Instructions for

Form 1120-SF

(Rev. November 2022)

(Use with the November 2018 revision of Form 1120-SF)

U.S. Income Tax Return for Settlement Funds

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue 

Code unless otherwise noted.

Future Developments

For the latest information about 

developments related to Form 1120-SF 

and its instructions, such as legislation 

enacted after they were published, go to

IRS.gov/Form1120SF.

What's New

Form 1120-SF. Form 1120-SF is not 

being revised. Continue to use the 

November 2018 revision of the Form 

1120-SF with these updated instructions.

Increase in penalty for failure to file. 

The minimum penalty for failure to file a 

return that is over 60 days late has 

increased to the smaller of the tax due or 

$450. See Late filing of return, later.

Form 1120-W now historical. Form 

1120-W, Estimated Tax for Corporations, 

and the Instructions for Form 1120-W are 

now historical. The 2022 Form 1120-W 

(released in 2021) and the 2022 

Instructions for Form 1120-W (released in 

2021) will be the last revision of both the 

form and its instructions. Prior versions will 

be available on IRS.gov.

General Instructions

Purpose of Form

Use Form 1120-SF to report transfers 

received, income earned, deductions 

claimed, and distributions made, and to 

figure the income tax liability of a 

designated or qualified settlement fund.

Who Must File

All section 468B designated and qualified 

settlement funds must file an annual 

income tax return on Form 1120-SF.

When To File

Generally, a settlement fund must file its 

income tax return by the 15th day of the 

4th month after the end of its tax year.

However, a fund with a fiscal tax year 

ending on June 30 must file by the 15th 

day of the 3rd month after the end of its 

tax year. A fund with a short tax year 

ending in June will be treated as if the 

short year ended on June 30, and must file 

by the 15th day of the 3rd month after the 

end of its tax year.

If the due date falls on a Saturday, 

Sunday, or legal holiday, the fund may file 

on the next business day.

Private delivery services (PDSs). 

Settlement funds can use certain PDSs 

designated by the IRS to meet the “timely 

mailing as timely filing/paying” rule for tax 

returns and payments. See the 

Instructions for Form 1120, U.S. 

Corporation Income Tax Return, for 

details.

PDSs cannot deliver items to P.O. 

boxes. The fund must use the 

U.S. Postal Service to mail any 

items to an IRS P.O. box address.

Extension of time to file. File Form 

7004, Application for Automatic Extension 

of Time To File Certain Business Income 

Tax, Information, and Other Returns, to 

request an extension of time to file. 

CAUTION

!

Generally, file Form 7004 by the regular 

due date of the return.

Who Must Sign

The return must be signed and dated by 

the administrator of the fund.

If an employee of the fund completes 

Form 1120-SF, the paid preparer's space 

should remain blank. Anyone who 

prepares Form 1120-SF but does not 

charge the fund should not complete that 

section. Generally, anyone who is paid to 

prepare the return must sign it and fill in 

the “Paid Preparer Use Only” area.

The paid preparer must complete the 

required preparer information and:

• Sign the return in the space provided 

for the preparer's signature, and

• Give a copy of the return to the 

administrator.

Note. A paid preparer may sign original or 

amended returns by rubber stamp, 

mechanical device, or computer software 

program.

Paid Preparer 

Authorization

If the fund wants to allow the IRS to 

discuss its tax return with the paid 

preparer who signed it, check the “Yes” 

box in the signature area of the return. 

This authorization applies only to the 

individual whose signature appears in the 

“Paid Preparer Use Only” section of the 

fund's return. It does not apply to the firm, 

if any, shown in that section.

If the “Yes” box is checked, the fund is 

authorizing the IRS to call the paid 

preparer to answer any questions that 

may arise during the processing of its 

return. The fund is also authorizing the 

paid preparer to:

• Give the IRS any information that is 

missing from the return;

• Call the IRS for information about the 

processing of the return or the status of 

any related refund or payment(s); and

• Respond to certain IRS notices about 

math errors, offsets, and return 

preparation.

The fund is not authorizing the paid 

preparer to receive any refund check, bind 

the fund to anything (including any 

Where To File

File the fund's return at the applicable IRS address listed below.

