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                                                                                                      Department of the Treasury
                                                                                                      Internal Revenue Service
Instructions for

Form 1120-SF

(Rev. November 2022)

(Use with the November 2018 revision of Form 1120-SF)
U.S. Income Tax Return for Settlement Funds

Section references are to the Internal Revenue                                               Generally, file Form 7004 by the regular 
Code unless otherwise noted.                   Who Must File
                                               All section 468B designated and qualified     due date of the return.
                                               settlement funds must file an annual 
Future Developments                            income tax return on Form 1120-SF.            Who Must Sign
For the latest information about                                                             The return must be signed and dated by 
developments related to Form 1120-SF           When To File                                  the administrator of the fund.
and its instructions, such as legislation      Generally, a settlement fund must file its      If an employee of the fund completes 
enacted after they were published, go to       income tax return by the 15th day of the      Form 1120-SF, the paid preparer's space 
IRS.gov/Form1120SF.                            4th month after the end of its tax year.      should remain blank. Anyone who 
What's New                                     However, a fund with a fiscal tax year        prepares Form 1120-SF but does not 
                                               ending on June 30 must file by the 15th       charge the fund should not complete that 
Form 1120-SF.     Form 1120-SF is not          day of the 3rd month after the end of its     section. Generally, anyone who is paid to 
being revised. Continue to use the             tax year. A fund with a short tax year        prepare the return must sign it and fill in 
November 2018 revision of the Form             ending in June will be treated as if the      the “Paid Preparer Use Only” area.
1120-SF with these updated instructions.       short year ended on June 30, and must file      The paid preparer must complete the 
Increase in penalty for failure to file.       by the 15th day of the 3rd month after the    required preparer information and:
The minimum penalty for failure to file a      end of its tax year.                            Sign the return in the space provided 
                                                                                             •
return that is over 60 days late has                                                         for the preparer's signature, and
increased to the smaller of the tax due or     If the due date falls on a Saturday, 
$450. See Late filing of return, later.        Sunday, or legal holiday, the fund may file   • Give a copy of the return to the 
                                               on the next business day.                     administrator.
Form 1120-W now historical.      Form                                                        Note.    A paid preparer may sign original or 
1120-W, Estimated Tax for Corporations,        Private delivery services (PDSs).             amended returns by rubber stamp, 
and the Instructions for Form 1120-W are       Settlement funds can use certain PDSs         mechanical device, or computer software 
now historical. The 2022 Form 1120-W           designated by the IRS to meet the “timely     program.
(released in 2021) and the 2022                mailing as timely filing/paying” rule for tax 
Instructions for Form 1120-W (released in      returns and payments. See the                 Paid Preparer 
2021) will be the last revision of both the    Instructions for Form 1120, U.S. 
form and its instructions. Prior versions will Corporation Income Tax Return, for            Authorization
be available on IRS.gov.                       details.                                      If the fund wants to allow the IRS to 
                                                                                             discuss its tax return with the paid 
                                                        PDSs cannot deliver items to P.O.    preparer who signed it, check the “Yes” 
                                                        boxes. The fund must use the 
General Instructions                           CAUTION! U.S. Postal Service to mail any      box in the signature area of the return. 
                                                                                             This authorization applies only to the 
                                               items to an IRS P.O. box address.
Purpose of Form                                                                              individual whose signature appears in the 
                                                                                             “Paid Preparer Use Only” section of the 
Use Form 1120-SF to report transfers           Extension of time to file. File Form          fund's return. It does not apply to the firm, 
received, income earned, deductions            7004, Application for Automatic Extension     if any, shown in that section.
