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General Instructions

Purpose of Form

Use Form 5227 to:

  • Report the financial activities of a split-interest trust.

  • Provide certain information regarding charitable deductions and distributions of or from a split-interest trust.

  • Determine if the trust is treated (for Chapter 42 excise tax purposes) as a private foundation and subject to certain excise taxes under Chapter 42.

Form 5227 is open to public inspection.

Use Schedule A of Form 5227 to report:

  • Accumulations of income for charitable remainder trusts,

  • Distributions to non-charitable beneficiaries/recipients, and

  • Information about donors and assets contributed during the year.

Schedule A of Form 5227 isn't open for public inspection.

Who Must File

All charitable remainder trusts described in section 664 must file Form 5227. All pooled income funds described in section 642(c)(5) and all other trusts such as charitable lead trusts that meet the definition of a split-interest trust under section 4947(a)(2) must file Form 5227 unless the Exception (below) applies.

Exception.   A split-interest trust described below isn't required to file Form 5227.
  • The split-interest trust was created before May 27, 1969, and

  • All transfers of corpus to the trust occurred before May 27, 1969, or

  • As to each and every transfer of corpus to the trust made after May 26, 1969, no deduction was allowed under any of the sections listed in section 4947(a)(2).

  If a split-interest trust created before May 27, 1969, receives a contribution to corpus after May 26, 1969, for which a deduction is allowed under any of the sections listed in section 4947(a)(2), the trust will cease to qualify for the exception described above. In that case, the split-interest trust must file Form 5227 for the year when the transfer to corpus occurs and each subsequent year, the same as any split-interest trust created after May 26, 1969.

Note.

Regulations section 1.6012-3(a)(6) references Form 1041-B, Charitable Remainder Trust. Form 5227 replaces Form 1041-B. Regulations section 1.6034-1(c) references Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts. Form 5227 replaces Form 1041-A for split-interest trusts.

After 2006, a split-interest trust no longer files Form 1041-A for any purpose.

Which Parts To Complete

The term “split-interest trust” refers to trusts of various types. See the Definitions section of these instructions below. Certain parts of Form 5227 apply exclusively to a particular type of split-interest trust (such as a charitable remainder trust, also referred to as a “section 664 trust”). Parts or lines that apply exclusively to a particular type of split-interest trust are identified in the Instructions and on Form 5227 with a parenthetical identifying the type of trust to which the part or line applies. Parts or lines that aren't indicated as applying to a particular type of split-interest trust should be completed by every type of split-interest trust with one exception. Parts VI-A and VI-B aren't completed by a charitable remainder or charitable lead trust whose charitable interests involve only war veterans' posts or cemeteries (as described in sections 170(c)(3) and 170(c)(5)).

Definitions

Split-interest trust.   A split-interest trust is a trust that:
  • Is not exempt from tax under section 501(a);

  • Has some unexpired interests that are devoted to purposes other than religious, charitable, or similar purposes described in section 170(c)(2)(B); and

  • Has amounts transferred in trust after May 26, 1969, for which a deduction was allowed under one of the sections listed in section 4947(a)(2).

A split-interest trust is subject to many of the same requirements and restrictions that are imposed on private foundations.

The most common forms of split-interest trust include the following:

Charitable lead trust.   This is a split-interest trust that annually pays a fixed annuity or unitrust amount to a charitable organization for the lead period specified in the trust instrument. The lead period may be a term of years or it may be a period determined by the lifetime of one or more individuals, as described in Regulations sections 1.170A-6(c), 20.2055-2(e)(2)(vi) and (vii), and 25.2522(c)-3(c)(2)(vi) and (vii). The donor to the trust will have been allowed a deduction under one of the sections listed in section 4947(a)(2). At the end of the lead period, annual payments to the charitable organization cease, and the remaining corpus becomes payable, outright or in trust, to a noncharitable (private) beneficiary.

Charitable remainder annuity trust (CRAT).   This is a split-interest trust described in section 664(d)(1). It pays a fixed dollar (annuity) amount, at least annually, to one or more recipients, at least one of which isn't a charitable organization. The annuity amount must be at least 5%, but cannot exceed 50%, of the initial net fair market value (FMV) of all property contributed to corpus, subject to the further requirement that the remainder interest in the trust (measured at the time property is transferred to the trust) must have a value of at least 10% of the FMV of the initial trust corpus. Payments to the recipient continue for a period of years. The period, if stated as a specific number, cannot exceed 20 years. The period can also be determined by the lifespan of one or more recipients. Whether the period is a fixed number of years, or is measured by an individual’s lifespan, the value of the remainder interest must be at least 10% of the FMV of the property transferred to the trust (as explained above). Upon termination of the recipient’s entitlement to the annuity amount, the remainder interest passes to a charitable organization described in section 170(c), or qualified employer securities are transferred to an employee stock ownership plan.

