August 26, 1999 | Read Time: 1 minute
Congress’s Joint Committee on Taxation is recommending that lawmakers both clarify the law and stiffen the penalties applying to charitable remainder trusts that fail to file annual informational returns.
The suggestion is contained in a report issued by the Joint Committee, which reviewed penalty and interest provisions written into several sections of the Internal Revenue Code. The committee scrutinizes tax proposals for the House and Senate.
Most charities and private foundations are required to file annual forms (called 990 and 990-PF, respectively) that report on their financial activities. Those that fail to do so can be fined. But the tax code currently does not specifically penalize split-interest trusts that fail to file Form 5227, which requires the reporting of detailed information about their financial activities.
Split-interest trusts are those in which benefits are divided between a charity and the donor or some other designated beneficiary. In a charitable remainder trust, for example, the donor of a gift to charity receives income from that gift until his or her death, at which time any amount remaining passes to the charity. Such trusts are potentially liable for private foundation excise taxes.
The Joint Committee’s report recommends that Congress change the Internal Revenue Code to make clear that trusts must pay penalties if they fail to file annual information in Form 5227. And the panel further suggests that Congress consider setting the penalties to match those already levied on charities that fail to file, which are now $20 for each day an organization is remiss, up to a maximum of $10,000, or 5 per cent of its gross receipts.
The report, “Study of Present-Law Penalty and Interest Provisions,” is available on the Joint Committee’s Web site, http://www.house.gov/jct/pubs99.html.
