Instructions For Form 1120-Sf - (Rev. Sept. 1996) (Page 4 of 4) in pdf

treated as a tax imposed by section 11.

box number instead of the street

Credits against tax are treated as

See Regulations section 1.468B-2(k) for

address.

deductions by dividing the amount of

more information.

the credit by 39.6%.

Final Return, Change of Address,

Note: Limitations on changes in

Designated Settlement Fund

Amended Return

partnership agreement and capital

A fund, account, or trust is a designated

contribution—Changes in a qualified

If the fund ceases to exist, file Form

settlement fund if it meets the following

settlement fund’s distributive share of

1120-SF and check the “Final return”

six requirements:

items of income, gain, loss, deduction,

box. If the fund is correcting a previously

or credit, are disregarded if:

1. It is established by a court order

filed Form 1120-SF or Form 1120-DF,

and completely extinguishes the

check the “Amended return” box.

1. They result from a change in the

taxpayer’s tort liability.

terms of the partnership agreement after

If the fund has changed its address

December 17, 1992, or from a capital

2. No amounts may be transferred to

since it last filed a return, check the box

contribution to the partnership after

the fund other than in the form of a

for “Change of address.”

December 17, 1992, unless the

qualified payment (defined below).

Income

partnership agreement as in effect prior

3. The fund must be administered by

to December 18, 1992, requires the

Note: Amounts transferred to the fund

persons a majority of whom are

contribution, and

by or on behalf of a transferor are

independent of the taxpayer.

2. A principal purpose of the change

generally excluded from income.

4. It is established for the principal

in the partnership agreement or capital

Line 1—Taxable interest.—Enter total

purpose of resolving and satisfying

contribution is to circumvent the

taxable interest received or accrued

present and future claims against the

limitations on deductions.

during the tax year, including original

taxpayer arising out of personal injury,

issue discount. Do not include any

Line 12—Other deductions.—Enter the

death, or property.

total of other deductions not entered on

tax-exempt interest here. Report

5. The taxpayer may not hold any

lines 7 through 11. List the type and

tax-exempt interest on page 2 under

beneficial interest in the income or

Additional Information, line 2, as an

amount of deduction on an attached

corpus of the fund.

schedule. If the fund has only one item

item of information.

6. The taxpayer elects to have the

of other deduction, describe it in

Do not offset interest expense against

fund treated as a designated settlement

parentheses on the dotted part of line

interest income.

fund.

12.

Line 3—Capital gain net income.—

A qualified payment is any money or

Line 13—Net operating loss deduction

Every sale or exchange of a capital

property that is transferred to a

(NOL).—Enter the total NOL carryovers

asset must be reported in detail on

designated settlement fund under a

from prior tax years, but do not enter

Schedule D (Form 1120), Capital Gains

court order other than—

more than the fund’s taxable income.

and Losses, even though no gain or loss

1. Any amount that may be transferred

See Pub. 536, Net Operating Losses,

is indicated.

from the fund to the taxpayer (or any

and Regulations section 1.468B-2(b)(4)

Line 5—Other income.—Enter other

related person).

for more details.

taxable income not reported on lines 1

2. The transfer of any stock or

through 4. List the type and amount of

indebtedness of the taxpayer (or any

Part II.—Tax Computation

income on an attached schedule. If the

related person).

fund has only one item of other income,

Line 15—Modified gross income.—

Note: A designated settlement fund is

describe it in parentheses on the dotted

Modified gross income of a qualified

taxed in the same manner as a qualified

part of line 5.

settlement fund is its gross income, as

settlement fund. In addition, if a fund

defined in section 61, computed with

does not meet the requirements of a

Deductions

certain modifications. See Regulations

designated settlement fund but does

Note: Do not deduct:

section 1.468B-2(b) for more

meet the requirements of a qualified

Expenses allocable to tax-exempt

information.

settlement fund, the fund is treated as a

income (see section 265).

qualified settlement fund.

Line 17—Credits and payments.—No

Payments of claims made by the fund.

credits or payments are allowed other

Expenses incurred by, or on behalf of,

than those on lines 17a through 17e.

Specific Instructions

claimants or transferors.

Line 18—Estimated tax penalty.—A

fund that does not make estimated tax

Line 11—Items of loss, deduction, or

Employer identification number (EIN)

credit from a partnership interest.—

payments when due may be subject to

of fund.—Show the correct EIN in the

an underpayment penalty for the period

For tax years ending before 2003, a fund

space provided on page 1 of Form

that holds a partnership interest it

of underpayment. Generally, a fund is

1120-SF. If the fund does not have an

acquired before February 15, 1992, is

subject to the penalty if its tax is $500

EIN, the administrator should apply for

or more, and it did not timely pay the

allowed a deduction for its distributive

one on Form SS-4, Application for

share of that partnership’s items of loss,

smaller of (a) 100% of its tax liability or

Employer Identification Number. Form

(b) 100% of its prior year’s tax. See

deduction, or credits, described in

SS-4 can be obtained at most IRS or

section 6655 for details and exceptions,

section 702(a) that would be deductible

Social Security Administration (SSA)

in determining taxable income (in the

including special rules for large funds.

offices. If the fund has not received its

case of a tax credit, the income tax

Use Form 2220, Underpayment of

EIN by the time the return is due, write

liability) of a corporation. The deduction

Estimated Tax by Corporations, to see if

“Applied for” in the space for the EIN.

is allowed only to the extent of the

the fund owes a penalty. Generally, the

See Pub. 583 for more information.

fund’s distributive share of that

fund does not have to file this form

Address.—Include the suite, room, or

partnership’s items of income and gains

because the IRS can figure the amount

other unit number after the street

described in section 702(a) for that tax

of any penalty and bill the fund for it.

address. If a preprinted label is used,

year. If the fund has an interest in more

If you attach Form 2220, be sure to

include this information on the label.

than one partnership, attach a schedule

check the box on line 18 and enter the

If the Post Office does not deliver mail

showing each partnership’s items of

amount of any penalty on that line.

to the street address and the fund or the

loss, deduction, and credit, and that

See Form 2220 for other information

administrator has a P. O. box, show the

partnership’s items of income or gain.

that may apply.

Page 4

Instructions For Form 1120-Sf - (Rev. Sept. 1996) Page 4

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