United States

Mandatory Form 4720 e-filing delayed for private foundations

TAX ALERT  | 

On Dec. 16, 2020, the IRS released Notice 2021-01, extending paper filing of Forms 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code, for private foundations, until the Form 4720 electronic filing system becomes available. The IRS expects to announce that electronic filing of Form 4720 is available and mandatory in early 2021.

Background

As amended by the Taxpayer First Act of 2019 (Pub.L. 116-25), section 6033 requires exempt organizations to electronically file all returns required by such section, effective for tax years beginning on or after July 2, 2019. The IRS and Treasury treat Forms 4720 filed by private foundations or trusts described in section 4947(a)(2) as required by section 6033 and, therefore, subject to the mandatory e-filing requirement.

Currently, a disqualified person may satisfy its Form 4720 filing requirement by jointly filing with the private foundation if all parties have the same tax year.

Mandatory e-filing of Form 4720

The IRS is in the process of modifying Form 4720 to allow for electronic filing in accordance with the Taxpayer First Act mandate. The Notice permits private foundations to continue paper filing Forms 4720 until the electronic filing system is available. Once electronic filing becomes available, private foundations must file all required Forms 4720 electronically. Because the IRS’s electronic filing system only allows for one taxpayer per return, the Notice states that the IRS will not permit joint Form 4720 submissions once the electronic filing mandate becomes effective.

RSM observation

The Notice appears to imply that the e-filing mandate does not apply to the Form 4720 itself but the type of taxpayer filing the return. Furthermore, the Notice raises questions about whether the IRS will post redacted Forms 4720 filed by private foundations on its website (as it currently does with Form 990 series returns) as many private foundations may not be aware of the public inspection requirements associated with their Forms 4720. 

RSM CONTRIBUTORS


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