If the fund's principal business, office, or 

agency is located in:

Use the following address:

The United States

Department of the Treasury

 Internal Revenue Service Center

Ogden, UT 84201-0012

A foreign country or U.S. possession Internal Revenue Service Center

P.O. Box 409101

Ogden, UT 84409

Nov 28, 2022 Cat. No. 14988X
additional tax liability), or otherwise 

represent the fund before the IRS.

The authorization will automatically end 

no later than the due date (excluding 

extensions) for filing the fund's tax return. 

If the fund wants to expand the paid 

preparer's authorization or revoke the 

authorization before it ends, see Pub. 947, 

Practice Before the IRS and Power of 

Attorney.

Assembling the Return

To ensure that the fund's tax return is 

processed correctly, attach all schedules 

in alphabetical order and other forms in 

numerical order after Form 1120-SF.

Complete every applicable entry space 

on Form 1120-SF. Do not write “See 

Attached” instead of completing the entry 

spaces. If more space is needed on the 

forms or schedules, attach separate 

sheets using the same size and format as 

the printed forms. If there are supporting 

statements and attachments, arrange 

them in the same order as the schedules 

or forms they support and attach them 

last. Show the totals on the printed forms. 

Enter the fund's name and employer 

identification number (EIN) on each 

supporting statement or attachment.

Tax Payments

The fund must pay any tax due in full no 

later than the 15th day of the 4th month 

after the end of the tax year.

Electronic Deposit 

Requirement

Settlement funds must use electronic 

funds transfers to make all federal tax 

deposits (such as deposits of 

employment, excise, and income tax). 

Generally, electronic funds transfers are 

made using the Electronic Federal Tax 

Payment System (EFTPS). However, if the 

fund does not want to use EFTPS, it can 

arrange for its tax professional, financial 

institution, payroll service, or other trusted 

third party to make deposits on its behalf. 

Also, it may arrange for its financial 

institution to submit a same-day wire 

payment (discussed below) on its behalf. 

EFTPS is a free service provided by the 

Department of the Treasury. Services 

provided by a tax professional, financial 

institution, payroll service, or other third 

party may have a fee.

To get more information about EFTPS 

or to enroll in EFTPS, go to EFTPS.gov or 

call 800-555-4477. To contact EFTPS 

using Telecommunications Relay Services 

(TRS) for people who are deaf, hard of 

hearing, or have a speech disability, dial 

711 and then provide the TRS assistant 

the 800-555-4477 number above or 

800-733-4829.

Depositing on time. For any deposit 

made by EFTPS to be on time, the fund 

must submit the deposit by 8 p.m. Eastern 

time the day before the date the deposit is 

due. If the fund uses a third party to make 

deposits on its behalf, they may have 

different cutoff times.

Same-day wire payment option. If the 

fund fails to submit a deposit transaction 

on EFTPS by 8 p.m. Eastern time the day 

before the date a deposit is due, it can still 

make its deposit on time by using the 

Federal Tax Collection Service (FTCS). 

To use the same-day wire payment 

method, the fund will need to make 

arrangements with its financial institution 

ahead of time regarding availability, 

deadlines, and costs. Financial institutions 

may charge a fee for payments made this 

way. To learn more about the information 

the fund will need to provide to its financial 

institution to make a same-day wire 

payment, go to IRS.gov/SameDayWire.

Estimated Tax Payments

Generally, the following rules apply to the 

fund's payments of estimated tax.

• A fund must make installment payments 

of estimated tax if it expects its total tax for 

the year (less applicable credits) to be 

$500 or more.

• The installments are due by the 15th 

day of the 4th, 6th, 9th, and 12th months 

of the tax year. If any date falls on a 

Saturday, Sunday, or legal holiday, the 

installment is due on the next business 

day.

• The fund must use electronic funds 

transfers to make installment payments of 

estimated tax.

• If, after the fund figures and deposits 

estimated tax, it finds that its tax liability for 

the year will be more or less than originally 

estimated, it may have to refigure its 

required installments. If earlier 

installments were underpaid, the fund may 

owe a penalty. See the instructions for 

Line 17.

• If the fund overpaid estimated tax, it 

may be able to get a quick refund by filing 

Form 4466, Corporation Application for 

Quick Refund of Overpayment of 

Estimated Tax.

See section 6655 for more information 

on how to figure estimated taxes.

