Specific Instructions

Period covered

Enter the tax year in the space provided at the top of the form. For a calendar year, enter the four digits of the calendar year in the first entry space. For a fiscal tax year return, fill in the tax year space at the top of the form.

Name and address

The fund name must be entered on every Form 1120-ND. If this return is filed to report the income, deductions, and tax liability of the fund, enter the name and address of the fund in the address section.

If the return is filed by a trustee or disqualified person to report section 4951 taxes, enter that person's name and address in the address section.

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, trustee, or disqualified person has a P.O. box, show the box number instead.

Item A - Employer Identification Number (EIN) of Fund

Enter the fund's EIN. If the fund does not have an EIN, it must apply for one on 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. See Pub. 583 for details.

Item B - Identifying Number of Trustee or Disqualified Person

If the return is filed by a trustee or disqualified person to report section 4951 taxes, enter the identifying number of the trustee or disqualified person. For an individual trustee or disqualified person, enter the individual's social security number. If the trustee or disqualified person is not an individual, enter the EIN. Do not complete item B if Form 1120-ND is filed to report the income, deductions, and income tax liability of the fund.

Item C - Fund, Trustee, or Disqualified Person

Check only the box that applies.

1. When filed to report the income, deductions, and income tax liability of the fund, check the Fund box.
2. When filed by a trustee who is liable for taxes under section 4951, check the Trustee box.
3. When filed by a disqualified person who is liable for section 4951 tax, check the Disqualified person box.

Item D - 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.

Note.   If a change in address occurs after the return is filed, use Form 8822, Change of Address, to notify the IRS of the new address.

Part I. Computation of Fund Income Tax

Income

Line 1. Taxable interest.   Enter the total taxable interest income received or accrued for the year, including any original issue discount. Do not include tax-exempt interest on line 1; but report it as an item of information on Schedule M, line 2e.

Line 2. Capital gain net income.   Every sale, exchange, or actual or deemed distribution of assets held by the fund must be reported in detail on Schedule D (Form 1120), Capital Gains and Losses, even if there is no gain or loss. The amount realized on an actual or deemed distribution is the fair market value of the assets as of the date of distribution.

Line 3. Other income.   Enter any other taxable income not reported on line 1 or line 2 and explain its nature on an attached schedule. If the fund had only one item of other income, describe it in parentheses on line 3.

Deductions

Note.   A deduction is not allowed for certain expenses allocable to tax-exempt income. See section 265. In addition, a deduction is not allowed for distributions made to electing taxpayers. Report such payments as an item of information on Schedule M, line 2d. Liabilities are not treated as incurred prior to the time economic performance takes place. See section 461(h).

Line 5. Trustee fees.   Enter the total deductible fees paid or incurred to the trustee(s) for administering the fund during the tax year.

Line 6. Taxes.   Enter deductible taxes paid or incurred during the tax year, including state and local income taxes. Do not deduct Federal income taxes or taxes not imposed on the fund.

Line 8. Other deductions.   Attach a schedule listing by type and amount all allowable deductions that are not deducted elsewhere on Form 1120-ND. Include investment advisory fees, actuarial expenses, and other administrative expenses paid or incurred during the tax year, but do not include decommissioning costs.

Line 11. Net operating loss deduction.   Enter the amount of any net operating loss deduction allowed by Regulations section 1.468A-4(b)(4), and explain its computation on an attached schedule.

Line 14. Payments.   No payments are allowed other than those on lines 14a through 14d and the credit for backup withholding.

Backup withholding.   If the fund had income tax withheld from any payment it received because, for example, it failed to give its correct EIN, include the amount withheld in the total for line 14f. This type of withholding is called Backup Withholding. Show the amount withheld above line 14f and write Backup Withholding.

Line 15. 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 tax. See section 6665 for details and exceptions.

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. However, even if the fund does not owe the penalty, complete and attach Form 2220 if:

• The annualized income or adjusted seasonal installment method is used or
• The fund is a large corporation computing its first required installment based on the prior year's tax. See the Instructions for Form 2220 for a definition of a large corporation.

If Form 2220 is attached, check the box on line 15 and enter the amount of the penalty on that line.

Schedule L - Balance Sheets

The balance sheets should agree with the fund's books and records.

Part II. Initial Taxes on Self-Dealing (Section 4951)

Initial taxes on self-dealers.   An initial tax of 10% of the amount involved (defined on page 4) is imposed on each act of self-dealing between a disqualified person and a nuclear decommissioning fund for each tax year (or part of a tax year) in the taxable period. The tax is required to be paid by any disqualified person (other than a trustee acting only as a trustee of the trust) who participates in the act of self-dealing.

