The Pension Protection Act of 2006 (PPA) has introduced filing requirements for split-interest trusts such as charitable remainder trusts and pooled income funds.

Which returns are affected?

These requirements apply to returns for taxable years beginning after December 31, 2006.

What are the penalties for failure to file an accurate and complete return?

For split-interest trusts with $250,000 or less in gross income, the penalties increase to $20 per day until the failure is corrected, up to a maximum of $10,000 for each return. For split-interest trusts with greater than $250,000 in gross income, the penalty is $100 per day up to a maximum of $50,000 for each return. The penalty is paid by the organization. Additionally, if an officer, director, trustee, employee, or other individual under a duty to file the return knowingly failed to file the return, the individual is also personally liable for a penalty (in addition to the penalty paid by the organization).

How does the provision change the public availability of information on a return?

Information on the return regarding beneficiaries that are not charitable organizations is exempt from public disclosure.

Does the provision change any other filing requirements?

Yes. The previous law exempted from filing requirements split-interest trusts that were required to distribute all net income currently to beneficiaries. Trustees of split-interest trusts should recognize that the current provision repeals this exemption for split-interest trusts. For this reason filing is required for tax years that beginning after December 31, 2006, even if a split-interest trust previously distributed all net income.

Disclaimer

The information provided in this resource is based on our continuing analysis of the Pension Protection Act. Every effort has been made to ensure the accuracy of this information. Due to the complexity of the PPA and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information is subject to change. Please check back here and on the IRS website (www.irs.gov) for updates. This information is not a substitute for expert legal, tax, or other professional advice and we strongly encourage grantmakers and donors to work with their counsel to determine the impact of the PPA and related guidance on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.