Interest and Penalties

Interest. Interest is charged on taxes 

paid late even if an extension of time to file 

is granted. Interest is also charged on 

penalties imposed for failure to file, 

negligence, fraud, substantial valuation 

misstatements, substantial 

understatements of tax, and reportable 

transaction understatements from the due 

date (including extensions) to the date of 

payment. The interest charge is figured at 

a rate determined under section 6621.

Late filing of return. A fund that does 

not file its tax return by the due date, 

including extensions, may be penalized 

5% of the unpaid tax for each month or 

part of a month the return is late, up to a 

maximum of 25% of the unpaid tax. The 

minimum penalty for a return that is over 

60 days late is the smaller of the tax due 

or $450. The penalty won’t be imposed if 

the fund can show that the failure to file on 

time was due to reasonable cause.

Late payment of tax. A fund that doesn’t 

pay the tax when due may generally be 

penalized 1/2 of 1% of the unpaid tax for 

each month or part of a month the tax is 

not paid, up to a maximum of 25% of the 

unpaid tax. The penalty won’t be imposed 

if the fund can show that the failure to pay 

on time was due to reasonable cause.

Reasonable-cause determinations. If 

the fund receives a notice about penalties 

after it files its return, send the IRS an 

explanation, and we will determine if the 

fund meets the reasonable-cause criteria. 

Do not attach an explanation when the 

fund files its return.

The trust fund recovery penalty. This 

penalty may apply if certain excise, 

income, social security, and Medicare 

taxes that must be collected or withheld 

are not collected or withheld, or these 

taxes are not paid. The trust fund recovery 

penalty may be imposed on all persons 

who are determined by the IRS to have 

been responsible for collecting, 

accounting for, and paying over these 

taxes, and who acted willfully in not doing 

so. The penalty is equal to the unpaid trust 

fund tax. See the Instructions for Form 720 

or Pub. 15 (Circular E), Employer's Tax 

Guide, for details, including the definition 

of responsible persons.

Other penalties. Other penalties can be 

imposed for negligence, substantial 

understatement of tax, reportable 

transaction understatements, and fraud. 

See sections 6662, 6662A, and 6663.

Accounting Method

A designated or qualified settlement fund 

must use the accrual method of 

accounting.

Rounding Off to Whole 

Dollars

The fund may round off cents to whole 

dollars on its return and schedules. If the 

fund does round to whole dollars, it must 

round all amounts. To round, drop 

amounts under 50 cents and increase 

amounts from 50 cents to 99 cents to the 

next dollar. For example, $1.39 becomes 

$1 and $2.50 becomes $3.

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If two or more amounts must be added 

to figure the amount to enter on a line, 

include cents when adding the amounts 

and round off only the total.

Recordkeeping

Keep the fund's records for as long as 

they may be needed for the administration 

of any provision of the Internal Revenue 

Code. Usually, records that support an 

item of income, deduction, or credit on the 

return must be kept for 3 years from the 

date the return is due or filed, whichever is 

later. Keep records that verify the fund's 

basis in property for as long as they are 

needed to figure the basis of the original or 

replacement property.

The fund should keep copies of all filed 

returns. They help in preparing future and 

amended returns.

Additional Information

See the Instructions for Form 1120 and 

Pub. 542, Corporations, for more 

information about corporations, including 

additional forms the fund may need to file 

and how to get forms and publications.

Definitions

Qualified Settlement Fund

A fund, account, or trust (“a fund”) is a 

qualified settlement fund if it meets the 

following requirements.

• Governmental order or approval 

requirement.

• Resolve or satisfy requirement.

• Segregation requirement.

Governmental order or approval requirement. To meet this requirement, the 

fund must be ordered by, or approved by, 

the United States, any state (including the 

District of Columbia), territory, possession, 

or political subdivision thereof, or any 

agency or instrumentality (including a 

court of law) of any of the foregoing, and it 

must be subject to the continuing 

jurisdiction of that governmental authority.

A fund is ordered by or approved by a 

governmental authority when the authority 

issues its initial or preliminary order to 

establish, or grants its initial or preliminary 

approval of, the fund, even if that order or 

approval may be subject to review or 

revision. Generally, a governmental 

authority's order or approval has no 

retroactive effect and does not permit a 

fund to be a qualified settlement fund prior 

to the date the order is issued or the 

approval is granted. However, see 

Relation-back rule, later.