Initial taxes on trustee.   A tax of 2½% of the amount involved is imposed on a trustee who participates in the act of self-dealing. The tax is not imposed if the trustee unwillingly or due to reasonable cause participated in the act. The tax is computed on all acts of self-dealing that occur within the taxable period. The tax is required to be paid by the trustee who participates in the act.

Exceptions.   The initial tax on the act of self-dealing of a disqualified person or a trustee is not imposed if the acts of self-dealing are corrected within the taxable period. The terms self-dealing, taxable period, amount involved, correction, correct, and disqualified person are defined below and on page 4.

Definitions

Self-dealing.   When determining if an act is an act of self-dealing, treat the transfer of personal property by a disqualified person to the fund as a sale or exchange if the property is subject to a mortgage or similar lien. Otherwise, the term self-dealing means any direct or indirect:

• Sale, exchange, or leasing of real or personal property between the fund and a disqualified person;
• Lending of money or other extensions of credit between the fund and a disqualified person;
• Furnishing of goods, services, or facilities between the fund and a disqualified person;
• Payment of compensation (or payment or reimbursement of expenses) by the fund to a disqualified person; and
• Transfers to, or use by or for the benefit of, a disqualified person of the income or assets of the fund.

Exceptions.   Acts of self-dealing do not include:

1. The payment by the fund for the purposes of satisfying, in whole or in part, the liability of the electing taxpayer for decommissioning costs of the nuclear power plant.
2. The withdrawal of excess contributions by the electing taxpayer in accordance with Regulations section 1.468A-5(c)(2).
3. The withdrawal of amounts that have been treated as distributions to the electing taxpayer under Regulations section 1.468A-5(c)(3).
4. The payment of amounts remaining in the fund to the electing taxpayer after the termination of the fund upon the substantial completion of decommissioning.
5. The furnishing of goods, services, or facilities by a disqualified person to the fund if the furnishing is without charge and if the goods, services, or facilities so furnished are exclusively used for the purposes specified in section 468A(e)(4).
6. The payment of compensation (and the payment or reimbursement of expenses) by the fund to a disqualified person for personal services that are reasonable and necessary to carry out the purposes of the fund and the compensation (or payment or reimbursement of expenses) is not excessive.
7. A payment by the fund for the performance of trust functions and certain general banking services by a bank or trust company that is a disqualified person, if the banking services are reasonable and necessary to carry out the purposes of the fund and the compensation paid to the bank or trust company is not excessive (considering the fair market interest rate for the use of the funds by the bank or trust company).

The allowable general banking services are:

• Checking accounts, as long as the bank does not charge interest on any overwithdrawals;
• Savings accounts, as long as the fund may withdraw its money after giving no more than 30 days notice, without losing interest for the period the money was on deposit; and
• Safekeeping activities (for example, rental of a safe deposit box).

Taxable period.   For an act of self-dealing, the term taxable period means the period beginning on the date of the act of self-dealing and ending on the date of the earliest of -

• The date of mailing of a notice of deficiency under section 6212 for the section 4951 tax,
• The date on which the tax imposed by section 4951 is assessed, or
• The date correction of the act of self-dealing is completed.

Amount involved.   The term amount involved means the greater of the amount of money given (or received) and the fair market value of the other property given (or received). When services described in section 4951(d)(2)(C) are involved, the amount involved is only the excess compensation.

Note.   Fair market value is determined as of the date on which the act of self-dealing occurs and at the highest market value during the taxable period.

Correction and correct.   The terms correction and correct mean the undoing of an act of self-dealing, to the extent possible, but in any case returning the fund to a financial position no worse than it would have been if the disqualified person acted under the highest fiduciary relationship.

Disqualified person.   The term disqualified person means a person who is:

1. A contributor to the fund.
2. A trustee of the fund.
3. An owner of more than 10% of
   • the total combined voting power of a corporation,
   • the profits interest of a partnership, or
   • the beneficial interest of a trust or unincorporated business that is a contributor to the fund.
4. An officer, director, or employee of a person who is a contributor to the fund.
5. The spouse, ancestor, or a lineal descendant, or a spouse of a lineal descendant of an individual described in items 1 through 4 above.
6. A corporation of which persons described in items 1 through 5 above own more than 35% of the total combined voting power.
7. A partnership of which persons described in items 1 through 5 above own more than 35% of the profits interests.
8. A trust or estate of which persons described in items 1 through 5 above own more than 35% of the beneficial interest.

