Form 4720 (2021)


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What Is A Form 4720

In tax documentation, IRS Form 4720 is an essential form utilized mainly by tax-exempt organizations and certain other entities. This form pertains to the reporting and paying excise taxes under chapters 41 and 42 of the Internal Revenue Code. Commonly, these taxes are related to specific activities or financial expenditures that the IRS regulates to ensure that the benefits of tax-exempt status are not misused.

When to Use IRS Form 4720

There are several situations where the IRS form 4720 becomes relevant:

  • Tax-exempt organizations that engage in any excess benefit transactions.
  • Private foundations that fail to distribute income by requirements.
  • Organizations and individuals involved in prohibited tax-shelter transactions.
  • Managers of tax-exempt organizations who agree to make certain expenditures or incur certain incomes are subject to excise taxes.
  • Certain organizations that provide noncash benefits to their employees exceed the allowable limit.

How To Fill Out Form 4720 Instruction

Step 1: Identifying Information

Provide the full legal name and contact information as registered with the IRS.

Enter the Employer Identification Number (EIN) for organizations or the Social Security Number (SSN) for individuals.

Indicate the start and end of the tax year you're filing this return.

Step 2: Foreign Foundations and Multiple Filings

Answer whether the organization is a foreign private foundation. If currency conversion is required, show the conversion rate to U.S. dollars.

Step 3: Part I - Taxes on Organization

Calculate the various taxes due under chapters 41 and 42 by filling in the relevant sections using data from:

Schedule B: Tax on undistributed income.

Schedule C: Tax on excess business holdings.

Schedule D: Tax on investments jeopardizing charitable purposes.

Step 4: Part II - Taxes on Individuals

If taxes are due for self-dealing or prohibited transactions on the part of managers, disqualified persons, or donors, they must be calculated on corresponding schedules:

Step 5: Part III - Tax Payments

Line 2: Enter the total tax payments made, including any overpayments from previous years and payments made with extension forms.

Step 6: Schedules A through O

In these schedules detail each action that has given rise to a tax liability. This will include:

Descriptions of acts of self-dealing or taxable expenditures.

Calculations of initial taxes are based on percentages provided by IRS regulations.

Identification of taxable distributions, excess benefit transactions, and other aspects covered under chapters 41 and 42 of the IRC.

Ensure all relevant schedules that apply to your organization's situation are completed.

Step 7: Review and Signature

Thoroughly review all filled information for accuracy and compliance with tax laws. The form must be signed by an authorized individual, such as an organization officer.

When to File form 4720

Filing IRS form 4720 follows specific timelines based on the tax period and the nature of the transactions reported. In general, the form must be filed by the 15th day of the fifth month after the organization's tax year ends. However, the form must be filed by the end of the following month after the transaction occurs for certain excise taxes like those on prohibited tax-shelter transactions. Extensions for filing can be requested, but it is crucial that taxes are paid by the original due date to avoid potential penalties and interest.

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