claimed, and distributions made, and to        of Time To File Certain Business Income 
figure the income tax liability of a           Tax, Information, and Other Returns, to         If the “Yes” box is checked, the fund is 
designated or qualified settlement fund.       request an extension of time to file.         authorizing the IRS to call the paid 
                                                                                             preparer to answer any questions that 
Where To File                                                                                may arise during the processing of its 
                                                                                             return. The fund is also authorizing the 
File the fund's return at the applicable IRS address listed below.                           paid preparer to:
                                                                                             • Give the IRS any information that is 
If the fund's principal business, office, or            Use the following address:           missing from the return;
          agency is located in:                                                              • Call the IRS for information about the 
The United States                                                                            processing of the return or the status of 
                                                        Department of the Treasury           any related refund or payment(s); and
                                                Internal Revenue Service Center              • Respond to certain IRS notices about 
                                                        Ogden, UT 84201-0012                 math errors, offsets, and return 
A foreign country or U.S. possession           Internal Revenue Service Center               preparation.
                                                        P.O. Box 409101
                                                        Ogden, UT 84409                        The fund is not authorizing the paid 
                                                                                             preparer to receive any refund check, bind 
                                                                                             the fund to anything (including any 

Nov 28, 2022                                            Cat. No. 14988X

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additional tax liability), or otherwise Depositing on time. For any deposit payment. The interest charge is figured at
represent the fund before the IRS. made by EFTPS to be on time, the fund a rate determined under section 6621.
must submit the deposit by 8 p.m. Eastern Late filing of return. A fund that does
The authorization will automatically end time the day before the date the deposit is not file its tax return by the due date,
no later than the due date (excluding due. If the fund uses a third party to make including extensions, may be penalized
extensions) for filing the fund's tax return. deposits on its behalf, they may have 5% of the unpaid tax for each month or
If the fund wants to expand the paid different cutoff times. part of a month the return is late, up to a
preparer's authorization or revoke the
authorization before it ends, see Pub. 947, Same-day wire payment option. If the maximum of 25% of the unpaid tax. The
Practice Before the IRS and Power of fund fails to submit a deposit transaction minimum penalty for a return that is over
Attorney. on EFTPS by 8 p.m. Eastern time the day 60 days late is the smaller of the tax due
before the date a deposit is due, it can still or $450. The penalty won’t be imposed if
Assembling the Return make its deposit on time by using the the fund can show that the failure to file on
To ensure that the fund's tax return is Federal Tax Collection Service (FTCS). time was due to reasonable cause.
processed correctly, attach all schedules To use the same-day wire payment Late payment of tax. A fund that doesn’t
in alphabetical order and other forms in method, the fund will need to make pay the tax when due may generally be
numerical order after Form 1120-SF. arrangements with its financial institution penalized / of 1% of the unpaid tax for 1 2
ahead of time regarding availability, each month or part of a month the tax is
Complete every applicable entry space deadlines, and costs. Financial institutions not paid, up to a maximum of 25% of the
on Form 1120-SF. Do not write “See may charge a fee for payments made this unpaid tax. The penalty won’t be imposed
Attached” instead of completing the entry way. To learn more about the information if the fund can show that the failure to pay
spaces. If more space is needed on the the fund will need to provide to its financial on time was due to reasonable cause.
forms or schedules, attach separate institution to make a same-day wire
sheets using the same size and format as payment, go to IRS.gov/SameDayWire. Reasonable-cause determinations. If
the fund receives a notice about penalties
the printed forms. If there are supporting after it files its return, send the IRS an
statements and attachments, arrange Estimated Tax Payments explanation, and we will determine if the
them in the same order as the schedules Generally, the following rules apply to the fund meets the reasonable-cause criteria.
or forms they support and attach them fund's payments of estimated tax. Do not attach an explanation when the
last. Show the totals on the printed forms. • A fund must make installment payments fund files its return.
