)
Alternative Minimum Tax

  1. Organizations liable for tax on unrelated business taxable income may be liable for alternative minimum tax on certain adjustments and tax preference items.

  2. Trusts attach Schedule I, Alternative Minimum Tax, of Form 1041 and enter any tax from Schedule I to Form 990-T, line 38.

  3. A corporation, unless it is treated as a small corporation exempt from the alternative minimum tax, may have to attach Form 4626 and enter any tax from Form 4626 on Form 990-T, line 38.

21.7.7.4.3.4  (01-01-2014)
Taxable Income Reference Number

  1. When adjusting tax on a Form 990-T, it may also be necessary to adjust taxable income. TC 886 is the reference number used to adjust the taxable income.

21.7.7.4.3.5  (01-01-2014)
Backup Withholding

  1. Recipients of dividend or interest payments must generally certify their tax identification number to the payer on Form W-9 , Request for Taxpayer Identification Number and Certification. If the payer does not get this information, it must withhold part of the payments as Backup Withholding (BUWH).

  2. If an organization was subject to erroneous backup withholding because the payer did not realize it was an exempt organization and not subject to this withholding, the organization may claim the amount withheld as a credit on Form 990-T or Form 990-PF.

  3. When BUWH is claimed on Form 990-T, the erroneously withheld amount is reported in Part IV, line 44e. If claimed on Form 990-PF, the credit will be claimed on Part VI, line 6d.

  4. Exempt organizations claiming backup withholding of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ must be supported by either Form 1099 or confirmed using CC IRPTR. Amounts of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ can be allowed without supporting documentation. Instructions on how to process erroneous backup withholding claims is located in IRM 21.7.4.4.10.

  5. Refunds for backup withholding are not issued as manual refunds from Form 941 or Form 945.

  6. If Form 843 is filed, reject the claim and explain to the organization that an income tax return ( Form 990-PF or Form 990-T) must be filed to claim the credit.

  7. If the organization is not required to file Form 990-PF, instruct them to report it on Form 990-T.

21.7.7.4.3.6  (01-01-2014)
Form 2439 - Regulated Investment Company Shareholders' Refunds

  1. IRAs or other tax-exempt shareholders that have invested in a Regulated Investment Company (RIC) or a Real Estate Investment Trust (REIT) file Form 990-T in order to obtain a refund of income tax paid on undistributed long-term capital gains.

  2. Most claims for refund of taxes paid by a RIC on amounts reported on Form 2439 are claimed on a Composite Form 990-T, citing Notice 90–18. A trustee can file a composite Form 990-T to claim one refund of tax paid on undistributed long term capital gains flowing through from a RIC to two or more IRA accounts managed by the trustee. The top of the Form 990-T should be annotated "Composite " , "Notice 90–18" or "IRC 852(b)" .

  3. Refunds of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ must be supported by Form 2439 and reviewed by the Field. Refunds of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ can be allowed without supporting documentation. Refer to IRM 21.7.4.4.9.2.1 for additional information.

  4. Loose Forms 2439, copies A and B, are filed by the nominee if they are not the actual owner of the shares for which the form is issued. Follow IRM 21.7.4.4.9.2.2 procedures for processing loose Forms 2439 that are received for IRA trusts.

21.7.7.4.3.7  (01-01-2014)
Composite Form 990-T

  1. Notice 90–18 provided a method under which trustees of IRAs that have invested in regulated investment companies file a composite return for such IRAs to claim a refund under IRC 852(b).

  2. An IRA that has invested in a regulated investment company that has elected to retain a long term capital gain must file a Form 990-T to claim a refund of its share of tax paid by the RIC under IRC 852(b). Prior to this Notice, a single entity that served as a common trustee for several such IRAs was required to prepare a separate Form 990-T for each IRA. In lieu of filing a separate Form 990-T for each IRA, a common trustee of more than one IRA entitled to refunds under IRC 852(b) now may file a single composite Form 990-T for all such IRAs.

  3. This composite filing is accomplished as follows:

    • The trustee must apply to the IRS for a special Employer Identification Number (EIN) on Form SS-4, Application for Employer Identification Number. The trustee must indicate that the application is for a special EIN by writing " Notice 90–18" on the top of the Form SS-4. The special EIN will be effective only for making a composite claim for refund of tax under IRC 852(b) on behalf of the IRAs administered by the trustee. The trustee should not apply for a separate specialized EIN for each year it makes a claim for refund.

    • The trustee files one (1) composite return on Form 990-T for each year it makes a claim. It must attach a list of the IRAs for which the claim is being made showing the names and social security numbers of the persons who established the IRAs and the allocated shares of tax paid by the RICs. The IRAs must be grouped according to the RIC in which it has made an investment. Form 2439 must be attached for each RIC according to such grouping.

    • The trustee must write on the top of the Form 990-T"Composite Return per Notice 90–18" . It must enter the special EIN assigned for the composite return (and only the EIN) in the block provided for EINs.

    • The Service will issue a refund check to the IRA trustee. The trustee must allocate the refund to the IRA trusts in accordance with the amounts due as shown on the composite return.

  4. A composite return is not available in the following circumstances:

    • A composite return may only be filed by a common trustee on more than one IRA. It cannot be filed by a person acting merely as a nominee (owner of record) of RIC shares owned by an IRA.

