Part I of the Form 990-PF — 0824 Publ 5580 (PDF)

The net investment income reported on Part I Line 27(b) was $900,000, resulting in the taxpayer paying $12,510 ($900,000 x 1.39%) excise tax on the net investment income.

(2) A review of the taxpayer’s financial records yielded the disallowance of claimed

investment expenses based on using an improper depreciation method—only the straight-line method of depreciation is allowed (Section 4940(c)(3)(b)(i)). Upon recalculating the depreciation using the straight-line method, a $500,000 deduction was disallowed and resulted in the taxpayer’s adjusted net investment income of $1,400,000.

(3) The taxpayer’s adjusted net investment income excise tax on $1,400,000 is

$19,460 ($1,400,000 x 1.39%). Since the taxpayer had paid $12,510, the amount outstanding based on the adjustment is $6,950 ($19,460 - $12,510).

(4) Based on the change in net investment income, Agent Williams prepares Forms

4883 and 4621 to assert the additional $6,950 in tax.

Exempt Organizations Excise Tax Audit Changes

(Chapter 41, Chapter 42, and Section 170(f)(10)(F) Excise Taxes)

Name of Exempt Organization (if different from Taxpayer)			m Taxable Years Ended
			Taxable Years Ended	Taxable Years Ended	Taxable Years Ended
			12/31/2020
Internal Revenue Code Section for Proposed Adjustment	Internal Revenue Code Section for Proposed Adjustment	Internal Revenue Code Section for Proposed Adjustment	4940(a)
1. Adjustments	1. Adjustments	Disallowance of Depreciation Deduction	500,000.00
1. Adjustments	1. Adjustments
1. Adjustments	1. Adjustments
1. Adjustments	1. Adjustments
1. Adjustments	1. Adjustments
1. Adjustments	1. Adjustments
2.	Total Adjustments	Total Adjustments	500,000.00
3.	Amount reported on return or as Previously adjusted	Amount reported on return or as Previously adjusted	900,000.00
4.	Total amount as corrected	Total amount as corrected	1,400,000.00
5.	Applicable tax rate %	Applicable tax rate %	1.39%
6.	Initial tax liability as corrected (line 4 x Line 5)*	Initial tax liability as corrected (line 4 x Line 5)*	19,460.00
7.	Initial tax liability reported	Initial tax liability reported	(12,510.00)
8.	Increase (or decrease) in tax	Increase (or decrease) in tax	6,950.00
9.	Additional tax (minimum)	Additional tax (minimum)	0
10.	Penalties (Code section)	Penalties (Code section)