Enter the fund's name and employer of estimated tax if it expects its total tax for
identification number (EIN) on each the year (less applicable credits) to be The trust fund recovery penalty. This
supporting statement or attachment. $500 or more. penalty may apply if certain excise,
• The installments are due by the 15th income, social security, and Medicare
Tax Payments day of the 4th, 6th, 9th, and 12th months taxes that must be collected or withheld
The fund must pay any tax due in full no of the tax year. If any date falls on a are not collected or withheld, or these
later than the 15th day of the 4th month Saturday, Sunday, or legal holiday, the taxes are not paid. The trust fund recovery
after the end of the tax year. installment is due on the next business penalty may be imposed on all persons
day. who are determined by the IRS to have
Electronic Deposit • The fund must use electronic funds been responsible for collecting,
Requirement transfers to make installment payments of accounting for, and paying over these
estimated tax. taxes, and who acted willfully in not doing
Settlement funds must use electronic If, after the fund figures and deposits so. The penalty is equal to the unpaid trust
funds transfers to make all federal tax •
estimated tax, it finds that its tax liability for fund tax. See the Instructions for Form 720
deposits (such as deposits of the year will be more or less than originally or Pub. 15 (Circular E), Employer's Tax
employment, excise, and income tax). estimated, it may have to refigure its Guide, for details, including the definition
Generally, electronic funds transfers are required installments. If earlier of responsible persons.
made using the Electronic Federal Tax installments were underpaid, the fund may Other penalties. Other penalties can be
Payment System (EFTPS). However, if the owe a penalty. See the instructions for imposed for negligence, substantial
fund does not want to use EFTPS, it can Line 17. understatement of tax, reportable
institution, payroll service, or other trusted •
arrange for its tax professional, financial If the fund overpaid estimated tax, it transaction understatements, and fraud.
may be able to get a quick refund by filing See sections 6662, 6662A, and 6663.
third party to make deposits on its behalf. Form 4466, Corporation Application for
Also, it may arrange for its financial Quick Refund of Overpayment of
institution to submit a same-day wire Estimated Tax. Accounting Method
payment (discussed below) on its behalf. A designated or qualified settlement fund
EFTPS is a free service provided by the See section 6655 for more information must use the accrual method of
Department of the Treasury. Services on how to figure estimated taxes. accounting.
provided by a tax professional, financial
institution, payroll service, or other third Interest and Penalties Rounding Off to Whole
party may have a fee.
Interest. Interest is charged on taxes Dollars
To get more information about EFTPS paid late even if an extension of time to file The fund may round off cents to whole
or to enroll in EFTPS, go to EFTPS.gov or is granted. Interest is also charged on dollars on its return and schedules. If the
call 800-555-4477. To contact EFTPS penalties imposed for failure to file, fund does round to whole dollars, it must
using Telecommunications Relay Services negligence, fraud, substantial valuation round all amounts. To round, drop
(TRS) for people who are deaf, hard of misstatements, substantial amounts under 50 cents and increase
hearing, or have a speech disability, dial understatements of tax, and reportable amounts from 50 cents to 99 cents to the
711 and then provide the TRS assistant transaction understatements from the due next dollar. For example, $1.39 becomes
the 800-555-4477 number above or date (including extensions) to the date of $1 and $2.50 becomes $3.
800-733-4829.

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If two or more amounts must be added • The arbitration award is issued administrator (defined later) may jointly
to figure the amount to enter on a line, following a bona fide arbitration elect the relation-back election (defined
include cents when adding the amounts proceeding in accordance with rules below) to treat the fund as coming into
and round off only the total. approved by a governmental authority existence as a qualified settlement fund on
(such as self-regulatory the later of (a) the date the fund meets the
Recordkeeping organization-administered arbitration resolve or satisfy requirement and the
Keep the fund's records for as long as proceedings in the securities industry); segregation requirement, or (b) January 1
they may be needed for the administration and of the calendar year in which all three
of any provision of the Internal Revenue • The fund is subject to the continuing requirements are satisfied.
