Mandatory Electronic Filing of Federal Form 4720 by Private Foundations

On June 16, 2021, the IRS released an update on mandatory electronic filing of Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, by private foundations.  The Form 4720 is used for the reporting and calculation of excise taxes of certain activities and investments that fall outside an organization’s charitable purpose including excess executive compensation, undistributed income, self-dealing, taxable expenditures, investments that jeopardize the organization’s charitable purpose, and excess business holdings.

A provision of the Taxpayer First Act of 2019 (Pub L. No. 116-25), which had been delayed in December 2020, has been updated to provide that tax-exempt organizations under IRC. Sec. 501(c)(3) that are classified as private foundations under IRC Sec. 509(a) are required to electronically file the Form 4720 for tax years beginning after July 1, 2019.  Pending conversion of the Form 4720 to electronic format, the IRS continued to accept the 2019 and 2020 tax-year versions of this return on paper. With limited exceptions, this electronic filing mandate applies to private foundations filing a 2020 Form 4720 with a due date on or after July 15, 2021.  At this time, the IRS is encouraging, but not requiring, organizations other than private foundations to electronically file the Form 4720 as well.  The 2020 Form 4720 and its instructions have been updated for e-filing.

Another important aspect of the notice is that the Treasury and the IRS have clarified that the Form 4720, when filed by a private foundation, is part of the information return that is required to be made available to the public.  EisnerAmper will continue to share updates on this topic, as they become available.