IRS Instruction 5227 – Instructions for Form 5227, Split-Interest Trust Information Return

IRS Instruction 5227 – In the complex world of tax compliance, understanding IRS Form 5227 is essential for trustees managing split-interest trusts. This form, known as the Split-Interest Trust Information Return, helps report financial activities, charitable deductions, and distributions while determining if the trust is subject to private foundation excise taxes. Whether you’re dealing with charitable remainder trusts (CRTs), charitable lead trusts, or pooled income funds, this SEO-optimized guide breaks down the latest IRS instructions for Form 5227, based on the 2025 tax year guidelines. We’ll cover who must file, key filing requirements, specific form instructions, and more to ensure smooth compliance.

What Is IRS Form 5227 and Its Purpose?

IRS Form 5227 serves as an information return for split-interest trusts, which are trusts with both charitable and noncharitable interests. These include entities like charitable remainder annuity trusts (CRATs), charitable remainder unitrusts (CRUTs), charitable lead trusts, and pooled income funds. The primary purposes of the form are to:

  • Report the trust’s financial activities, including income, deductions, and balance sheet details.
  • Detail distributions to charitable and noncharitable beneficiaries.
  • Provide donor and asset information via Schedule A (which is not publicly disclosed).
  • Assess whether the trust is treated as a private foundation under chapter 42 excise tax rules.

Unlike income tax returns, Form 5227 is open to public inspection, except for sensitive attachments like Schedule A and donor-related documents. This transparency ensures accountability while protecting private information.

Who Must File Form 5227?

Not all trusts are required to file Form 5227—only specific split-interest trusts qualify. Here’s a breakdown:

  • Charitable Remainder Trusts (CRTs) under Section 664: All CRATs and CRUTs must file.
  • Pooled Income Funds under Section 642(c)(5): These funds, administered by charities, are required to submit the form.
  • Other Split-Interest Trusts under Section 4947(a)(2): Any trust meeting this definition must file, unless an exception applies.

Exceptions: Trusts created before May 27, 1969, with no post-date corpus transfers allowing deductions under relevant sections are exempt. If a qualifying deduction-eligible transfer occurs after May 26, 1969, filing begins that year and continues.

Trustees should note that Form 5227 has replaced older forms like 1041-B for CRTs and 1041-A for certain split-interest trusts in IRS regulations.

When and Where to File Form 5227?

Filing deadlines and methods are straightforward but strict. For the 2025 calendar year, submit Form 5227 by April 15, 2026. Short-year final returns are due by the 15th day of the fourth month after termination.

  • Extensions: Use Form 8868 for an automatic extension, filed by the original due date.
  • Mandatory Electronic Filing: If you file 10 or more returns (including various IRS forms) in a calendar year, e-filing is required under regulations effective for tax years ending on or after December 31, 2023. Waivers for hardship are available but must be documented.
  • Paper Filing Addresses:
    • U.S. addresses: Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0027.
    • Non-U.S. addresses: Internal Revenue Service Center, 1973 Rulon White Blvd., M/S 6054, Ogden, UT 84201.
  • Private Delivery Services: Use IRS-designated services for timely filing; they cannot deliver to P.O. boxes.

Failure to e-file when required counts as a failure to file, potentially triggering penalties.

How to File: Key Reminders and Accounting Methods?

Before diving into the form, keep these reminders in mind:

  • No SSNs on Public Forms: Avoid including social security numbers on publicly disclosed parts; they’re redacted for privacy.
  • Accounting Methods: Use the trust’s regular method (cash, accrual, or IRS-approved). Changes require Form 3115 approval.
  • Rounding: Round amounts to whole dollars—drop cents under 50 and round up from 50 or more.
  • Attachments: For extra space, use separate sheets mirroring the form’s format, including the trust’s name and EIN.
  • Trust Instrument: Attach a copy with a perjury declaration for initial CRT or lead trust returns.

The form covers the calendar year, so align your records accordingly.

Specific Instructions for Form 5227 Sections

Form 5227 is divided into parts, each addressing different aspects of the trust’s operations. Here’s a detailed overview:

Heading Items

  • Item A: Enter trust and trustee details.
  • Item B: Provide the Employer Identification Number (EIN); apply online if needed.
  • Item C: Select the entity type (e.g., CRAT, CRUT, charitable lead trust).
  • Item D: Report fair market value (FMV) of assets at year-end.
  • Item E: Total gross income from all sources.
  • Item F: Indicate if it’s an initial, final, amended, or changed return.
  • Item G: Date the trust was created.

Part I: Income and Deductions

  • Section A: Ordinary income (interest, dividends, business income).
  • Section B: Capital gains/losses using Schedule D (Form 1041).
  • Section C: Nontaxable income (e.g., municipal bonds).
  • Section D: Deductions (salaries, taxes, charitable contributions).
  • Section E: Allocations for Section 664 trusts.

Part II: Schedule of Distributable Income (Section 664 Only)

Focuses on undistributed excluded income and net investment income (NII). Use the Simplified Net Investment Income Calculation (SNIIC) election if applicable, treating all as excluded income.

Part III: Distributions for Charitable Purposes

Detail principal distributions and accumulated income set asides, including payee details and purposes.

Part IV: Balance Sheet

Report assets and liabilities at book value; CRUTs include FMV.

Part V: Charitable Remainder Annuity Trust Information

Specify annual annuity amounts.

Part VI: Charitable Remainder Unitrust Information

Include fixed percentages, unitrust amounts, and accumulated deficiencies.

Part VII and VIII: Statements Regarding Activities

Answer questions on self-dealing, excess holdings, jeopardy investments, and unrelated business income.

Part IX: Questionnaire

Tailored sections for different trust types, including elections and foreign accounts.

Schedule A

Covers accumulations, distributions by character (ordinary, capital, nontaxable, corpus), and donor info. Not for public disclosure.

Penalties for Non-Compliance

Failing to file timely, completely, or correctly can result in penalties under Section 6652(c)(2)(C):

  • $25 per day (max $13,000) if gross income ≤ $327,000.
  • $130 per day (max $65,000) if > $327,000.
  • Post-demand: $10 per day (max $6,500).

Additional penalties apply for missing TINs ($50 per failure) or non-conforming substitute forms. Knowing failures impose personal liability on trustees.

Recent Updates and Future Developments

As of 2026, key updates include mandatory e-filing rules from 2023 regulations. For the latest on legislation affecting Form 5227, visit IRS.gov/Form5227. Carryover rules for undistributed capital gains and ordinary income to 2026 are detailed in worksheets for accurate tracking.

Additional Resources and Forms

  • Download the PDF instructions: https://www.irs.gov/pub/irs-pdf/i5227.pdf.
  • Related forms: Form 1041, 4720, 8868, FinCEN Form 114 for foreign accounts.
  • Help: Call 877-829-5500 or visit IRS.gov for assistance.

Navigating IRS Form 5227 instructions doesn’t have to be overwhelming. By following these guidelines, trustees can ensure accurate filing for split-interest trusts, avoiding penalties and maintaining compliance. For personalized advice, consult a tax professional.