    • An IRA that has unrelated business taxable income may not be included in the claim for refund on the composite return. The trustee of such an IRA must file a separate Form 990-T for the IRA reporting the income on such return and claiming credit under IRC 852(b) as an offset against the IRA's unrelated business income tax liability.

21.7.7.4.3.8  (01-01-2014)
Missing Schedule Codes

  1. The forms below are associated with Form 990-T .

    Code Schedule Code Schedule
    29 Form 1118 46 Form 8801
    30 Form 1116 47 Form 8826
    31 Form 3468 50 Form 8835
    33 Form 4255 53 Form 8847
    34 Form 4626 57 Form 8874
    37 Form 5735 58 Form 8881
    39 Form 6478 59 Form 8882
    40 Form 6765 61 Form 8864
    42 Form 8820 62 Form 8896
    43 Form 3800 63 Form 8900
    44 Form 8586 65 Form 8906
    45 Form 8611 66 Form 8907

21.7.7.4.4  (01-01-2014)
Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trust and Certain Related Persons

  1. Form 990-BL is generally used by black lung benefit trusts to meet the reporting requirements of Form 6033. If initial taxes are imposed on the trust or certain related parties, the trust must also file Schedule A ( Form 990-BL).

  2. The MFT is 56 and the tax class is "6" . The return is due the 15th day of the 5th month following the close of the tax year and is processed to the Non Master File (NMF).

  3. Form 990-BL is processed at the CSPC to NMF. Route cases involving Form 990-BL to CSPC, at the address shown below.

    Internal Revenue Service
    NMF Unit
    201 W. River Center Blvd.
    Covington, KY, 41011

21.7.7.4.4.1  (01-01-2014)
Form 6069, Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust Under Section 4953 and Computation of Section 192 Deduction

  1. Form 6069 is primarily a worksheet (Schedule A) used to determine the maximum allowable income tax deduction (under IRC 192) for contributions made by coal mine operators to tax-exempt black lung benefit trusts. The form is also used to determine the amount of excise tax imposed under IRC 4953 for contributions that are more than the maximum allowable deduction (see Schedule B).

  2. The MFT is 57 and the tax class is "6" (NMF). Form 6069 is due by the 15th day of the 5th month after the end of the tax year.

  3. Form 6069 is processed at the CSPC to NMF. Route cases involving Form 6069 to the address shown below.

    Internal Revenue Service
    NMF Unit
    201 W. River Center Blvd.
    Covington, KY 41011

21.7.7.4.5  (01-01-2014)
Form 1120-POL, U.S. Income Tax Return For Certain Political Organizations

  1. Political organizations and certain exempt organizations file Form 1120-POL to report their political organization taxable income and income tax liability under IRC 527 .

  2. The MFT is 02 and the tax class is "3" . The due date for Form 1120-POL is the 15th day of the 3rd month after the end of the tax year. The filing requirements will be 1120-09. Political organizations may request a six-month extension of time to file by submitting a Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. The extension must be filed by the due date of Form 1120-POL.

  3. A political organization must file Form 1120-POL if it has any political organization taxable income. An exempt organization that is not a political organization must file Form 1120-POL if it is treated as having political organization taxable income under IRC 527(f)(1).

  4. An organization that files Form 1120-POL may also be required to file the following forms:

    • Form 8871, Political Organization Notice of Section 527 Status.

    • Form 8872, Political Organization Report of Contributions and Expenditures

    • Form 8453-X, Political Organization Declaration for Electronic Filing of Notice of Section 527 Status

    • Form 990, Return of Organization Exempt from Income Tax

    • Form 990-EZ, Short Form Return of Organization Exempt from Income Tax.

  5. All Form 1120-POL account related issues are worked in EO Accounts regardless of the exempt organization status.

21.7.7.4.5.1  (01-01-2014)
Taxable Income

  1. A political organization is subject to tax on its political organization taxable income. Generally, the tax is calculated by multiplying the political organization taxable income by the highest rate of tax (35 percent). If the organization is the principal campaign committee of a candidate for U.S. Congress, the tax is calculated using the graduated rates shown in IRM 21.7.7.4.5.2 below.

  2. The political organization taxable income (Form 1120-POL, line 19) is the excess of gross income for the taxable year (excluding exempt function income) over deductions directly connected with producing gross income (excluding exempt function income).

  3. The exempt function income is the portion of a political organization's income that the organization sets aside for use for its exempt function. It may be received as any one of the following four types of income:

    • A contribution of money or other property;

    • Membership dues, fees, or assessments from a member of the political organization;

    • Proceeds from a political fund-raising or entertainment event or from the sale of political campaign materials, which are not received in the ordinary course of any trade or business; or

    • Proceeds from conducting bingo games that are defined in IRC 513(f)(2)

      Taxable income includes exempt function income (such as contributions) for any period of time that a political organization does not file a Form 8871 as required.

  4. Taxable income is figured with the following adjustments:

    • A specific deduction of $100 is allowed (but not for Newsletter funds);

    • The net operating loss deduction is not allowed;

    • The dividends-received deduction and other special deductions for corporations are not allowed. See IRC 527(c)(2)(C).

21.7.7.4.5.2  (01-01-2014)
Tax Rate

  1. The rate of tax imposed depends on whether the political organization is a principal campaign committee as defined in IRC 527(h) . The tax rate is lower for a principal campaign committee.

