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                                                                                                        Department of the Treasury
                                                                                                        Internal Revenue Service
Instructions for

Form 1120-SF

(Rev. November 2018)
U.S. Income Tax Return for Settlement Funds

Section references are to the Internal Revenue                                                If an employee of the fund completes 
Code unless otherwise noted.                   When To File
                                               Generally, a settlement fund must file its   Form 1120-SF, the paid preparer's space 
                                               income tax return by the 15th day of the     should remain blank. Anyone who 
Future Developments                            4th month after the end of its tax year.     prepares Form 1120-SF but does not 
                                                                                            charge the fund should not complete that 
For the latest information about                                                            section. Generally, anyone who is paid to 
developments related to Form 1120-SF           However, a fund with a fiscal tax year 
and its instructions, such as legislation      ending on June 30 must file by the 15th      prepare the return must sign it and fill in 
enacted after they were published, go to       day of the 3rd month after the end of its    the “Paid Preparer Use Only” area.
IRS.gov/Form1120SF.                            tax year. A fund with a short tax year         The paid preparer must complete the 
                                               ending in June will be treated as if the     required preparer information and:
                                               short year ended on June 30, and must file   • Sign the return in the space provided 
What's New                                     by the 15th day of the 3rd month after the   for the preparer's signature.
Address change for filing.   The filing        end of its tax year.                         • Give a copy of the return to the 
address for funds located in certain areas                                                  administrator.
will change for returns filed after            If the due date falls on a Saturday,         Note.       A paid preparer may sign original or 
December 31, 2018. See Where To File,          Sunday, or legal holiday, the fund may file  amended returns by rubber stamp, 
later.                                         on the next business day.                    mechanical device, or computer software 
Increase in penalty for failure to file.       Private delivery services. Settlement        program.
The minimum penalty for failure to file a      funds can use certain private delivery 
return that is over 60 days late has           services designated by the IRS to meet       Paid Preparer 
increased to the smaller of the tax due or     the timely mailing as “timely filing/paying” Authorization
$210. See Late filing of return, later.        rule for tax returns and payments. See the 
                                               Instructions for Form 1120, U.S.             If the fund wants to allow the IRS to 
Change in tax rate. For tax years              Corporation Income Tax Return, for           discuss its tax return with the paid 
beginning in 2018, the rate for calculating    details.                                     preparer who signed it, check the “Yes” 
tax on a fund’s modified gross income has                                                   box in the signature area of the return. 
decreased to 37% (0.37).                                Private delivery services cannot    This authorization applies only to the 
                                               !        deliver items to P.O. boxes. The    individual whose signature appears in the 
                                               CAUTION  fund must use the U.S. Postal       “Paid Preparer Use Only” section of the 
General Instructions                           Service to mail any items to an IRS P.O.     fund's return. It does not apply to the firm, 
                                               box address.                                 if any, shown in that section.
Purpose of Form                                                                               If the “Yes” box is checked, the fund is 
Use Form 1120-SF to report transfers           Extension of time to file. File Form 
received, income earned, deductions            7004, Application for Automatic Extension    authorizing the IRS to call the paid 
claimed, distributions made, and to figure     of Time To File Certain Business Income      preparer to answer any questions that 
the income tax liability of a designated or    Tax, Information, and Other Returns, to      may arise during the processing of its 
qualified settlement fund.                     request an extension of time to file.        return. The fund also is authorizing the 
                                               Generally, file Form 7004 by the regular     paid preparer to:
Who Must File                                  due date of the return.                      • Give the IRS any information that is 
                                                                                            missing from the return;
All section 468B designated and qualified                                                   • Call the IRS for information about the 
settlement funds must file an annual           Who Must Sign                                processing of the return or the status of 
income tax return on Form 1120-SF.             The return must be signed and dated by       any related refund or payment(s); and
                                               the administrator of the fund.               • Respond to certain IRS notices about 
                                                                                            math errors, offsets, and return 
Where To File                                                                               preparation.
File the fund's return at the applicable IRS address listed below.                            The fund is not authorizing the paid 
                                                                                            preparer to receive any refund check, bind 
If the fund's principal business, office, or     Use the following address:                 the fund to anything (including any 
          agency is located in:                                                             additional tax liability), or otherwise 
                                                                                            represent the fund before the IRS.
The United States                                                    
                                                       Department of the Treasury             The authorization will automatically end 
                                                  Internal Revenue Service Center           no later than the due date (excluding 
                                                        Ogden, UT 84201-0012                extensions) for filing the fund's tax return. 
A foreign country or U.S. possession             Internal Revenue Service Center            If the fund wants to expand the paid 
                                                        P.O. Box 409101                     preparer's authorization or revoke the 
                                                        Ogden, UT 84409                     authorization before it ends, see Pub. 947, 
                                                                                            Practice Before the IRS and Power of 
                                                                                            Attorney.

