Trusts under Section 4947(a)

April 1, 2019
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What is 4947(a)?

4947(a) refers to a section in the Internal Revenue Code regarding the application of tax to certain nonexempt trusts – charitable trusts and split-interest trusts. These trusts are treated as private foundations unless they meet the requirements of a public charity. 4947(a) was created so these types of trusts could not avoid private foundation restrictions, which include private foundation excise taxes, termination provisions of section 507, and governing instrument requirements under section 508(e).

Nonexempt Charitable Trusts – or 4947(a)(1) Trusts

According to the Internal Revenue Code, a nonexempt charitable trust is a trust:

  • Not exempt from tax under section 501(a).
  • In which all the unexpired interests are devoted to one or more charitable purposes.
  • Eligible for a charitable contribution deduction.

A nonexempt charitable trust may not have any taxable income if it truly pays or uses all of its income for charitable purposes. Otherwise, if these trusts fail to use all income for charitable purposes, they must file Form 1041. Any trusts created before October 9, 1969 may not have to file this return.

Along with Form 1041, nonexempt charitable trusts must also file Form 990-PF. Additionally, this includes a 1 or 2 percent excise tax on investment income. If your nonexempt charitable trust is eligible, you may file Form 990, which would alleviate the excise tax.

Split-Interest Trusts – or 4947(a)(2) Trusts

According to the Internal Revenue Code, a split-interest trust is a trust:

  • Not exempt from tax under section 501(a).
  • With some unexpired interests that are devoted to purposes unrelated to charity.
  • That has amounts transferred in trust in which a charitable deduction was allowed under section 170 and similar sections of the Internal Revenue Code.

Any amounts transferred in trust before May 27, 1969 are not subject to the same provisions as private foundations.

To report financial activities and calculate deductions, split-interest trusts must file Form 5227.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.