  2. An organization that is not a principal campaign committee is taxed as follows:

    • Multiply line 19 by 35%

  3. A political organization that is a principal campaign committee of a candidate for U.S. Congress computes its tax in the same manner as provided in IRC 11(b) for corporations. The tax is computed as follows:

    1. Enter taxable income (line 19, Form 1120-POL)
    2. Enter line 1 or $50,000 whichever is less
    3. Subtract line 2 from line 1
    4. Enter line 3 or $25,000 whichever is less
    5. Subtract line 4 from line 3
    6. Enter line 5 or $9,925,000 whichever is less
    7. Subtract line 6 from line 5
    8. Multiply line 2 by 15%
    9. Multiply line 4 by 25%
    10. Multiply line 6 by 34%
    11. Multiply line 7 by 35%
    12. If line 1 is greater than $100,000 enter the smaller
    of: 5% of the taxable income in excess of $100,000
    or $11,750
    13. If line 1 is greater than $15,000,000 enter the smaller
    of 3% of the taxable income in excess of $15,000,000
    or $100,000
    14. Add lines 8 through 13. Enter here and on line 20,
    Form 1120-POL
  4. Estimated tax and alternative minimum tax do not apply to political organizations.

21.7.7.4.5.3  (01-01-2014)
Penalties

  1. Penalties may be imposed if the organization is required to file Form 1120-POL and it:

    • Fails to file the form by the due date;

    • Fails to pay the tax by the due date;

    • Fails to report all the information required or it reports incorrect information.

  2. Additional late filing penalties for tax years beginning after June 30, 2000, may also apply:

    • Penalty against the organization for each day the return is late. The penalty rate is the lesser of $20 a day or 5% of the gross receipts, not to exceed $10,000. For organizations with annual gross receipts exceeding $1 million the penalty rate is $100 a day, not to exceed $50,000;

    • Penalty against the responsible person. The individual(s) fails to comply with a demand by the IRS to file a complete return or furnish correct information may be charged a penalty of $10 a day, not to exceed $5,000.

    These penalties are assessed as civil penalties on MFT 13 (BMF) or 55 (IMF).

21.7.7.4.6  (01-01-2014)
Form 8871, Political Organization Notice of Section 527 Status

  1. In January 1, 2006, Form 8871 began posting to Master File with a TC 150. The MFT is 47 and the Doc Code is 61. Amended returns post as a TC 976 (Form 8453-X will continue to post to Master File as a TC 971 AC351 on ENMOD).

  2. If a political organization seeks tax exempt status, Form 8871 must be filed within 24 hours after the date on which the organization was established. If the organization has a material change in any of the information reported on Form 8871, it must file an amended Form 8871 within 30 days of the material change to maintain its tax-exempt status. When the organization terminates its existence, it must file a final Form 8871 within 30 days of termination.

  3. IRC 527(i)(1)(A) requires that the return is filed electronically at the IRS Internet web site at www.irs.gov/polorgs. The information input by the organization is stored in a database maintained by national office programmers. To file Form 8871, the political organization must have its own Employer Identification Number (EIN) even if it has no employees. To obtain an EIN, an organization must file Form SS-4, Application for Employer Identification Number, with the Service. Information on how to obtain an EIN via the telephone is available in the Form SS-4 instructions.

  4. New political organizations are required to submit to the Ogden campus a Form 8453-X, Political Organization Declaration for Electronic Filing of Notice of Section 527 Status, containing the signature for the electronic Form 8871. This form replaces the Form 8871 jurat.

  5. Form 8453-X is not required to be filed on an amended Form 8871.

  6. Every political organization that is to be treated as a tax exempt political organization under the rules of IRC 527 must file Form 8871, except for:

    • An organization that reasonably expects its annual gross receipts to always be $25,000 or less;

    • A political committee required to report to the FEC;

    • Any political committee of a state or local candidate;

    • Any state or local committee of a political party;

    • Organization that does not seek tax-exempt status

    • Any organization in IRC 501(c) that is subject to IRC 527(f)(1) because it has made an "exempt function expenditure."

21.7.7.4.6.1  (01-01-2014)
Public Inspection of Form 8871 and Related Materials

  1. Form 8871 (including any supporting papers) and any letter or other document the IRS issues with regard to Form 8871 will be open to public inspection at the IRS in Washington, D.C. The forms may be viewed and downloaded from a searchable database.

  2. In addition, the organization is required to make a copy of these materials available for public inspection during regular business hours at the organization's principal office and at each of its regional or district offices having at least three paid employees.

  3. A penalty of $20 per day will be imposed on any person with a duty to comply with the public inspection requirement for each day a failure to comply continues.

21.7.7.4.6.2  (01-01-2014)
Correspondence Relating to Form 8871 or Form 8872

  1. Correspondence issues involving either Form 8871 or Form 8872 should be routed as follows:

    • Any entity related changes or questions regarding Form 8871 or Form 8872 are routed to OSPC EO Entity for resolution. This includes amended returns.

    • Technical questions regarding Form 8871 or Form 8872 can be referred to the CAS toll free number: 877-829-5500.

    • Correspondence addressing reasonable cause requests for late filing are routed to OAMC EO Accounts.

  2. Correspondence issues received in EO Accounts generally have to do with extension requests or determining whether an organization is required to file Form 8871. For extension requests, inform the organization that there is no extension of time to file Form 8871 .