Code. Usually, records that support an jurisdiction of the arbitration panel, the If a relation-back election is made, the
item of income, deduction, or credit on the court of law that has jurisdiction to enforce assets held by the fund on the date the
return must be kept for 3 years from the the arbitration award, or the governmental qualified settlement fund is treated as
date the return is due or filed, whichever is authority that approved the rules of the coming into existence are treated as
later. Keep records that verify the fund's arbitration proceedings. transferred to the qualified settlement fund
basis in property for as long as they are Resolve or satisfy requirement. To on that date.
needed to figure the basis of the original or meet this requirement, a fund must be Relation-back election. Make the
replacement property. established to resolve or satisfy one or relation-back election by attaching a copy
more contested or uncontested claims of the election statement to Form 1120-SF
The fund should keep copies of all filed that have resulted, or may result, from an for the tax year in which the qualified
returns. They help in preparing future and event (or a series of related events) that settlement fund is treated as coming into
amended returns. has occurred and that has given rise to at existence. The statement must be signed
least one claim asserting liability: by each transferor and the administrator.
Additional Information • Under the Comprehensive File Form 1120-SF and the election
See the Instructions for Form 1120 and Environmental Response, Compensation statement by the due date of Form
Pub. 542, Corporations, for more and Liability Act of 1980 (CERCLA), as 1120-SF, including extensions. The
information about corporations, including amended for settlement funds created election statement must contain the
additional forms the fund may need to file before May 18, 2006; following.
and how to get forms and publications. • Arising out of a tort, breach of contract, • The words “Regulations section
or violation of law; or 1.468B-1 Relation-Back Election” at the
Definitions • Designated by the IRS in a revenue top of the first page.
ruling or revenue procedure. • The name, address, and identifying
Qualified Settlement Fund Generally, a fund does not meet the number of each transferor.
A fund, account, or trust (“a fund”) is a resolve or satisfy requirement if it is • The name, address, and EIN of the
qualified settlement fund if it meets the established to resolve or satisfy a liability qualified settlement fund.
following requirements. to provide property or services unless the • The date on which the qualified
• Governmental order or approval transferor's obligation to provide property settlement fund is treated as coming into
requirement. or services is extinguished by a transfer or existence.
• Resolve or satisfy requirement. transfers to the fund. • A schedule describing each asset
• Segregation requirement. treated as transferred to the fund on the
Note. Settlement funds created after May date the fund is treated as coming into
Governmental order or approval re- 17, 2006, for the purpose of resolving or existence. The schedule of assets does
quirement. To meet this requirement, the satisfying liabilities under the CERCLA are not have to identify the amount of cash or
fund must be ordered by, or approved by, exempt from tax. See section 468B(g)(2) the property transferred by a particular
the United States, any state (including the for more information. transferor.
District of Columbia), territory, possession,
or political subdivision thereof, or any Segregation requirement. To meet this Qualified settlement fund treated as a
agency or instrumentality (including a requirement, the fund must (a) be a trust corporation. Except as otherwise
court of law) of any of the foregoing, and it under applicable state law, or (b) keep its provided in Regulations section
must be subject to the continuing assets segregated from other assets of 1.468B-5(b), for purposes of subtitle F of
jurisdiction of that governmental authority. the transferor (and related persons). For the Internal Revenue Code, a qualified
A fund is ordered by or approved by a example, cash held by a transferor in a settlement fund is treated as a corporation
governmental authority when the authority separate bank account satisfies the and any tax imposed under Regulations
issues its initial or preliminary order to segregation requirement. section 1.468B-2(a) is treated as a tax
establish, or grants its initial or preliminary Classification of fund prior to meeting imposed by section 11. See Regulations
approval of, the fund, even if that order or all three requirements. If a fund meets section 1.468B-2(k) for more information.
approval may be subject to review or the resolve or satisfy requirement, the Designated Settlement Fund
revision. Generally, a governmental assets of the fund are treated as owned by
authority's order or approval has no the transferor of those assets until the fund A fund, account, or trust is a designated
retroactive effect and does not permit a also meets the governmental order and settlement fund if it meets the following
fund to be a qualified settlement fund prior the segregation requirements. On the day requirements.
to the date the order is issued or the the fund meets all three requirements, the • It is established by a court order and
approval is granted. However, see transferor is treated as transferring the completely extinguishes the taxpayer's tort
Relation-back rule, later. assets to a qualified settlement fund. liability.
