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Form 4720 filing requirement for Chapter 42 excise taxes, abatement

Filing requirement for Chapter 42 excise taxes

The U.S. Treasury Department and IRS have released for publication in the Federal Register proposed regulations (REG-107163-18) specifying which return to use to pay certain excise taxes imposed by sections 4960, 4966, 4967, and 4968 and the time for filing the return.

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Additionally, the proposed regulations implement the statutory addition of sections 4966 and 4967 to the first-tier taxes subject to abatement. 

Read the proposed regulations [PDF 92 KB]

Background

The Pension Protection Act of 2006 (Pub. L. No. 109-280) added sections 4966 and 4967 to the Code, which impose excise taxes related to certain distributions from donor advised funds. These taxes are “qualified first tier taxes” for abatement purposes and therefore are subject to abatement under generally applicable rules. 

Sections 4960 and 4968 were added to the Code by the new U.S. tax law (Pub. L. No. 115-97, enacted December 22, 2017). Section 4960 requires tax-exempt organizations to pay a 21% excise tax on remuneration over $1 million and on “excess parachute payments” paid to “covered employees,” while section 4968 imposes a 1.4% excise tax on the net investment income of an “applicable educational institution.”

Form 4720

The proposed regulations amend existing procedural regulations to provide that persons (including governmental entities) liable for section 4960, 4966, 4967, or 4968 excise taxes are required to file a return on Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code

In August 2018, the IRS released a draft version of Form 4720 [PDF 238 KB] for 2018 and accompanying draft instructions [PDF 425 KB] that added Schedules N and O for reporting related to sections 4960 and 4968, respectively. 

The proposed regulations provide that a person required to file a Form 4720 to report an excise tax under section 4960, 4966, 4967 or 4968 must file a Form 4720 by the 15th day of the fifth month after the end of the person's tax year during which the excise tax liability was incurred. [Form 4720 and the related instructions have directed persons subject to sections 4966 and 4967 to report excise taxes imposed thereunder on Form 4720 since 2006.]

Abatement of section 4966 and section 4967 excise taxes

The proposed regulations also update existing regulations to make clear that section 4966 and section 4967 taxes are qualified first-tier taxes subject to abatement under section 4962.

 

For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 | pquesenberry@kpmg.com

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