21.7.7.4.7  (01-01-2014)
Form 8872, Political Organization Report of Contributions and Expenditures

  1. In January 1, 2006, Form 8872 began posting to Master File as a TC 150. The MFT is 49 and the Doc Code is 61.

  2. Every IRC 527 tax exempt political organization that accepts a contribution or makes an expenditure for an exempt function during the calendar year must file Form 8872 electronically or by paper except:

    • A political organization that is not required to file Form 8871

    • A qualified state or local political organization (QSLPOs)

  3. An organization must file Form 8871 before it can file Form 8872. If the organization has not filed Form 8871, it may be subject to taxation under IRC 527(i)(4) and the requirements for filing Form 8872 are not applicable.

  4. All other political organizations are required to file Form 8872 to report the names, addresses and, if an individual, the occupation and employer, of any person to whom expenditures are made that aggregate $500 or more in a calendar year and the amount, date and purpose of each expenditure. The report must also include the name, address, and, if an individual, the occupation and employer of any person who contributes $200 or more in a calendar year and the amount and date of each contribution. Only expenditures made or contributions received after July 1, 2000, that are not made or received pursuant to binding contracts entered into before July 2, 2000, must be reported.

  5. Due dates for Form 8872 vary depending on whether the form is due for a reporting period that occurs during a calendar year in which a regularly scheduled election is held or any other calendar year. During an election year, the organization may opt to file its reports on either a quarterly or a monthly basis, but it must file on the same basis for the entire calendar year. During a non-election year, the organization may choose to file its reports on either a semiannual or a monthly basis, but it must file on the same basis for the entire calendar year. Refer to the following table to determine the filing requirements for Form 8872:

    Form 8872 Filing Requirements Filing Frequency Due Date
    A non-election year
    (odd- numbered)
    Monthly basis No later than the 20th day after the end of the month, which must include the figures for the entire month.
    A non-election year
    (odd- numbered)
    Semi-Annual No later than July 31st for the first half of the year, and
    No later than January 31st for the second half of the year.
    An election year
    (even- numbered)
    Monthly basis No later than the 20th day after the end of the month, which must include the figures for the entire month.
    An election year
    (even numbered)
    Quarterly basis Due by the 15th day after the last day of each calendar quarter, except the year-end report, which is due by January 31st.
    An election year (even numbered) Pre-election report for any election for federal office for which the organization makes a contribution or expenditure Must be filed 12 days before the election (15 days before the election if posted by registered or certified mail) and must contain information through the 20th day before the election.
    An election year
    (even numbered)
    Post-general election report Must be filed no later than 30 days after the general election that contains information through the 20th day after the election.
  6. As of June 30, 2003, Form 8872 must be filed electronically if the organization has reason to expect that contributions or expenditures will exceed $50,000 in the calendar year.

  7. A political organization that does not disclose this information must pay an amount equal to the highest corporate tax rate (35 percent) multiplied by the amount of contributions and expenditures not disclosed and report it on the Form 1120-POL. If a political organization does not file Form 8871 and is subject to tax on its income, it is not required to file Form 8872.

  8. A political organization is not required to file Form 8872 for any period of time that it is subject to tax on its income because it did not file or amend a Form 8871.

  9. Organizations that complete the electronic filing of Form 8871 receive a user ID and password that must be used when filing Form 8872 electronically.

21.7.7.4.7.1  (01-01-2014)
Section 527 Organization Notices

  1. When an organization files an SS-4 and indicates that it is a political organization, the entity is coded with a "1" in the "527 Indicator" field located on INOLES (527-POL-ORG-CD). If certain filing requirements are not met, the IRS will issue one of the following notices.

    • CP 249A - Requests that the organization file a Form 8871.

    • CP 249B - Informs the organization that it filed the Form 8872 late and that there is a penalty for late filing. The CP notice requests a reason for the late filing.

    • CP 249C - Notifies an organization that it filed a Form 8871 and that it is required to file the Form 8872 (unless the organization is a QSLPO). The CP 249 requests the organization to file a Form 8872 or to amend its Form 8871 to identify itself as a QSLPO.

  2. If any of the above notices is received in EO Accounts, route to EO Entity MS: 6273. For additional information, refer to IRM 21.3.8.10.2.12.

21.7.7.4.7.2  (01-01-2014)
Public Inspection of Form 8872

  1. The IRS will make Form 8872 (including Schedules A and B) open to public inspection on the IRS web site at http://forms.irs.gov/politicalOrgsSearch/.In addition, the organization must make available for public inspection a copy of this report during regular business hours at the organization's principal office and at each of its regional or district offices having at least 3 paid employees.

  2. A penalty of $20 per day will be imposed on any person under a duty to comply with the public inspection requirement for each day a failure to comply continues. The maximum penalty imposed on all persons for failures relating to one report is $10,000.

  3. A penalty will be imposed if the organization is required to file Form 8872 and it:

    • Fails to file the form by the due date or

    • Files the form but fails to report all of the information required or it reports incorrect information.

    The penalty is 35 percent of the total amount of contributions and expenditures to which a failure relates.

21.7.7.4.7.3  (01-01-2014)
Summary of Form Filing Requirements

  1. The table below provides a summary of forms required to be filed by political organizations:

    Form When Filed Exceptions to Filing Requirement
    Form 8871 Within 24 hours of establishment or within 30 days of any material change, including termination
    • Organization that does not seek tax-exempt status;

    • Political committee required to report to the FEC;

    • Campaign committee of state and local candidates;

    • State or local committee of political parties; and

    • Organization that reasonably expects annual gross receipts to always be less than $25,000.

