What is the 4942 tax on the distributable amount in Form-990 PF?
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Last modified 7/4/2022 8:21:40 AM EST |
Added by ExpressTaxExempt Team
Private foundations that file Form 990-PF are subjected to a 4942 tax on the distributable amount if the foundation has undistributed income. The foundations not subjected to a 4942 tax on the distributable amount qualify for a reduced tax of 1% on the net investment income instead of 2% under section 4940(e).
The undistributed income is considered the distributable amount of the foundation without the qualifying distributions for the tax year. A qualifying distribution is any amount that a foundation uses to carry out a charitable purpose or buy an asset used for a charitable purpose.
For example, X is a private foundation that has allocated $5,000 to charitable purposes. X has spent only $3000 for charitable purposes, and the remaining $2000 is undistributed income. X will be subjected to an excise tax of 2% of its investment income if X has undistributed income.
If X spent $5000 completely on charitable purposes, the excise tax based on its investment income for X would be 1% of its investment income.
So, suppose a foundation has any income from the distributable amount not used for charitable purposes. In that case, that income is called undistributed income, and the foundation will be subjected to a 4942 tax on the distributable amount.
Here's how you can find out your 1% of tax on investment income in Form 990-PF using ExpressTaxExempt:
- Log into your ExpressTaxExempt account.
- On the dashboard, click on the "Start New Return" button.
- Select the "Tax Year" and "Form 990-PF" options on the list of Federal returns.
- Enter your organization details and click "Next."
- On the "Organization Tax Year" page, select the tax year calendar or fiscal for which you want to file the information return.
- Once done, the subsequent steps will be to fill the actual parts of the form.
- Under "Qualification Under Section 4940(e)", select whether your foundation is liable for the section 4942 tax on the distributable amount.
- Enter your foundation's "Adjusted Qualifying Distributions" and "Net Value of Noncharitable-Use Assets" for each tax year.
- Click Next and follow the subsequent steps as prompted.
- Review the details, Pay, and click the Transmit button to transmit your return to the IRS.
Your foundation's 1% tax investment income will be automatically calculated once you enter the values.
Note: You do not have to complete this section if your foundation is subjected to a 4942 tax on the distributable amount.