• No amounts may be transferred to it
Arbitration panels. An arbitration award Relation-back rule. If a fund meets the other than in the form of a qualified
that orders the establishment of, or resolve or satisfy requirement and the payment (defined below).
approves, a fund is an order or approval of segregation requirement before it meets • It must be administered by persons, a
a governmental authority if: the governmental order or approval majority of whom are independent of the
• The arbitration award is judicially requirement, the transferor and the taxpayer.
enforceable;

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• It is established for the principal year in the first entry space. For a fiscal or stated interest on Line 1 (that is, the
purpose of resolving and satisfying short tax year return, write in the tax year excess of the taxable stated interest
present and future claims against the at the top of the form. received or accrued during the tax year
taxpayer arising out of personal injury, over the amortized bond premium for the
death, or property damage. Address tax year). Do not report on Line 1 any
• The taxpayer may not hold any Include the suite, room, or other unit tax-exempt interest (including tax-exempt
beneficial interest in the income or corpus number after the street address. If the OID). Do not offset interest expense
of it. Post Office does not deliver mail to the against interest income.
• The taxpayer elects to have it treated as street address and the fund or the
a designated settlement fund. administrator has a P.O. box, show the Note. Report tax-exempt interest
Qualified payment. A qualified payment box number instead. (including tax-exempt OID) on line 2 of
Additional Information (on page 2 of Form
is any money or property that is If the corporation has a foreign 1120-SF). However, if the fund acquired a
transferred to a designated settlement address, include the city or town, state or tax-exempt bond at a premium, only report
fund under a court order other than the province, country, and foreign postal the net amount of tax-exempt stated
following. code. Do not abbreviate the country interest on line 2 of Additional Information
• Any amount that may be transferred name. Follow the country's practice for (that is, the excess of the tax-exempt
from the fund to the taxpayer (or any entering the name of the state or province stated interest received or accrued during
related person). and postal code. the tax year over the amortized bond
• The transfer of any stock or premium for the tax year, which is required
indebtedness of the taxpayer (or any under section 171).
related person). Employer Identification
Number (EIN) Line 3. Capital gain net income. Every
Note. A designated settlement fund is Enter the fund's EIN. If the fund does not sale or exchange of a capital asset must
taxed in the same manner as a qualified have an EIN, it must apply for one. An EIN be reported in detail on Schedule D (Form
settlement fund. In addition, if a fund does can be applied for in the following ways. 1120), Capital Gains and Losses (and
not meet the requirements of a designated • Online—Go to IRS.gov/EIN. The EIN is Form 8949, Sales and Other Dispositions
settlement fund but does meet the issued immediately once the application of Capital Assets, if applicable), even if
requirements of a qualified settlement information is validated. there is no gain or loss. See the
fund, the fund is treated as a qualified • By mailing or faxing Form SS-4, Instructions for Schedule D (Form 1120).
settlement fund. Application for Employer Identification Line 5. Other income. Enter any other
Number. taxable income not reported on lines 1
Other Definitions If the fund has not received its EIN by through 4. List the type and amount of
Administrator. An administrator, which the time the return is due, write “Applied income on an attached schedule. If the
may include a trustee if the designated or for” in the space for the EIN and the date fund has only one item of other income,
qualified settlement fund is a trust, is (in the fund applied in the space for the EIN. describe it in parentheses on the dotted
order of priority) any of the following. For more details, see the Instructions for line next to the entry space for line 5.