    Form 8872 At organization's option, quarterly/semiannually or monthly, on same basis for entire calendar year (see form instructions for detailed information)
    • Any organization excepted from Form 8871 filing requirement (see above); and

    • Qualified state or local political organization (QSLPO).

    Form 1120-POL Due the 15th day of the 3rd month after the close of the taxable year
    • Political organization with no taxable income after taking the $100 specific deduction

    Form 990 or Form 990-EZ Due the 15th day of the 5th month after the close of the taxable year
    • Any organization excepted from Form 8871 (see above); and

    • Caucus or association of state or local officials

21.7.7.4.8  (01-01-2014)
Form 8453-X, Political Organization Declaration for Electronic Filing
of Notice of Section 527 Status

  1. Form 8453-X is automatically generated for a new political organization to complete when a Form 8871 is submitted electronically. The organization must print the form, sign it, and mail it to the Ogden campus. In doing so, the electronic filing of Form 8871 is authenticated. This form replaced the Form 8871 jurat.

  2. When Form 8453-X is not submitted to the Ogden campus within 60 days of the filing, the Ogden campus will issue a letter to the organization requesting the form.

  3. If Form 8453-X is submitted without a signature, the signature page of the form will be returned to the organization requesting a signature.

  4. A TC 971 AC 351 is entered by EO Entity when a Form 8453-X is received.

  5. Misrouted Forms 8453-X received in EO Accounts must be forwarded to EO Entity.

21.7.7.4.9  (01-01-2014)
Form 5227, Split-Interest Trust Information Return

  1. Form 5227 is used to report the financial activities of a split-interest trust described in IRC 4947(a)(2) and to determine whether the trust is treated as a private foundation and is subject to the excise taxes under Chapter 42.

  2. The MFT is 37 and the tax class is 4. Form 5227 is due the 15th day of the fourth month after the calendar year ends.

  3. The Pension Protection Act (PPA) of 2006 modified return information for split interest trusts for taxable years beginning January 1, 2007. Split interest trusts are now required to file annually regardless of whether or not their income is distributed. Prior to PPA, section 6034(a) trusts were exempt from filing if they were required to distribute all net income to beneficiaries. With the new filing requirement for these trusts, the Failure to File penalty is now applicable to this return.

  4. The provision also amended section 6652(c)(2)(C) allowing a Daily Delinquency Penalty to be charged on split interest trusts for not filing a timely return. A penalty will also be imposed on the trustee if the trustee knowingly fails to file. Refer to IRM 21.7.7.4.23. for additional penalty information.

  5. PPA 2006 amended IRC 6034 and 6104(b) so as to:

    • Make Form 5227 publicly available under IRC 6104(b) except for the non 170(c) beneficiaries. They are exempt from disclosure under the PPA. Schedule A, Distributions, Assets, and Donor Information (page 7) is not open for inspection.

    • To protect information in such returns relating to non-charitable beneficiaries from public disclosure, and

    • To relieve organizations that file Form 5227 from filing Form 1041-A.

  6. The amendments take effect for returns for tax years beginning on or after Jan. 1, 2007. Section 6104(b) was also amended which requires Form 5227 to be publicly available except for the non-170(c) beneficiaries. They are exempt from disclosure under the PPA.

  7. Form 5227 is detached by C&E and processed separately from the return to which it was originally attached.

  8. Form 5227 is processed as a Form 990-PF if:

    1. There is an indication that the organization is now a private foundation or an IRC 4947(a)(1) trust treated as a private foundation.

    2. Filer attempts to compute and/or pay excise tax on investment income.

    3. An IRS label is present indicating type of foundation code 02, 03, or 04.

  9. Income flows from Form 5227 or Form 1041-A to Form 1041 and Form 1040. If any amount on one return is amended, all returns must be amended. Interest, dividends, capital gains, etc. on Form 1040 should be at least the amounts reported on Form 5227 or Form 1041-A. Capital gains, however, can be rolled into trust principal or corpus and not be distributed. If it is distributed, per Part II Form 5227, the amounts should match.

21.7.7.4.9.1  (01-01-2014)
Pension Protection Act of 2006 (PPA)

  1. PPA also modified new reporting requirements for Form 990, Form 990-EZ, Form 990-PF, Form 990-T and Form 4720. Section 4965 establishes new excise taxes for tax-exempt entities and their managers who are parties to certain prohibited tax shelter transactions. Section 4965 also imposes an excise tax on any entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction (PTST).

  2. Section 4966 imposes an excise tax on a sponsoring organization that maintains donor advised funds if it makes certain distributions from a donor advised fund. It also imposes an excise tax on the agreement of any fund manager of the sponsoring organization to the making of a distribution, knowing that it is a taxable distribution. Tax applies to the distributions occurring in taxable years beginning after August 17, 2006.

  3. Section 4967 imposes excise taxes on certain distributions from a donor advised fund that provide more than an incidental benefit to a donor, a donor-advisor, or related persons (as described in sections 4947(d) and 4958(f)(7)). A separate excise tax may be imposed on a fund manager who agreed to making of the distribution. Tax applies to taxable years beginning after August 17, 2006.