Charitable remainder unitrust (CRUT).   This is a split-interest trust described in section 664(d)(2). It is similar in many respects to a CRAT except that the amount payable to the recipient annually (the unitrust amount) is a fixed percentage (not less than 5% but not more than 50%) of the net FMV of the trust’s assets, subject further to the requirement described above that the remainder interest must have a value of at least 10% of the value of the initial trust corpus, determined at the time property is transferred to the trust. Because the unitrust amount is calculated annually based upon the FMV of trust corpus, and isn't a fixed amount determined upon the creation of the trust, the trustee must determine the FMV of the assets of the trust annually. Upon termination of the recipient’s entitlement to payments of the unitrust amount, the remainder interest is transferred to a charitable organization described in section 170(c), or qualified employer securities are transferred to an employee stock ownership plan. The trust agreement for a CRUT may allow the trustee to distribute less than the full unitrust amount in years when the trust income (as defined under section 643(b)) is less than the unitrust amount. A Net-Income Makeup Charitable Remainder Unitrust (NIMCRUT) is a charitable remainder unitrust that allows payment of the unitrust amount to be deferred in years when the unitrust amount exceeds trust income, with the deferred distributions being made up in a later year when the trust has sufficient income. A Net Income Charitable Remainder Unitrust (NICRUT) is a charitable remainder unitrust that allows for deferral of the unitrust payment (as described above), but does not provide for deferred distributions to be made up in future years.

Note.   The terms “section 664 trust” and “CRT” are general references to charitable remainder trusts. These terms include CRATs and CRUTs.

Pooled income fund.   This is a split-interest trust described in section 642(c)(5), which is created and administered by a charitable organization described in section 170(b)(1)(A)(i) – (vi). Donors to the fund receive a lifetime income interest, based upon the rate of return earned by the trust (or such other rate as may be prescribed for a trust in existence for less than three years). Upon the death of the donor and the termination of his or her income interest, the charitable organization becomes entitled to the portion of the trust corpus attributable to the donor’s contribution, free of trust.

Recipient.   A recipient is a beneficiary who receives the possession or beneficial enjoyment of the unitrust or annuity amount.

Foundation manager.   A foundation manager is an officer, director, or trustee (or an individual who has powers or responsibilities similar to those of officers, directors, or trustees). In the case of any act or failure to act, the term foundation manager may also include an employee of the trust who has the authority to act.

Disqualified person.   A disqualified person is:
  1. A substantial contributor;

  2. A foundation manager;

  3. A person who owns more than 20% of a corporation, partnership, trust, or unincorporated enterprise, which is itself a substantial contributor;

  4. A member of the family of an individual in the first three categories; or

  5. A corporation, partnership, trust, or estate in which persons described in (1), (2), (3), or (4) above own a total beneficial interest of more than 35%.

  6. For purposes of section 4943 (excess business holdings), a disqualified person also includes:

    a. A private foundation which is effectively controlled (directly or indirectly) by the same persons who control the trust in question, or

    b. A private foundation substantially all of the contributions to which were made (directly or indirectly) by the same person or persons described in (1), (2), or (3) above, or members of their families, within the meaning of section 4946(d), who made (directly or indirectly) substantially all of the contributions to the trust in question.

  7. For purposes of section 4941 (self-dealing), a disqualified person also includes certain government officials. (See section 4946(c) and the related regulations.)

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Phone Help

If you have questions and/or need help completing this form, please call 1-877-829-5500. This toll-free telephone service is available Monday through Friday.

Additional Information

For additional information on private foundations and foundation managers, visit 
www.irs.gov/charities/foundations/index.html.

Other Forms You May Have To File

You may also be required to file one or more of the following forms.

  • Form 56, Notice Concerning Fiduciary Relationship.

  • Form 1041, U.S. Income Tax Return for Estates and Trusts.

  • Form 1041-ES, Estimated Income Tax for Estates and Trusts.

  • Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code.

  • Form 8275, Disclosure Statement. Use this form to disclose items or positions (except those contrary to a regulation—see Form 8275-R, next) that aren't otherwise adequately disclosed on the tax return. The disclosure is made to avoid parts of the accuracy-related penalty for disregard of rules or substantial understatement of tax. Form 8275 is also used for disclosures relating to preparer penalties for understatements due to unrealistic positions or for willful or reckless conduct.

  • Form 8275-R, Regulation Disclosure Statement. Use this form to disclose any item on a tax return for which a position has been taken that is contrary to Treasury regulations.

  • Form 8822-B, Change of Address or Responsible Party—Business.

  • Form 8868, Application for Automatic Extension of Time To File an Exempt Organization Return.

  • Form 8870, Information Return for Transfers Associated With Certain Personal Benefit Contracts.