Arbitration panels. An arbitration award 

that orders the establishment of, or 

approves, a fund is an order or approval of 

a governmental authority if:

• The arbitration award is judicially 

enforceable;

• The arbitration award is issued 

following a bona fide arbitration 

proceeding in accordance with rules 

approved by a governmental authority 

(such as self-regulatory 

organization-administered arbitration 

proceedings in the securities industry); 

and

• The fund is subject to the continuing 

jurisdiction of the arbitration panel, the 

court of law that has jurisdiction to enforce 

the arbitration award, or the governmental 

authority that approved the rules of the 

arbitration proceedings.

Resolve or satisfy requirement. To 

meet this requirement, a fund must be 

established to resolve or satisfy one or 

more contested or uncontested claims 

that have resulted, or may result, from an 

event (or a series of related events) that 

has occurred and that has given rise to at 

least one claim asserting liability:

• Under the Comprehensive 

Environmental Response, Compensation 

and Liability Act of 1980 (CERCLA), as 

amended for settlement funds created 

before May 18, 2006;

• Arising out of a tort, breach of contract, 

or violation of law; or

• Designated by the IRS in a revenue 

ruling or revenue procedure.

Generally, a fund does not meet the 

resolve or satisfy requirement if it is 

established to resolve or satisfy a liability 

to provide property or services unless the 

transferor's obligation to provide property 

or services is extinguished by a transfer or 

transfers to the fund.

Note. Settlement funds created after May 

17, 2006, for the purpose of resolving or 

satisfying liabilities under the CERCLA are 

exempt from tax. See section 468B(g)(2) 

for more information.

Segregation requirement. To meet this 

requirement, the fund must (a) be a trust 

under applicable state law, or (b) keep its 

assets segregated from other assets of 

the transferor (and related persons). For 

example, cash held by a transferor in a 

separate bank account satisfies the 

segregation requirement.

Classification of fund prior to meeting 

all three requirements. If a fund meets 

the resolve or satisfy requirement, the 

assets of the fund are treated as owned by 

the transferor of those assets until the fund 

also meets the governmental order and 

the segregation requirements. On the day 

the fund meets all three requirements, the 

transferor is treated as transferring the 

assets to a qualified settlement fund.

Relation-back rule. If a fund meets the 

resolve or satisfy requirement and the 

segregation requirement before it meets 

the governmental order or approval 

requirement, the transferor and the 

administrator (defined later) may jointly 

elect the relation-back election (defined 

below) to treat the fund as coming into 

existence as a qualified settlement fund on 

the later of (a) the date the fund meets the 

resolve or satisfy requirement and the 

segregation requirement, or (b) January 1 

of the calendar year in which all three 

requirements are satisfied.

If a relation-back election is made, the 

assets held by the fund on the date the 

qualified settlement fund is treated as 

coming into existence are treated as 

transferred to the qualified settlement fund 

on that date.

Relation-back election. Make the 

relation-back election by attaching a copy 

of the election statement to Form 1120-SF 

for the tax year in which the qualified 

settlement fund is treated as coming into 

existence. The statement must be signed 

by each transferor and the administrator. 

File Form 1120-SF and the election 

statement by the due date of Form 

1120-SF, including extensions. The 

election statement must contain the 

following.

• The words “Regulations section 

1.468B-1 Relation-Back Election” at the 

top of the first page.

• The name, address, and identifying 

number of each transferor.

• The name, address, and EIN of the 

qualified settlement fund.

• The date on which the qualified 

settlement fund is treated as coming into 

existence.

• A schedule describing each asset 

treated as transferred to the fund on the 

date the fund is treated as coming into 

existence. The schedule of assets does 

not have to identify the amount of cash or 

the property transferred by a particular 

transferor.

Qualified settlement fund treated as a 

corporation. Except as otherwise 

provided in Regulations section 

1.468B-5(b), for purposes of subtitle F of 

the Internal Revenue Code, a qualified 

settlement fund is treated as a corporation 

and any tax imposed under Regulations 

section 1.468B-2(a) is treated as a tax 

imposed by section 11. See Regulations 

section 1.468B-2(k) for more information.