21.7.7.4.10  (01-01-2014)
Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts

  1. For returns for tax years beginning before Jan. 1, 2007, Form 1041-A is used to report certain charitable information required under IRC 6034. With certain exceptions, trusts required to file Form 1041-A are IRC 4947(a)(2) split-interest trusts (664 charitable remainder trusts, 170(f)(2)(B) charitable lead trusts, and 642(c)(5) pooled income funds) and trusts that claim a charitable deduction under IRC 642(c). For returns for tax years beginning on or after Jan. 1, 2007, Form 1041-A will no longer be required of split-interest trusts.

  2. The MFT is 36 and the tax class is 4.The return is due the 15th day of the fourth month after the calendar year ends.

    Note:

    Form 1041-A is not required of section 4947(a)(2) trusts for tax years beginning after December 31, 2006. Form 5227 will meet the requirements of section 6034. See instructions to Form 1041-A.

  3. A trust that files Form 1041-A must report on the calendar year. A trust exempt from tax under IRC 501(a) or described in IRC 4947(a)(1) does not file Form 1041-A and may use a non-calendar year.

  4. A decedent’s estate is not required to file Form 1041-A. Section A (Type of entity) on page 1 of Form 1041 will indicate if the entity is a decedent’s estate.

  5. A copy of Form 1041-A may be attached to Form 5227. Receipt and Control separates the returns for processing.

  6. IRC 6652(c)(2) provides for separate penalties of $10 a day, up to a maximum of $5,000, against both the trust and the trustee for not filing Form 1041-A on time, unless there is reasonable cause. The law also provides penalties for filing a false or fraudulent return.

  7. When a DDP is assessed on the Form 1041-A due to late filing and the taxpayer is not required to file a Form 1041-A, the penalty can be removed without a reasonable cause statement.

21.7.7.4.11  (01-01-2014)
Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code

  1. Form 4720 is filed by:

    • Private foundations and IRC 4947(a) trusts

    • Donor advised funds and certain supporting organizations with excess business holdings.

    • Public Charities making excess lobbying expenditures

    • Organizations making political expenditures

    • Charitable organizations that make certain premium payments on personal benefit contracts

    • Self-dealers, disqualified persons, foundation managers, organization managers, donors, donor advisors, and related persons

    • Tax-exempt entities that are party to prohibited tax shelter transactions

    Refer to Form 4720 instructions for detailed information regarding who must file.

  2. Form 4720 is used to figure and pay:

    • The initial taxes on private foundations, foundation managers, and self-dealer under IRC 4941,IRC 4942, IRC 4943, IRC 4944, and IRC 4945 for self-dealing, failure to distribute income, excess business holdings, investments that jeopardize charitable purpose, and taxable expenditures.

    • The initial taxes on certain supporting organizations and donor advised funds for excess business holdings under IRC 4943.

    • IRC 4911 tax on excess lobbying expenditures by public charities that have elected to be subject to IRC 501(h) regarding expenditures to influence legislation. (Private foundations and IRC 4947(a) trusts are not eligible to make this election).

    • IRC 4912 tax on excess lobbying expenditures that result in loss of IRC 501(c)(3) tax-exempt status.

    • IRC 4955 tax imposed on any amount paid or incurred by a IRC 501(c)(3) organization that participates or intervenes in any political campaign on behalf of or in opposition to any candidate for public office.

    • IRC 4958 initial taxes on disqualified persons and organization managers of IRC 501(c)(3) (except private foundations) organizations, donor advised funds and IRC 501(c)(4) organizations that engage in excess benefit transactions

    • IRC 4965 tax on a tax-exempt entity and foundation manager pertaining to prohibited tax shelter transactions.

    • IRC 4966 tax on sponsoring organizations of donor advised funds and fund managers for taxable distributions.

    • IRC 4967 tax on donors, donor advisors, related persons and fund managers for prohibited benefits from donor advised funds.

    • IRC 170(f)(10) tax on any premiums paid on a personal benefit contract in connection with a transfer to an organization or charitable remainder trust for which a charitable deduction is not allowed to the transferor.

    • IRC 664(c)(2) excise tax on the unrelated business taxable income of a charitable remainder trust.

  3. Form 4720 provides for the assessment of tax against an organization as well as an individual. It also provides for tax on excess lobbying expenditures for a public charity; therefore, there may be EINs and SSNs on the return.

  4. Return generally has the same due date as Form 990-PF, Form 5227, Form 990 or Form 990-EZ. The MFT is 50.

  5. Form 4720 is divided into the following sections:

    • Part I — Taxes on organizations

    • Part Il-A — Taxes on Managers, Self-Dealers, Disqualified Persons, Donors, Donor Advisors, and Related Persons

    • Part Il-B — Summary of Taxes

    • Schedule A - Initial Taxes on Self-Dealing

    • Schedule B - Initial Tax on Undistributed Income

    • Schedule C - Initial Tax on Excess Business Holdings

    • Schedule D - Initial Taxes on Investments That Jeopardize Charitable Purpose

    • Schedule E - Initial Taxes on Taxable Expenditures

    • Schedule F - Initial Taxes on Political Expenditures

    • Schedule G - Tax on Excess Lobbying Expenditures

    • Schedule H - Taxes on Disqualifying Lobbying Expenditures

    • Schedule I - Initial Taxes on Excess Benefit Transactions

    • Schedule J - Taxes on Being a Party to Prohibited Tax Shelter Transactions

    • Schedule K - Taxes on Taxable Distributions of Sponsoring Organizations Maintaining Donor Advised Funds

    • Schedule L - Taxes on Prohibited Benefits Distributed From Donor Advised Funds

  6. Interest is computed as established under IRC 6621 .

21.7.7.4.11.1  (01-01-2014)
Form 4720 Correspondence

  1. Correspondence issues relating to Form 4720 may include any of the following:

    • Balance due notices;

    • Missing payments;

    • Requests for penalty abatement;

    • Abatement of First Tier Tax;

    • Missing required attachments;

    • Erroneous refunds.