Aug 16, 2018                                            Cat. No. 14988X

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Assembling the Return costs. Financial institutions may charge a if the fund can show that the failure to pay
To ensure that the fund's tax return is fee for payments made this way. To learn on time was due to reasonable cause.
processed correctly, attach all schedules more about the information the fund will
Reasonable cause determinations. If
in alphabetical order and other forms in need to provide to its financial institution to
the fund receives a notice about penalties
numerical order after Form 1120-SF. make a same-day wire payment, visit the
after it files its return, send the IRS an
IRS website at IRS.gov/Payments and
explanation, and we will determine if the
Complete every applicable entry space click on "Same-day wire."
fund meets the reasonable cause criteria.
on Form 1120-SF. Do not write “See Do not attach an explanation when the
Attached” instead of completing the entry Estimated Tax Payments fund files its return.
spaces. If more space is needed on the Generally, the following rules apply to the
forms or schedules, attach separate fund's payments of estimated tax. The trust fund recovery penalty. This
sheets using the same size and format as • A fund must make installment payments penalty may apply if certain excise,
the printed forms. If there are supporting of estimated tax if it expects its total tax for income, social security, and Medicare
statements and attachments, arrange the year (less applicable credits) to be taxes that must be collected or withheld
them in the same order as the schedules $500 or more. are not collected or withheld, or these
or forms they support and attach them • The installments are due by the 15th taxes are not paid. The trust fund recovery
last. Show the totals on the printed forms. day of the 4th, 6th, 9th, and 12th months penalty may be imposed on all persons
Enter the fund's name and employer of the tax year. If any date falls on a who are determined by the IRS to have
identification number (EIN) on each Saturday, Sunday, or legal holiday, the been responsible for collecting,
supporting statement or attachment. installment is due on the next business accounting for, and paying over these
day. taxes, and who acted willfully in not doing
Tax Payments • The fund must use electronic fund so. The penalty is equal to the unpaid trust
The fund must pay any tax due in full no transfers to make installment payments of fund tax. See the Instructions for Form 720
later than the 15th day of the 4th month estimated tax. or Pub. 15 (Circular E), Employer's Tax
after the end of the tax year. • Use Form 1120-W, Estimated Tax for Guide, for details, including the definition
Corporations, as a worksheet to compute of responsible persons.
Electronic Deposit estimated tax. See the Instructions for Other penalties. Other penalties can be
Requirement Form 1120-W. imposed for negligence, substantial
Settlement funds must use electronic • If the fund overpaid estimated tax, it understatement of tax, reportable
funds transfers to make all federal tax may be able to get a quick refund by filing transaction understatements, and fraud.
deposits (such as deposits of Form 4466, Corporation Application for See sections 6662, 6662A, and 6663.
employment, excise, and income tax). Quick Refund of Overpayment of
Generally, electronic funds transfers are Estimated Tax. Accounting Method
made using the Electronic Federal Tax A designated or qualified settlement fund
Payment System (EFTPS). However, if the For more information on estimated tax
fund does not want to use EFTPS, it can payments, including penalties that apply if must use the accrual method of
arrange for its tax professional, financial the fund fails to make required payments, accounting.
institution, payroll service, or other trusted see the instructions for line 17.
third party to make deposits on its behalf. Rounding Off to Whole
Also, it may arrange for its financial Interest and Penalties Dollars
institution to submit a same-day tax wire Interest. Interest is charged on taxes The fund may round off cents to whole
payment (discussed below) on its behalf. paid late even if an extension of time to file dollars on its return and schedules. If the
EFTPS is a free service provided by the is granted. Interest also is charged on fund does round to whole dollars, it must
Department of the Treasury. Services penalties imposed for failure to file, round all amounts. To round, drop
provided by a tax professional, financial negligence, fraud, substantial valuation amounts under 50 cents and increase
institution, payroll service, or other third misstatements, substantial amounts from 50 cents to 99 cents to the
party may have a fee. understatements of tax, and reportable next dollar. For example, $1.39 becomes
To get more information about EFTPS transaction understatements from the due $1 and $2.50 becomes $3.
or to enroll in EFTPS, visit EFTPS.gov or date (including extensions) to the date of If two or more amounts must be added
call 800-555-4477 payment. The interest charge is figured at to figure the amount to enter on a line,
(TTY/TDD 800-733-4829). a rate determined under section 6621. include cents when adding the amounts
Depositing on time. For any deposit Late filing of return. A fund that does and round off only the total.
made by EFTPS to be on time, the fund not file its tax return by the due date,
must submit the deposit by 8 p.m. Eastern including extensions, may be penalized Recordkeeping
time the day before the date the deposit is 5% of the unpaid tax for each month or Keep the fund's records for as long as
due. If the fund uses a third party to make part of a month the return is late, up to a they may be needed for the administration
deposits on its behalf, they may have maximum of 25% of the unpaid tax. The of any provision of the Internal Revenue
different cutoff times. minimum penalty for a return that is over Code. Usually, records that support an
60 days late is the smaller of the tax due item of income, deduction, or credit on the
Same-day wire payment option. If the or $210. The penalty won’t be imposed if return must be kept for 3 years from the
fund fails to submit a deposit transaction the fund can show that the failure to file on date the return is due or filed, whichever is
on EFTPS by 8 p.m. Eastern time the day time was due to reasonable cause. later. Keep records that verify the fund's
before the date a deposit is due, it can still basis in property for as long as they are
make its deposit on time by using the Late payment of tax. A fund that doesn’t
Federal Tax Collection Service (FTCS). pay the tax when due generally may be needed to figure the basis of the original or
To use the same-day payment method, penalized / of 1% of the unpaid tax for 1 2 replacement property.
the fund will need to make arrangements each month or part of a month the tax is The fund should keep copies of all filed
with its financial institution ahead of time not paid, up to a maximum of 25% of the returns. They help in preparing future and
regarding availability, deadlines, and unpaid tax. The penalty won’t be imposed amended returns.