See attached Explanation of Items

Form 4883 (Rev. 1-2004) Catalog Number 42083F

Department of the Treasury Internal Revenue Service www.irs.gov

Exempt Organizations – Report of Examination

1. Form No. 4720		2. Area Office [Insert name of your area]						3. Date of Report [Insert date]
4. Name and Address of Taxpayer Private Foundation Alpha [Insert street address] [Insert city, state, and zip code]	4. Name and Address of Taxpayer Private Foundation Alpha [Insert street address] [Insert city, state, and zip code]	4. Name and Address of Taxpayer Private Foundation Alpha [Insert street address] [Insert city, state, and zip code]	4. Name and Address of Taxpayer Private Foundation Alpha [Insert street address] [Insert city, state, and zip code]	4. Name and Address of Taxpayer Private Foundation Alpha [Insert street address] [Insert city, state, and zip code]	4. Name and Address of Taxpayer Private Foundation Alpha [Insert street address] [Insert city, state, and zip code]	5. Name and Address of Private Foundation or Other Exempt Organization (If different from Item 4)	5. Name and Address of Private Foundation or Other Exempt Organization (If different from Item 4)	5. Name and Address of Private Foundation or Other Exempt Organization (If different from Item 4)	5. Name and Address of Private Foundation or Other Exempt Organization (If different from Item 4)	5. Name and Address of Private Foundation or Other Exempt Organization (If different from Item 4)	5. Name and Address of Private Foundation or Other Exempt Organization (If different from Item 4)
6. Social Security Number or Employer Identification Number [Insert EIN]	6. Social Security Number or Employer Identification Number [Insert EIN]	6. Social Security Number or Employer Identification Number [Insert EIN]	7. Tax Period(s) Ended	7. Tax Period(s) Ended	7. Tax Period(s) Ended	8. Private Foundation’s or other Exempt Organization’s Employer Identification Number_(If different_ from Item 6)	8. Private Foundation’s or other Exempt Organization’s Employer Identification Number_(If different_ from Item 6)	8. Private Foundation’s or other Exempt Organization’s Employer Identification Number_(If different_ from Item 6)	9. Tax Period(s) Ended	9. Tax Period(s) Ended	9. Tax Period(s) Ended
6. Social Security Number or Employer Identification Number [Insert EIN]	6. Social Security Number or Employer Identification Number [Insert EIN]	6. Social Security Number or Employer Identification Number [Insert EIN]	12/31/2020	12/31/2020
6. Social Security Number or Employer Identification Number [Insert EIN]
6. Social Security Number or Employer Identification Number [Insert EIN]	6. Social Security Number or Employer Identification Number [Insert EIN]	6. Social Security Number or Employer Identification Number [Insert EIN]
10. Reporter Preparer’s Name [Insert your name]	10. Reporter Preparer’s Name [Insert your name]	10. Reporter Preparer’s Name [Insert your name]	10. Reporter Preparer’s Name [Insert your name]	10. Reporter Preparer’s Name [Insert your name]	10. Reporter Preparer’s Name [Insert your name]	10. Reporter Preparer’s Name [Insert your name]	11. Agreement Secured (Check one.) Yes No	11. Agreement Secured (Check one.) Yes No	11. Agreement Secured (Check one.) Yes No	11. Agreement Secured (Check one.) Yes No	11. Agreement Secured (Check one.) Yes No
12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	12. Findings Discussed with (Name and Title) [Insert name of a foundation manager or representative]	13. Agreement Date [Leave blank]	13. Agreement Date [Leave blank]	13. Agreement Date [Leave blank]	13. Agreement Date [Leave blank]	13. Agreement Date [Leave blank]
14a. Summary of Proposed Adjustments	14a. Summary of Proposed Adjustments	14a. Summary of Proposed Adjustments	14a. Summary of Proposed Adjustments	14a. Summary of Proposed Adjustments	14a. Summary of Proposed Adjustments	14a. Summary of Proposed Adjustments	14b. Penalty	14b. Penalty	14b. Penalty	14b. Penalty	14b. Penalty
Internal Revenue Code Section (1)	Period Covered by Examination (2)	Period Covered by Examination (2)	Period Covered by Examination (2)	Amount of Tax (3)	Amount of Tax (3)	Additional Tax (4)	Internal Revenue Code Section (1)	Internal Revenue Code Section (1)	Internal Revenue Code Section (1)	Amount (2)	Amount (2)
4940(a)	12/31/2020	12/31/2020	12/31/2020	6,950.00	6,950.00

See attached Explanation of Items

16. Attachments

Form 4621 Rev (1-2004) Catalog Number 41830Q

Deparatment of the Treasury Internal Revenue Service www.irs.gov

C. Statute Extension Example¶

(1) This example can be used when extending the statute of limitations for

assessing excise tax under Section 4940 and/or income tax against a private foundation.

[Insert Continuation of Name, If Necessary]

(Name(s))

taxpayer(s) of [Insert Street Address, P.O. Box, or APO/FPO]

[Insert City, State, Zip Code, (and foreign country, if applicable)]

(Address)

and the Commissioner of Internal Revenue consent and agree to the following:

(1) The amount of any Federal [Excise (Section 4940 and/or income)]

(Kind of tax)

tax due on any return(s) made by or for the above taxpayer(s) for the period(s) ended

[Insert Tax Year(s)]

may be assessed at any time on or before [Insert Expiration Date] . If a provision (Expiration date)

of the Internal Revenue Code suspends the running of the period of limitations to assess such tax, then, when, under the Internal Revenue Code, the running of the period resumes, the extended period to assess will include the number of days remaining in the extended period immediately before the suspension began.

(2) The taxpayer(s) may file a claim for credit or refund and the Service may credit or refund the tax within 6 months after this agreement ends, except with respect to the items in paragraph (4).

(3) Paragraph (4) applies only to any taxpayer who holds an interest, either directly or indirectly, in any partnership subject to subchapter C of chapter 63 of the Internal Revenue Code, as in effect for partnership taxable years beginning before January 1, 2018.

