n-00-24.pdf

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Part III - Administrative, Procedural, and Miscellaneous
Charitable Split-Dollar Insurance Reporting Requirements
Notice 2000-24
I. PURPOSE
This notice provides guidance to help charitable organizations comply with the
information reporting requirements imposed by the Ticket to Work and Work Incentives
Improvement Act of 1999, Pub. L. No. 106-170 (Dec. 17, 1999) (“Act”). The reporting
requirements apply to charitable organizations that pay premiums after February 8,
1999, in connection with certain life insurance, annuity, and endowment contracts.
II. BACKGROUND
a. Overview.
Section 537 of the Act added § 170(f)(10) to the Internal Revenue Code.
Section 170(f)(10)(A) provides that, in two circumstances, no charitable contribution
deduction is allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or
2522 for any transfer to, or for the use of, an organization described in § 170(c) or a
charitable remainder trust described in § 664(d) (such an organization or trust is
referred to herein as a “charitable organization”). No charitable contribution deduction
is allowed if, in connection with the transfer, (1) the charitable organization directly or
indirectly pays, or has previously paid, any premium on a personal benefit contract with
respect to the transferor, or (2) there is an understanding or expectation that any
person will directly or indirectly pay any premium on a personal benefit contract with
respect to the transferor.
b. Personal Benefit Contract.
In general, § 170(f)(10)(B) defines a “personal benefit contract” as any life
insurance, annuity, or endowment contract that benefits, directly or indirectly, the
transferor, a member of the transferor’s family, or any other person designated by the
transferor (other than an organization described in § 170(c)). Under § 170(f)(10)(D), a
person receiving payments under a charitable gift annuity (as defined in § 501(m))
funded by an annuity contract purchased by a charitable organization is not treated as
an indirect beneficiary of a personal benefit contract if the timing and amount of the
payments under the annuity contract are substantially the same as the charitable
organization’s obligations under the charitable gift annuity. For this exception to apply,
the charitable organization must possess all the incidents of ownership and be entitled
to all the payments under the annuity contract.

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III. REPORTING AND EXCISE TAX REQUIREMENTS
Section 170(f)(10)(F) requires any charitable organization that pays premiums
on a personal benefit contract in connection with a transfer for which a deduction is not
allowed under § 170(f)(10)(A) to pay an excise tax and to report certain information
related to the premium payments.
a. Form 4720 – Excise Tax Return
Section 170(f)(10)(F)(i) imposes on a charitable organization an excise tax equal
to the premiums paid by the organization after December 17, 1999, on any personal
benefit contract, if the payment of premiums is in connection with a transfer for which a
deduction is not allowed under § 170(f)(10)(A). For purposes of this excise tax, §
170(f)(10)(F)(ii) provides that premium payments made by any other person pursuant to
an understanding or expectation described in § 170(f)(10)(A) are treated as made by
the charitable organization.
A charitable organization liable for excise taxes under § 170(f)(10)(F)(i), must file
a return on Form 4720, Return of Certain Excise Tax on Charities and Other Persons
Under Chapters 41 and 42 of the Internal Revenue Code, to report and pay the taxes
due. The charitable organization must include the amount of the § 170(f)(10)(F) tax on
line 8 of Part I and should write in the amount of the § 170(f)(10)(F) tax, preceded by
“Sec 170(f)(10)(F)” on the dotted line to the left of the entry space for line 8 of the 1999
Form 4720. The Service will revise Form 4720 for taxable years beginning after
December 31, 1999.
Some charitable organizations may not yet be aware of this new excise tax
requirement. Therefore, this Notice extends the due dates for the 1999 Form 4720 only
with respect to the § 170(f)(10)(F) tax as follows. For a taxable year beginning prior to
January 1, 2000, a charitable organization liable for the § 170(f)(10)(F) tax must report
and pay that tax on a Form 4720 filed by the later of July 24, 2000 or the regular due
date specified in § 53.6071-1 of the Procedure and Administration Regulations. For a
charitable organization, other than a charitable remainder trust described in § 664(d),
the regular due date for filing Form 4720 occurs on the fifteenth day of the fifth month
following the close of the organization’s taxable year. For a charitable remainder trust,
the regular due date for filing Form 4720 occurs on the fifteenth day of the fourth month
following the close of the trust’s tax year. Charitable organizations that are required to
report items other than the § 170(f)(10)(F) tax must report those items on a 1999 Form
4720 filed by the regular due date. A charitable organization may request an extension
of time to file Form 4720 by filing Form 2758, Application for Extension of Time to File
Certain Excise, Income, Information, and Other Returns, on or before the due date of
the return.