• The person designated or approved by Form SS-4. Deductions
the governmental authority that ordered or Do not deduct:
approved the fund. Final Return, Name • Expenses allocable to tax-exempt
• The person designated in the escrow Change, Address Change, income (see section 265);
agreement, settlement agreement, or • Payments of claims made by the fund;
other similar agreement governing the or Amended Return
and
fund. Indicate a final return, name change,
• The escrow agent, custodian, or other address change, or amended return by • Expenses incurred by, or on behalf of,
claimants or transferors.
person in possession of the fund's assets. checking the appropriate box. If a change
• The transferor or, if there are multiple in address occurs after the return is filed, Line 11. Other deductions. Enter the
transferors, all of the transferors unless an use Form 8822-B, Change of total of other deductions not entered on
agreement is signed by all of the Address or Responsible Party — lines 7 through 10. List the type and
transferors that designates a single Business, to notify the IRS of the new amount of deduction on an attached
transferor as the administrator. address. See the instructions for Form schedule. If the fund has only one item of
8822-B for details. other deduction, describe it in
Transferor. A transferor is a person who parentheses on the dotted line next to the
transfers (or on whose behalf an insurer or entry space for line 11.
other person transfers) money or property Part I. Income and
to a settlement fund to resolve or satisfy Deductions Line 12. Net operating loss (NOL) de-
claims against that person. duction . Enter the total NOL carryovers
Income from prior tax years, but do not enter more
Related person. A related person is any Note. Amounts transferred to the fund by than the fund's taxable income. See
person who is related to the transferor or on behalf of a transferor are generally Regulations section 1.468B-2(b)(4) for
within the meaning of section 267(b) or excluded from income. details.
section 707(b)(1).
Line 1. Taxable interest. Enter total
taxable interest received or accrued Part II. Tax Computation
Specific Instructions during the tax year, including any original Line 14. Modified gross income.
issue discount (OID) or market discount Modified gross income of a designated or
Period Covered that is includible in income during the tax qualified settlement fund is its gross
Enter the tax year in the space provided at year. If the fund acquired a taxable bond income, as defined in section 61,
the top of the form. For a calendar year, at a premium and elects to amortize bond computed with certain modifications. See
enter the last two digits of the calendar premium on taxable bonds under section
171, only report the net amount of taxable

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Regulations section 1.468B-2(b) for more IRS can figure the amount of any penalty returns and return information are
information. and bill the fund for it. See Form 2220 for confidential, as required by section 6103.
other information that may apply.
Line 16. Credits and payments. The time needed to complete and file
Generally, no credits or payments are If Form 2220 is attached, check the box this form will vary depending on individual
allowed other than those on lines 16a on line 17 and enter the amount of any circumstances. The estimated burden for
through 16e. penalty on that line. business taxpayers filing this form is
approved under OMB control number
Line 17. Estimated tax penalty. A fund Paperwork Reduction Act Notice. We 1545-0123 and is included in the
that does not make estimated tax ask for the information on this form to carry estimates shown in the instructions for
payments when due may be subject to an out the Internal Revenue laws of the their business income tax return.
underpayment penalty for the period of United States. You are required to give us
underpayment. Generally, a fund is the information. We need it to ensure that If you have comments concerning the
subject to the penalty if its tax liability is you are complying with these laws and to accuracy of these time estimates or
$500 or more and it did not timely pay the allow us to figure and collect the right suggestions for making this form simpler,
smaller of: amount of tax. we would be happy to hear from you. You
• Its current year tax liability, or can send us comments from IRS.gov/
• Its prior year's tax. You are not required to provide the FormComments. Or you can write to the
See section 6655 for details and information requested on a form that is Internal Revenue Service, Tax Forms and
exceptions, including special rules for subject to the Paperwork Reduction Act Publications Division, 1111 Constitution
large funds. unless the form displays a valid OMB Ave. NW, IR-6526, Washington, DC
Use Form 2220, Underpayment of control number. Books or records relating 20224.
Estimated Tax by Corporations, to see if to a form or its instructions must be
the fund owes a penalty and to figure the retained as long as their contents may Do not send the tax form to this office.
amount of the penalty. Generally, the fund become material in the administration of Instead, see Where To File, earlier.
does not have to file this form because the any Internal Revenue law. Generally, tax

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