Designated Settlement Fund

A fund, account, or trust is a designated 

settlement fund if it meets the following 

requirements.

• It is established by a court order and 

completely extinguishes the taxpayer's tort 

liability.

• No amounts may be transferred to it 

other than in the form of a qualified 

payment (defined below).

• It must be administered by persons, a 

majority of whom are independent of the 

taxpayer.

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• It is established for the principal 

purpose of resolving and satisfying 

present and future claims against the 

taxpayer arising out of personal injury, 

death, or property damage.

• The taxpayer may not hold any 

beneficial interest in the income or corpus 

of it.

• The taxpayer elects to have it treated as 

a designated settlement fund.

Qualified payment. A qualified payment 

is any money or property that is 

transferred to a designated settlement 

fund under a court order other than the 

following.

• Any amount that may be transferred 

from the fund to the taxpayer (or any 

related person).

• The transfer of any stock or 

indebtedness of the taxpayer (or any 

related person).

Note. A designated settlement fund is 

taxed in the same manner as a qualified 

settlement fund. In addition, if a fund does 

not meet the requirements of a designated 

settlement fund but does meet the 

requirements of a qualified settlement 

fund, the fund is treated as a qualified 

settlement fund.

Other Definitions

Administrator. An administrator, which 

may include a trustee if the designated or 

qualified settlement fund is a trust, is (in 

order of priority) any of the following.

• The person designated or approved by 

the governmental authority that ordered or 

approved the fund.

• The person designated in the escrow 

agreement, settlement agreement, or 

other similar agreement governing the 

fund.

• The escrow agent, custodian, or other 

person in possession of the fund's assets.

• The transferor or, if there are multiple 

transferors, all of the transferors unless an 

agreement is signed by all of the 

transferors that designates a single 

transferor as the administrator.

Transferor. A transferor is a person who 

transfers (or on whose behalf an insurer or 

other person transfers) money or property 

to a settlement fund to resolve or satisfy 

claims against that person.

Related person. A related person is any 

person who is related to the transferor 

within the meaning of section 267(b) or 

section 707(b)(1).

Specific Instructions

Period Covered

Enter the tax year in the space provided at 

the top of the form. For a calendar year, 

enter the last two digits of the calendar 

year in the first entry space. For a fiscal or 

short tax year return, write in the tax year 

at the top of the form.

Address

Include the suite, room, or other unit 

number after the street address. If the 

Post Office does not deliver mail to the 

street address and the fund or the 

administrator has a P.O. box, show the 

box number instead.

If the corporation has a foreign 

address, include the city or town, state or 

province, country, and foreign postal 

code. Do not abbreviate the country 

name. Follow the country's practice for 

entering the name of the state or province 

and postal code.

Employer Identification 

Number (EIN)

Enter the fund's EIN. If the fund does not 

have an EIN, it must apply for one. An EIN 

can be applied for in the following ways.

• Online—Go to IRS.gov/EIN. The EIN is 

issued immediately once the application 

information is validated.

• By mailing or faxing Form SS-4, 

Application for Employer Identification 

Number.

If the fund has not received its EIN by 

the time the return is due, write “Applied 

for” in the space for the EIN and the date 

the fund applied in the space for the EIN. 

For more details, see the Instructions for 

Form SS-4.

Final Return, Name 

Change, Address Change, 

or Amended Return

Indicate a final return, name change, 

address change, or amended return by 

checking the appropriate box. If a change 

in address occurs after the return is filed, 

use Form 8822-B, Change of

Address or Responsible Party —

Business, to notify the IRS of the new 

address. See the instructions for Form 

8822-B for details.

Part I. Income and 

Deductions

Income

Note. Amounts transferred to the fund by 

or on behalf of a transferor are generally 

excluded from income.

Line 1. Taxable interest. Enter total 

taxable interest received or accrued 

during the tax year, including any original 

issue discount (OID) or market discount 

that is includible in income during the tax 

year. If the fund acquired a taxable bond 

at a premium and elects to amortize bond 

premium on taxable bonds under section 

171, only report the net amount of taxable 

stated interest on Line 1 (that is, the 

excess of the taxable stated interest 

received or accrued during the tax year 

over the amortized bond premium for the 

tax year). Do not report on Line 1 any 

tax-exempt interest (including tax-exempt 

OID). Do not offset interest expense 

against interest income.