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

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Note. A designated settlement fund is Employer Identification describe it in parentheses on the dotted
taxed in the same manner as a qualified line next to the entry space for line 5.
settlement fund. In addition, if a fund does Number (EIN)
not meet the requirements of a designated Enter the fund's EIN. If the fund does not Deductions
settlement fund but does meet the have an EIN, it must apply for one. An EIN Do not deduct:
requirements of a qualified settlement can be applied for: • Expenses allocable to tax-exempt
fund, the fund is treated as a qualified • Online — Click on the EIN link at income (see section 265);
settlement fund. IRS.gov/Businesses/Small. The EIN is • Payments of claims made by the fund;
issued immediately once the application and
information is validated. • Expenses incurred by, or on behalf of,
Other Definitions By mailing or faxing Form SS-4, claimants or transferors.
•
Administrator. An administrator, which Application for Employer Identification
may include a trustee if the designated or Number. Line 11. Other deductions. Enter the
total of other deductions not entered on
qualified settlement fund is a trust, is (in If the fund has not received its EIN by lines 7 through 10. List the type and
order of priority): the time the return is due, write “Applied amount of deduction on an attached
• The person designated or approved by for” in the space for the EIN and the date schedule. If the fund has only one item of
the governmental authority that ordered or the fund applied in the space for the EIN. other deduction, describe it in
approved the fund. For more details, see the Instructions for parentheses on the dotted line next to the
• The person designated in the escrow Form SS-4. entry space for line 11.
agreement, settlement agreement, or
other similar agreement governing the Line 12. Net operating loss deduction
fund. Final Return, Name (NOL). Enter the total NOL carryovers
• The escrow agent, custodian, or other Change, Address Change, from prior tax years, but do not enter more
than the fund's taxable income. See
person in possession of the fund's assets. or Amended Return Regulations section 1.468B-2(b)(4) for
• The transferor or, if there are multiple
transferors, all of the transferors unless an Indicate a final return, name change, details.
agreement is signed by all of the address change, or amended return by
transferors that designates a single checking the appropriate box. If a change
transferor as the administrator. in address occurs after the return is filed, Part II. Tax Computation
use Form 8822-B, Change of Line 14. Modified gross income.
Transferor. A transferor is a person who Address or Responsible Party — Modified gross income of a designated or
transfers (or on whose behalf an insurer or Business, to notify the IRS of the new qualified settlement fund is its gross
other person transfers) money or property address. See the instructions for Form income, as defined in section 61,
to a settlement fund to resolve or satisfy 8822-B for details. computed with certain modifications. See
claims against that person. Regulations section 1.468B-2(b) for more
Related person. A related person is any Part I. Income and information.
person who is related to the transferor Deductions Line 16. Credits and payments.
within the meaning of section 267(b) or Generally, no credits or payments are
section 707(b)(1). Income allowed other than those on lines 16a
Note. Amounts transferred to the fund by through 16e.
or on behalf of a transferor are generally
Specific Instructions excluded from income. Line 17. Estimated tax penalty. A fund
that does not make estimated tax
Line 1. Taxable interest. Enter total payments when due may be subject to an