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If a 1999 Form 4720 reporting the § 170(f)(10)(F) tax is filed and the tax is paid
by the later of July 24, 2000 or the regular due date specified in § 53.6071-1, the
Service will not assess penalties under § 6651 for failure to file a tax return or to pay
the tax required under § 170(f)(10)(F). The law does not, however, permit the Service
to waive the interest due under § 6601. Section 6601 requires that taxpayers pay
interest from the last date prescribed for payment of the tax (determined without regard
to any extension of time for payment) to the date the taxes are paid.
b. Form 8870 – Information Return Required By § 170(f)(10)(F)(iii)
Section 170(f)(10)(F)(iii) requires charitable organizations to report annually (1)
the amount of premiums paid during the year which are subject to the tax under §
170(f)(10)(F) (to be determined in the case of premiums paid after February 8, 1999
and before December 18, 1999 as if the excise tax applied to premiums paid during
that period); (2) the name and taxpayer identification number (“TIN”) of each
beneficiary under each contract to which the premiums relate; and (3) any other
information the Secretary may require. Section 170(f)(10)(F)(iii) makes returns
required by § 170(f)(10)(F)(iii) subject to the penalties applicable to returns filed under
§ 6033.
The Internal Revenue Service expects to issue a new form, Form 8870,
Information Return for Transfers Associated with Personal Benefit Contracts (Under
section 170(f)(10)), for reporting the information required by § 170(f)(10)(F)(iii). For a
taxable year beginning prior to January 1, 2000, a charitable organization that paid any
such premiums during the taxable year must file Form 8870 by the later of 90 days after
the date of the Service’s announcement in the Internal Revenue Bulletin of the
availability of Form 8870, or the date the charitable organization is required to file its
annual information return under § 1.6033-2(e) or § 53.6071-1(c), as applicable. The
Service expects to publish the announcement by May 15, 2000. Section 1.6033-2(e)
requires a charitable organization, other than a charitable remainder trust described in
§ 664(d), to file its annual information return by the fifteenth day of the fifth month
following the close of the charitable organization’s taxable year. Section 53.6071-1(c)
requires a charitable remainder trust to file its annual information return by the fifteenth
day of the fourth month following the close of the trust’s taxable year. A charitable
organization, including a charitable remainder trust, may obtain an extension of time to
file Form 8870 by filing Form 2758 on or before the due date of the return, stating on
line 4 of Form 2758 that it is requesting an extension to file Form 8870 pursuant to this
notice. For any taxable year beginning after December 31, 1999, Form 8870 will be
due on the date the charitable organization is required to file its annual information
return.
c. Forms 990, 990-PF, and 5227 -- Information Returns By Charitable
Organizations

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Section 6033 requires most charitable organizations to file annual information
returns with the Service. Generally, an organization described in § 170(c) files either
Form 990, Return of Organization Exempt From Income Tax, or Form 990-PF, Return
of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a
Private Foundation. The regulations under § 6011 require a split-interest trust
described in § 4947(a)(2), including a charitable remainder trust described in § 664(d),
to file Form 5227, Split-Interest Trust Information Return. Form 5227 is used by a split-
interest trust to report its financial activities and whether it is subject to excise taxes
under Chapter 42 of the Code. The Service will revise Forms 990, 990-PF, and 5227
for taxable years beginning after December 31, 1999, to add questions relating to
charitable split-dollar insurance arrangements described in § 170(f)(10)(F).
DRAFTING INFORMATION
The principal author of this notice is Michael B. Blumenfeld of the Office
of Associate Chief Counsel (Employee Benefits & Exempt Organizations). For further
information regarding this notice contact Mr. Blumenfeld at (202) 622-6070 (not a toll-
free call).