Note. Report tax-exempt interest 

(including tax-exempt OID) on line 2 of 

Additional Information (on page 2 of Form 

1120-SF). However, if the fund acquired a 

tax-exempt bond at a premium, only report 

the net amount of tax-exempt stated 

interest on line 2 of Additional Information 

(that is, the excess of the tax-exempt 

stated interest received or accrued during 

the tax year over the amortized bond 

premium for the tax year, which is required 

under section 171).

Line 3. Capital gain net income. Every 

sale or exchange of a capital asset must 

be reported in detail on Schedule D (Form 

1120), Capital Gains and Losses (and 

Form 8949, Sales and Other Dispositions 

of Capital Assets, if applicable), even if 

there is no gain or loss. See the 

Instructions for Schedule D (Form 1120).

Line 5. Other income. Enter any other 

taxable income not reported on lines 1 

through 4. List the type and amount of 

income on an attached schedule. If the 

fund has only one item of other income, 

describe it in parentheses on the dotted 

line next to the entry space for line 5.

Deductions

Do not deduct:

• Expenses allocable to tax-exempt 

income (see section 265);

• Payments of claims made by the fund; 

and

• Expenses incurred by, or on behalf of, 

claimants or transferors.

Line 11. Other deductions. Enter the 

total of other deductions not entered on 

lines 7 through 10. List the type and 

amount of deduction on an attached 

schedule. If the fund has only one item of 

other deduction, describe it in 

parentheses on the dotted line next to the 

entry space for line 11.

Line 12. Net operating loss (NOL) deduction . Enter the total NOL carryovers 

from prior tax years, but do not enter more 

than the fund's taxable income. See 

Regulations section 1.468B-2(b)(4) for 

details.

Part II. Tax Computation

Line 14. Modified gross income. 

Modified gross income of a designated or 

qualified settlement fund is its gross 

income, as defined in section 61, 

computed with certain modifications. See 

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Regulations section 1.468B-2(b) for more 

information.

Line 16. Credits and payments. 

Generally, no credits or payments are 

allowed other than those on lines 16a 

through 16e.

Line 17. Estimated tax penalty. A fund 

that does not make estimated tax 

payments when due may be subject to an 

underpayment penalty for the period of 

underpayment. Generally, a fund is 

subject to the penalty if its tax liability is 

$500 or more and it did not timely pay the 

smaller of:

• Its current year tax liability, or

• Its prior year's tax.

See section 6655 for details and 

exceptions, including special rules for 

large funds.

Use Form 2220, Underpayment of 

Estimated Tax by Corporations, to see if 

the fund owes a penalty and to figure the 

amount of the penalty. Generally, the fund 

does not have to file this form because the 

IRS can figure the amount of any penalty 

and bill the fund for it. See Form 2220 for 

other information that may apply.

If Form 2220 is attached, check the box 

on line 17 and enter the amount of any 

penalty on that line.

Paperwork Reduction Act Notice. We 

ask for the information on this form to carry 

out the Internal Revenue laws of the 

United States. You are required to give us 

the information. We need it to ensure that 

you are complying with these laws and to 

allow us to figure and collect the right 

amount of tax.

You are not required to provide the 

information requested on a form that is 

subject to the Paperwork Reduction Act 

unless the form displays a valid OMB 

control number. Books or records relating 

to a form or its instructions must be 

retained as long as their contents may 

become material in the administration of 

any Internal Revenue law. Generally, tax 

returns and return information are 

confidential, as required by section 6103.

The time needed to complete and file 

this form will vary depending on individual 

circumstances. The estimated burden for 

business taxpayers filing this form is 

approved under OMB control number 

1545-0123 and is included in the 

estimates shown in the instructions for 

their business income tax return.

If you have comments concerning the 

accuracy of these time estimates or 

suggestions for making this form simpler, 

we would be happy to hear from you. You 

can send us comments from IRS.gov/

FormComments. Or you can write to the 

Internal Revenue Service, Tax Forms and 

Publications Division, 1111 Constitution 

Ave. NW, IR-6526, Washington, DC 

20224.

Do not send the tax form to this office. 

Instead, see Where To File, earlier.

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