21.7.7.4.11.2  (01-01-2014)
Penalties Applicable to Form 4720

  1. The following penalties apply to public charities, private foundations, foundation managers, and self-dealers required to file Form 4720.

    • Failure to file;

    • Willful failure to file;

    • Failure to pay tax due.

    • Willful failure to pay tax due;

    • Filing fraudulent returns or statements

  2. EO Accounts tax examiners may abate penalties related to Form 4720. However, if both a tax decrease and penalty abatement are requested, refer the case to the Field. Do not adjust the penalties.

    Note:

    See IRM 20.1 for more information regarding penalty abatement.

21.7.7.4.11.3  (01-01-2014)
Form 4720-A

  1. Form 4720-A (MFT 66) is used to assess initial taxes on managers, self-dealers, disqualified persons, donors, donor advisors, and related persons.

  2. It is not a standard form and is created by converting and/or photocopying Form 4720 and inserting a printed "A" in red ink to the right of the form number 4720.

  3. Form 4720, Part Il-A, is used as the source of information to create Form 4720-A. Part Il-A consists of all persons who owe tax in connection with the foundation or organization, whether as managers, self-dealers, disqualified persons, donors or related persons. It is prepared for each name entered in Part Il-A of Form 4720.

  4. A Form 4720-A will be posted to Non- Master File.

21.7.7.4.12  (01-01-2014)
Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt from Federal Income Tax

  1. Every IRC 501(c)(3) organization which operates, supervises, or controls a private school must file a certification of racial nondiscrimination.

  2. If an organization is required to file Form 990 or Form 990-EZ, either as a separate return or part of a group return, the certification must be made on Schedule E (Form 990). If not required to file Form 990 or Form 990-EZ, Form 5578 is used to make the certification.

  3. The certification must be filed annually by the 15th day of the 5th month following the end of the organization's calendar year or fiscal period.

21.7.7.4.13  (01-01-2014)
Form 5768, Election/Revocation of Election by an Eligible IRC 501(c)(3) Organization to Make Expenditures to Influence Legislation

  1. Form 5768 is a numbered return but does not have a specific MFT. The transaction posts to the entity module with the year the election is effective (TC 024) or revoked (TC 023). The Doc Code is "77" and information can be accessed using CC BMFOLE, INOLE, or MFTRD. The volume is minimal.

  2. IRC 501(h), however, permits certain eligible IRC 501(c)(3) organizations to make limited expenditures of specified amounts to influence legislation. An organization making the election will, however, be subject to an excise tax under IRC 4911 if it spends more than the amounts permitted by that section.

  3. To make or revoke the election, the ending date of the tax year to which the election or revocation applies is entered in item 1 or 2, as applicable, on the Form 5768. If Form 5768 is received in processing attached to another return, it will be detached and processed separately. The election is effective beginning with the tax year in which it is signed and postmarked; the election is no longer in effect after the tax year in which the revocation is signed and postmarked.

  4. Form 5768 is filed by an organization that is exempt under IRC 501(c)(3) and files Form 990. IRC 501(c)(3) states that an organization exempt under that section will lose its tax-exempt status and its qualification to receive deductible charitable contributions if a substantial part of its activities is attempting to influence legislation.

21.7.7.4.13.1  (01-01-2014)
Amended Form 5768 Procedures

  1. If an amended, corrected, or supplemental Form 5768 is received, follow the procedures outlined below:

    1. Verify fact of filing for the tax period in question by researching CC BMFOLE for a posted Transaction Code (TC) 023 or 024. If a TC 024 is present on the module and the amended return shows no change (i.e., EIN, tax period, name, etc.), attach the amended return to the DLN of the original TC 024 document.

    2. Send a letter to the organization explaining that a Form 5768 has been previously filed for that tax period and no additional filings are necessary unless the organization chooses to revoke the election.

    3. If no TC 024 or 023 is present, edit the amended return and process as an original.

    4. If the last transaction on the account is a TC 023 (revocation) and the amended return is indicating an election, edit the amended return and process as original.

    Note:

    Any subsequent returns that are sent to be processed after the initial TC 023 or 024 has posted to Master File will unpost.

21.7.7.4.14  (01-01-2014)
Form 990-N, Annual Electronic Notice Filing Requirement

  1. Beginning in 2008, small tax-exempt organizations that were previously not required to file returns may be required to file Form 990-N, Electronic Notice (e-Postcard) for Tax - Exempt Organizations not Required to File Form 990 or 990-EZ. The Pension Protection Act of 2006 changed the filing requirements for organizations that normally are not required to file an information return because their gross receipts are $25,000 or less. Due to this legislative change, organizations with a tax period beginning after December 31, 2006, must file an annual electronic notice if they are not required to file Form 990 (or Form 990-EZ, Return of Organization Exempt From Income Tax) due to gross receipts being less than $25,000.

  2. Beginning tax year ending December 31, 2010, organizations whose gross receipts are $50,000 or less are eligible to file the Form 990-N.