Period Covered taxable interest received or accrued underpayment penalty for the period of
Enter the tax year in the space provided at during the tax year, including original issue underpayment. Generally, a fund is
the top of the form. For a calendar year, discount. Do not include any tax-exempt subject to the penalty if its tax liability is
enter the last two digits of the calendar interest. Do not offset interest expense $500 or more and it did not timely pay the
year in the first entry space. For a fiscal or against interest income. smaller of:
short tax year return, write in the tax year
• Its current year tax liability, or
at the top of the form. Note. Report tax-exempt interest on line 2 • Its prior year's tax.
of Additional Information (on page 2 of See section 6655 for details and
Address Form 1120-SF). exceptions, including special rules for
Include the suite, room, or other unit Line 3. Capital gain net income. Every large funds.
number after the street address. If the sale or exchange of a capital asset must Use Form 2220, Underpayment of
Post Office does not deliver mail to the be reported in detail on Schedule D (Form Estimated Tax by Corporations, to see if
street address and the fund or the 1120), Capital Gains and Losses (and the fund owes a penalty and to figure the
administrator has a P.O. box, show the Form 8949, Sales and Other Dispositions amount of the penalty. Generally, the fund
box number instead. of Capital Assets, if applicable), even if does not have to file this form because the
there is no gain or loss. See the
If the corporation has a foreign IRS can figure the amount of any penalty
Instructions for Schedule D (Form 1120).
address, include the city or town, state or and bill the fund for it. See Form 2220 for
province, country, and foreign postal Line 5. Other income. Enter any other other information that may apply.
code. Do not abbreviate the country taxable income not reported on lines 1 If Form 2220 is attached, check the box
name. Follow the country's practice for through 4. List the type and amount of on line 17 and enter the amount of any
entering the name of the state or province income on an attached schedule. If the penalty on that line.
and postal code. fund has only one item of other income,

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retained as long as their contents may If you have comments concerning the
Paperwork Reduction Act Notice. We become material in the administration of accuracy of these time estimates or
ask for the information on this form to carry any Internal Revenue law. Generally, tax suggestions for making this form simpler,
out the Internal Revenue laws of the returns and return information are we would be happy to hear from you. You
United States. You are required to give us confidential, as required by section 6103. can send us comments from IRS.gov/
the information. We need it to ensure that FormsPubs. Or you can write to the
you are complying with these laws and to The time needed to complete and file Internal Revenue Service, Tax Forms and
allow us to figure and collect the right this form will vary depending on individual Publications Division, 1111 Constitution
amount of tax. circumstances. The estimated burden for Ave. NW, IR-6526, Washington, DC
You are not required to provide the business taxpayers filing this form is 20224.
information requested on a form that is approved under OMB control number
subject to the Paperwork Reduction Act 1545-0123 and is included in the Do not send the tax form to this office.
unless the form displays a valid OMB estimates shown in the instructions for Instead, see Where To File, earlier.
control number. Books or records relating their business income tax return.
to a form or its instructions must be

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