For purposes of items 3(a) and 6, indirect stockholders would be taken into account under section 267(c), except that, for purposes of this paragraph, section 267(c)(4) will be treated as providing that the members of the family of an individual are only those individuals described in item 5. For purposes of items 3(b), 3(c), 7, and 8, the ownership of profits or beneficial interests will be determined by the rules of constructive ownership of stock provided in section 267(c) (other than paragraph (3) thereof), except that section 267(c)(4) will be treated as providing that the members of the family of an individual are only those individuals described in item 5.

Dispositions of an Interest in a Nuclear Power Plant

There are Federal income tax consequences when there is a transfer of assets of a nuclear decommissioning fund in connection with the sale, exchange, or other disposition of a transferor of all or a portion of its qualifying interest in a nuclear power plant to another taxpayer (transferee). If the requirements of Regulations section 1.468A-6(b) are met, the Federal income tax consequences are the following:

1. No gain or loss. If there is a disposition of an interest (wholly or partially) in a nuclear power plant, neither the transferor or the transferee (or either's fund) will recognize gain, loss, or otherwise take any income or deduction into account because of the transfer of all or some of the assets of the transferor's fund. Also, the transfer is not considered a payment or contribution of assets by the transferor's fund (or by the transferee to its fund).
2. Basis. Transfers of assets of a fund to which Regulations section 1.468A-6 applies do not affect basis. The transferee's fund will have a basis in the assets received from the transferor equal to the transferor's basis in those assets immediately prior to the transfer.
3. Tax year of disposition.
   • Transferee. If a transferee does not file a request for a schedule of ruling amounts by the deemed payment deadline (21/ months after the end of the tax year of the disposition), the transferee's ruling amount for the interest acquired is determined by taking the amount contained in the transferor's current schedule of ruling amounts for that tax year and that plant multiplied by the product of:
     1. The portion of the transferor's qualifying interest that is transferred, and
     2. A fraction, the numerator of which is the number of days in the tax year of the transferor including and following the date of the disposition, and the denominator of which is the number of days in that tax year.
   • Transferor. If a transferor does not file a request for a revised schedule of ruling amounts on or before the deemed payment deadline for the tax year of the transferor in which the disposition of its interest in the nuclear power plant occurred (that is, the date that is 2½ months after the close of that tax year), the transferor's ruling amount with respect to that plant for that year will equal the sum of:
     1. The ruling amount contained in the transferor's current schedule of ruling amounts with respect to that plant for that tax year multiplied by the portion of qualifying interest that is retained, if any, and
     2. The ruling amount contained in the transferor's current schedule of ruling amounts with respect to that plant for that tax year multiplied by the product of:
        • The portion of the transferor's qualifying interest that is disposed of and
        • A fraction, the numerator of which is the number of days in the tax year that precede the date of the disposition, and the denominator of which is the number of days in that tax year.
4. Tax year after the year of disposition. A transferee of, or a transferor who retains, a qualifying interest in a nuclear power plant, must file a request for a revised schedule of ruling amounts for the interest by the deemed payment deadline (defined above). If the transferee (or the transferor) does not timely file such a request, the transferee's (or the transferor's) ruling amounts for the interest for that tax year will be zero.

For more information, see Regulations section 1.468A-6.

Privacy Act and Paperwork Reduction Act Notices.

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 this 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.

Section 4951 of the Internal Revenue Code requires disqualified taxpayers engaged in self-dealing with a trust to pay over to the IRS an initial tax. This form is used to report the initial amount of tax that you owe. Sections 6001 and 6011 require you to provide the requested information if the tax applies to you. Section 6109 requires you to provide your social security number or other identifying number. Routine uses of this information include disclosing it to the Department of Justice for civil and criminal litigation and to other federal agencies, as provided by law. We may disclose the information to cities, states, the District of Columbia, and U.S. Commonwealths or possessions to administer their tax laws. We may disclose the information to foreign governments pursuant to tax treaties. We may disclose the information to the Department of the Treasury and contractors for tax administration purposes. If you do not file this information required by law or provide incomplete or fraudulent information, you may be subject to interest, penalties, and/or criminal prosecution. We may also disclose this information to Federal, state, or local agencies that investigate or respond to acts or threats of terrorism or participate in intelligence or counterintelligence activities concerning terrorism.

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 average time is:

Recordkeeping	23 hr., 26 min.
Learning about the law or the form	3 hr., 7 min.
Preparing the form	5 hr., 30 min.
Copying, assembling, and sending the form to the IRS	32 min.

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 write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the tax form to this office. Instead, see Where To File, on page 1.

Previous | First

Instructions Index | 2002 Tax Help Archives | Tax Help Archives | Home