  • Form 8886, Reportable Transaction Disclosure Statement.

You can order forms and publications by downloading forms at www.irs.gov/orderforms.You can also get most forms and publications at your local IRS office or online at IRS.gov.

Period To Be Covered by Return

File Form 5227 for each calendar year. This revision of the form is for the 2016 calendar year.

Accounting Methods

Trust income must be computed using the method of accounting regularly used in keeping the trust's books and records. Generally, permissible methods include the cash method, the accrual method, or any other method authorized by the Internal Revenue Code. The method used must clearly reflect income.

Unless otherwise allowed by law, the trust may not change the accounting method used to report income (for income as a whole or for any material item) without first getting consent on Form 3115, Application for Change in Accounting Method. See Pub. 538, Accounting Periods and Methods, for more details.

When To File

File Form 5227 for calendar year 2016 by April 18, 2017. In the case of a final short-year period, the return is due by the 15th day of the 4th month following the date of the trust's termination.

Extension of Time To File.   Use Form 8868 to request an automatic extension of time to file. The request for an automatic extension must be filed by the due date of the return.

Where To File

U.S. Address.    If you use the U. S. Postal Service, and are located in the United States, file Form 5227 at the following address: 

 
Department of the Treasury  
Internal Revenue Service Center 
Ogden, UT 84201-0027

Outside the U.S.    If you use a designated Private Delivery Service (or are located outside the U.S. in a foreign country or a U.S. possession), file Form 5227 at this address: 

Internal Revenue Service Center 
1973 Rulon White Blvd.  
M/S 6054 
Ogden, UT 84201

Private delivery services (PDSs).   In addition to the U.S. Postal Service, exempt organizations can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns and payments. These private delivery services include only the following.
  • DHL Express 9:00, DHL Express 10:30, DHL Express 12:00, DHL Express Worldwide, DHL Express Envelope, DHL Import Express 10:30, DHL Import Express 12:00, DHL Import Express Worldwide.

  • Federal Express (FedEx): FedEx First Overnight, FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Next Flight Out, FedEx International Priority, FedEx International First, and FedEx International Economy.

  • United Parcel Service (UPS): UPS Next Day Air Early AM, UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

  PDSs cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

  PDSs deliver to:

Internal Revenue Service Center 
1973 Rulon White Blvd. 
M/S 6054  
Ogden, UT 84201

  The private delivery service can tell you how to get written proof of the mailing date.

Penalty for Failure To File Timely, Completely, or Correctly

The failure to file penalty under section 6652(c)(2)(C) is imposed on a split-interest trust unless the failure is due to reasonable cause. The penalty is imposed on the trust for failure to:

  • Timely file a return,

  • File a complete return, or

  • Furnish correct information.

The penalty is $20 for each day the failure continues with a maximum of $10,000 for any one return. However, if the trust has gross income greater than $255,000, the penalty is $100 for each day the failure continues with a maximum of $51,000 for any one return.

The IRS may make a written demand that the delinquent return be filed or information be furnished specifying a time to comply with the demand. If the trustee fails to comply with the demand by the specified date, the trustee will be charged a penalty of $10 for each day the failure continues with a maximum of $5,000 for any one return.

If the trustee required to file the return knowingly fails to file the return, the same penalty that is imposed on the trust will also be imposed on such trustee. Also, penalties for filing a false or fraudulent return apply.

Trust Instrument

When you file the first return for a charitable remainder annuity trust or unitrust, or charitable lead annuity or unitrust, include:

  1. A copy of the trust instrument, and

  2. A written declaration under penalties of perjury that it is a true and complete copy.

For sample forms of trusts that meet the requirements of a charitable remainder unitrust, see Rev. Procs. 2005-52 through 2005-59, 2005-2 C.B. 326, 339, 353, 367, 383, 392, 402, and 412.

For sample forms of a trust that meet the requirements of a charitable remainder annuity trust, see Rev. Procs. 2003-53 through 2003-60, 2003-2 C.B. 230, 236, 242, 249, 257, 262, 268, and 274.

For sample forms of trusts that meet the requirements of an inter vivos grantor or nongrantor charitable lead annuity trust, see Rev. Proc. 2007-45, 2007-29 I.R.B. 89. For a sample form of a trust that meets the requirements of a testamentary charitable lead annuity trust, see Rev. Proc. 2007-46, 2007-29 I.R.B. 102.

Rounding Off to Whole Dollars

You may round off cents to whole dollars on your return and attached statements. If you do round dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.

If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Attachments

If you need more space, attach separate sheets showing the same information in the same order as on the printed form. Show the totals on the printed form.

Enter the trust's name and employer identification number on each sheet. Also, use sheets that are the same size as the forms and indicate clearly the line of the printed form to which the information relates.


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