(4) Without otherwise limiting the applicability of this agreement, this agreement also extends the period of limitations for assessing any tax (including penalties, additions to tax and interest) attributable to any partnership items (see section 6231 (a)(3)), affected items (see section 6231(a)(5)), computational adjustments (see section 6231(a)(6)), and partnership items converted to nonpartnership items (see section 6231(b)). Additionally, this agreement extends the period of limitations for assessing any tax (including penalties, additions to tax, and interest) relating to any amounts carried over from the taxable year specified in paragraph (1) to any other taxable year(s). This agreement extends the period for filing a petition for adjustment under section 6228(b) but only if a timely request for administrative adjustment is filed under section 6227. For partnership items which have converted to nonpartnership items, this agreement extends the period for filing a suit for refund or credit under section 6532, but only if a timely claim for refund is filed for such items.

(5) This Form contains the entire terms of the Consent to Extend the Time to Assess Tax. There are no representations, promises, or agreements between the parties except those found or referenced on this Form.

Your Rights as a Taxpayer

You have the right to refuse to extend the period of limitations or limit this extension to a mutually agreed-upon issue(s) or mutually agreed-upon period of time. Publication 1035, Extending the Tax Assessment Period, provides a more detailed explanation of your rights and the consequences of the choices you may make. If you have not already received a Publication 1035, the publication can be obtained, free of charge, from the IRS official who requested that you sign this consent or from the IRS' web site at www.irs.gov or by calling toll free at 1-800-TAX-FORM (1-800-829-3676). Signing this consent will not deprive you of any appeal rights to which you would otherwise be entitled.

(Space for signature is on the back of this form and signature instructions are attached)

Catalog Number 20755I www.irs.gov Form 872 (Rev. 9-2020) 63

Exceptions & meaning →

D. Section 4940 Excise Taxes on Net Investment Income Lead Sheet¶

Taxpayer Name: Examiner:

TIN: Date: Tax Form: Tax Year:

IRC 4940 Excise Tax on Net Investment Income Lead Sheet

Tax Period	Per Return	Per Exam	Adjustment	Reference	Reference




Conclusion:(Reflects the final determination on the issue.)

The following techniques are not intended to be all-inclusive nor are they mandatory steps to be followed. Judgment should be used in selecting the techniques that apply to each taxpayer.
Audit Steps:(Document audit steps taken or to be taken.)	Audit Steps:(Document audit steps taken or to be taken.)	Audit Steps:(Document audit steps taken or to be taken.)	Audit Steps:(Document audit steps taken or to be taken.)	Audit Steps:(Document audit steps taken or to be taken.)	Workpaper Reference
1. Determine if the organization is a domestic taxable, exempt, or exempt operating private foundation. Section 4940 does not apply to an exempt operating foundation defined in IRC 4940(d). See IRC 4948(a) regarding foreign foundations	1. Determine if the organization is a domestic taxable, exempt, or exempt operating private foundation. Section 4940 does not apply to an exempt operating foundation defined in IRC 4940(d). See IRC 4948(a) regarding foreign foundations	1. Determine if the organization is a domestic taxable, exempt, or exempt operating private foundation. Section 4940 does not apply to an exempt operating foundation defined in IRC 4940(d). See IRC 4948(a) regarding foreign foundations	1. Determine if the organization is a domestic taxable, exempt, or exempt operating private foundation. Section 4940 does not apply to an exempt operating foundation defined in IRC 4940(d). See IRC 4948(a) regarding foreign foundations	1. Determine if the organization is a domestic taxable, exempt, or exempt operating private foundation. Section 4940 does not apply to an exempt operating foundation defined in IRC 4940(d). See IRC 4948(a) regarding foreign foundations
2. Identify income producing investments (non-charitable use) assets.
3. Calculate the net value of these assets.
4. Calculate the gross investment income.
5. Calculate net capital gains and losses on investment property.
6.Identify qualifying distributions; IRC 4940(e) and 4942(c).
7. Calculate net investment income.	7. Calculate net investment income.	7. Calculate net investment income.	7. Calculate net investment income.	7. Calculate net investment income.

IRC 4940 Excise Tax on Net Investment Income Lead Sheet
8. Calculate the investment excise tax on exempt foundations, IRC 4940(a), or calculate the investment excise tax taxable foundations, IRC 4940(b).
9. For taxable years before December 20, 2019, determine if the IRC 4940(e) reduced rate (1%) requirements are met.
10. Determine if IRC 4942,Taxes on Failure to Distribute Income, are applicable if an excise tax is assessed.
11. Determine if a six-year statute applies; IRC 6501(e)(3)

Facts:(Document the relevant facts.)

Law:(Tax Law, Regulations, court cases, and other authorities.)
IRC Section:509, 4940, 4942, 4948, 6501(e)(3), 53.4940-1

Taxpayer Name: Examiner:

TIN: Date: Tax Form: Tax Year:

Exceptions & meaning →