B. Required Returns

(1) Generally, an ATEO must file either Form 990, Return of Organization Exempt

From Income Tax or Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

a. An ATEO that engaged in an excess benefit transaction with a disqualified

person should report the excess benefit transaction and the amount of the initial 25% tax imposed on the disqualified person on an information return (Form 990 or Form 990-EZ) for the period when the excess benefit transaction occurred, as required by the form and the applicable instructions. See Sections 6033(b)(11), 6033(b)(12), 6033(b)(13) and 6033(f) and Treas. Reg. 1.6033-2.

b. If an organization manager knowingly participated in an excess benefit

transaction between an ATEO and a disqualified person, the ATEO should also report the excess benefit transaction and the amount of the initial 10% tax imposed on the organization manager on an information return (Form 990 or Form 990-EZ) for the period when the excess benefit transaction occurred,

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as required by the form and the applicable instructions. See Sections 6033(b)(11), 6033(b)(12), 6033(b)(13) and 6033(f). See also Treas. Reg. 1.6033-2.

(2) Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under

Chapters 41 and 42 of the IRC

a. A disqualified person, who engaged in an excess benefit transaction and is

liable for the initial 25% tax, is required to file Form 4720 to report the excess benefit transaction and pay the excise tax on or before the 15 ^th day of the fifth month after the end of the disqualified person’s tax year. See Section 6011(a), Treas. Reg. 53.6011-1(b) and Treas. Reg. 53.6071-1(f).

b. An organization manager who knowingly participated in an excess benefit

transaction is liable for the 10% tax and required to file Form 4720 to report and pay the excise tax on or before the 15th day of the fifth month after the end of the organization manager's tax year. See Section 6011(a), Treas. Reg. 53.6011-1(b) and Treas. Reg. 53.6071-1(f).

(3) Substitute Form 4720/4720-A

a. If a disqualified person (or an organization manager) who is required to file

Form 4720 doesn’t file Form 4720, the IRS may prepare a substitute Form 4720 (4720-A). See Section 6020(b) and Treas. Reg. 301.6020-1(b).

b. Beginning with tax year 2020, Form 4720 has been revised to identify

whether the filer is the exempt organization or an individual. Accordingly, for tax years after 2019, an examiner preparing Form 4720 to report individual excise tax liability during an examination will no longer convert Form 4720 to “Form 4720-A.” The examiner will, instead, complete Form 4720 identifying the filer as an individual as described in the instructions for the Forms 4720. See the instructions to the Form 4720 for further information.

c. A substitute Form 4720 prepared by the IRS is a valid Form 4720 for all legal

purposes. See Section 6020(b)(2) and Treas. Reg. 301.6020-1(b)(2).

d. See IRM 20.1.2 (or its successor), the penalty handbook for failure to file and

failure to pay penalties and the specific procedures that must be followed when preparing deficiency notices in substitute for return situations.

e. The failure to pay penalty shouldn’t be computed with respect to both the

initial and additional excise tax amounts. Per Section 6651(a)(1), the penalty for failure to file applies only to “the amount required to be shown as tax on such return.” Per Section 6651(a)(2), as applicable here, the penalty for failure to pay applies to “the amount shown as tax on any return.” The additional tax under Section 4958(b) isn’t a tax that is reported on any tax return. The Form 4720, which includes a line item for reporting Section 4958(a)(1) initial taxes, doesn’t include a line item to report Section 4958(b) additional taxes. As such, Section 6651(a)(1) and Section 6651(a)(2) penalties should be computed based only on the initial (Section 4958(a)(1)) tax.

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