  3. With the exception of a duplicate filed condition (e.g., E-filed & paper return both post to a module), EO Accounts must not attempt to resolve any issues associated with Form 990-N. Any and all correspondence, inquiries, or CP notices (except CP 193) relating to Form 990-N must be routed to Entity (MS: 6273) for resolution. Refer to the table below in order to determine which area will resolve the duplicate or amended return issue.

    If And Then
    TC 976 is for another tax period or EIN, return is for the current year, 1) Route to EO Entity for resolution. Form 990-N is processed through the irs.gov website.
    return is for a prior year, 1) Input a TC 290.00 & close control base..

    Note:

    Form 990-N can only be processed for the current year.

    TC 976 is a true duplicate return,   1) Input a TC 290 .00 & close control base.
    TC 976 is a true amended return, return is for the current year, 1) Adjust the applicable fields (i.e, gross receipts, EOY assets) following established guidelines.

  4. A CP 299 generates every time a Form 990 filing requirement changes from 01 to 02. It is an information notice only and does not require a response. The notice informs the filer they need to file a yearly electronic Form 990-N through the IRS web site because their gross receipts are under $50,000. Failure to file this yearly electronic notification will result in loss of their exempt status.

  5. The annual electronic notice is due by the 15th day of the fifth month after the close of the tax period. The notice includes the following information:

    • Organization’s name,

    • Any other names the organization uses,

    • Organization’s address,

    • Organization’s web site address (if applicable),

    • Organization’s employer identification number (EIN),

    • Name and address of a principal officer of the organization,

    • Organization’s annual tax period, and

    • Verification that the organization’s annual gross receipts are still $50,000 or less.

  6. A CP 259A delinquency notice will generate 120 days after the due date of the Form 990-N if there is no TC 150, 59X or TC 460 on the tax module. The organization must respond to this notice and the responses are worked in EO Entity MS: 6273. Also, there are no penalties assessed against the organization for late filing or extensions granted.

  7. Failure to file the annual electronic notice or Form 990 or Form 990-EZ for three consecutive years, will result in revocation of the organization's tax-exempt status as of the filing due date of the third year. The EO can be reinstated by (re)applying and paying the appropriate user fee. Reinstatement of tax-exempt status may be retroactive to the date of revocation. if the EO can show that there was reasonable cause for not filing.

21.7.7.4.15  (01-01-2014)
Routing Exempt Organization Correspondence Issues

  1. With the exception of the items designated in 21.7.7.1, all EO account related issues and inquiries are resolved in the EO Accounts units at OAMC. Any account related issues received at other locations, must be routed to OAMC, EO Accounts, MS: 6552. Inquiries and information EO Accounts is unable to address (check with the lead first) will be routed to one of the following locations for resolution:

    • TE/GE Exam Classification Site;

    • Cincinnati Submission Processing Campus,

    • TE/GE Adjustment Unit in Cincinnati,

    • EO Entity control (inquiries received at OAMC only).

  2. Mail Form 3115, Application for Change in Accounting Method, with all attachments filed by exempt organizations to:

    Internal Revenue ServiceTax Exempt and Government Entities
    P.O. Box 2508
    Cincinnati, OH 45201

21.7.7.4.15.1  (01-01-2014)
EO Issues Routed to TE/GE Adjustment Unit

  1. All written inquiries or correspondence relating to the following issues must be routed to the TE/GE Adjustment unit at the address shown below. Telephone inquiries on the issues listed below can be referred to the TE/GE CAS telephone operations toll free number 1-877-829-5500.

    • Request for a copy of an exemption letter or application form (Form 1023 or Form 1024);

    • Inquiries concerning foundation status;

    • Questions concerning determination of an organization's exempt status;

    • Organization questioning why it is no longer exempt;

    • Requests for change in filing requirements not supported by a determination letter ruling;

    • Form 8871 or Form 8872 technical related issues;

    • Inquiries/issues referencing tax exempt government instrumentalities;

    • Organization sending in copy of by-laws or by-law changes;

    • Requests to be added to Publication 78.

  2. The mailing address for TE/GE Adjustment unit is:

    Internal Revenue Service
    TE/GE Adjustment Unit
    P.O. Box 2508, Rm: 4010
    Cincinnati, OH 45201
    Phone Number: 1-877-829-5500 (toll-free number)

21.7.7.4.15.2  (01-01-2014)
EO Issues Routed to Cincinnati Submission Processing Campus

  1. The following issues are routed to the Cincinnati Submission Processing Campus (CSPC):

    • Form 1023 or Form 1024 applications (initial requests). If an EIN needs to be established, send to EO Entity first.

    • Form 8718 - User Fee

  2. CSPC addresses for mailing applications or user fees are shown below:

    Internal Revenue Service
    P.O. Box 12192
    Covington, KY 41012–0192
    Street Address:
    Internal Revenue Service
    201 West Rivercenter Blvd.
    Attn: TE/GE Extracting Stop:312
    Covington, KY 41011
    Phone Number: 1-877-829-5500

  3. For internal routing of application issues (i.e., copies or a response to a letter that was generated by an EO agent), forward to the following address.

    Internal Revenue Service
    201 W. Rivercenter Blvd.
    Attn: TE/GE Stop 31 - Team 31404
    Covington, KY 41011

  4. Form 8849 or claims for refund of communications excise tax by exempt users are worked in the CSPC, Excise Tax unit. Route all Forms 8849, attachments and claims to the following address:

    Internal Revenue Service
    MS: 5701G
    Cincinnati, OH 45999


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