-CITE-
26 USC CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN
OTHER TAX-EXEMPT ORGANIZATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
-HEAD-
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
-MISC1-
Subchapter Sec.(!1)
A. Private foundations 4940
B. Black lung benefit trusts 4951
C. Political expenditures of section 501(c)(3)
organizations 4955
D. Failure by certain charitable organizations to meet
certain qualification requirements 4958
E. Abatement of first and second tier taxes in certain
cases 4961
AMENDMENTS
1996 - Pub. L. 104-168, title XIII, Sec. 1311(c)(6), July 30,
1996, 110 Stat. 1478, struck out item for subchapter D "Abatement
of first and second-tier taxes in certain cases" and added items
for subchapters D and E.
1987 - Pub. L. 100-203, title X, Sec. 10712(c)(7), (9), Dec. 22,
1987, 101 Stat. 1330-467, substituted in chapter heading "AND
CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS" for "BLACK LUNG BENEFIT
TRUSTS", struck out item for subchapter C "Abatement of first and
second tier taxes in certain cases", and added items for
subchapters C and D.
1984 - Pub. L. 98-369, div. A, title III, Sec. 305(b)(3), July
18, 1984, 98 Stat. 784, substituted "Abatement of first and second
tier taxes in certain cases" for "Abatement of second tier taxes
where there is correction during correction period" in item for
subchapter C.
1980 - Pub. L. 96-596, Sec. 2(c)(3), Dec. 24, 1980, 94 Stat.
3474, added item for subchapter C.
1978 - Pub. L. 95-227, Sec. 4(c)(2)(A), Feb. 10, 1978, 92 Stat.
22, in chapter heading inserted "; BLACK LUNG BENEFIT TRUSTS" after
"FOUNDATIONS", and added items for subchapters A and B.
1969 - Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 498, added chapter heading "PRIVATE FOUNDATIONS".
-SECREF-
CHAPTER REFERRED TO IN OTHER SECTIONS
This chapter is referred to in sections 170, 275, 509, 2055,
6104, 6161, 6211, 6212, 6213, 6214, 6344, 6405, 6501, 6503, 6511,
6512, 6684, 6862, 6871, 7422 of this title.
-FOOTNOTE-
(!1) Section numbers editorially supplied.
-End-
-CITE-
26 USC Subchapter A - Private Foundations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
SUBCHAPTER A - PRIVATE FOUNDATIONS
-MISC1-
Sec.
4940. Excise tax based on investment income.
4941. Taxes on self-dealing.
4942. Taxes on failure to distribute income.
4943. Taxes on excess business holdings.
4944. Taxes on investments which jeopardize charitable
purpose.
4945. Taxes on taxable expenditures.
4946. Definitions and special rules.
4947. Application of taxes to certain nonexempt trusts.
4948. Application of taxes and denial of exemption with
respect to certain foreign organizations.
AMENDMENTS
1978 - Pub. L. 95-227, Sec. 4(c)(2)(A), Feb. 10, 1978, 92 Stat.
22, added subchapter A heading and designated sections 4940 to 4948
as subchapter A.
1969 - Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 498, added analysis of sections.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 4962, 7871 of this
title.
-End-
-CITE-
26 USC Sec. 4940 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4940. Excise tax based on investment income
-STATUTE-
(a) Tax-exempt foundations
There is hereby imposed on each private foundation which is
exempt from taxation under section 501(a) for the taxable year,
with respect to the carrying on its activities, a tax equal to 2
percent of the net investment income of such foundation for the
taxable year.
(b) Taxable foundations
There is hereby imposed on each private foundation which is not
exempt from taxation under section 501(a) for the taxable year,
with respect to the carrying on of its activities, a tax equal to -
(1) the amount (if any) by which the sum of (A) the tax imposed
under subsection (a) (computed as if such subsection applied to
such private foundation for the taxable year), plus (B) the
amount of the tax which would have been imposed under section 511
for the taxable year if such private foundation had been exempt
from taxation under section 501(a), exceeds
(2) the tax imposed under subtitle A on such private foundation
for the taxable year.
(c) Net investment income defined
(1) In general
For purposes of subsection (a), the net investment income is
the amount by which (A) the sum of the gross investment income
and the capital gain net income exceeds (B) the deductions
allowed by paragraph (3). Except to the extent inconsistent with
the provisions of this section, net investment income shall be
determined under the principles of subtitle A.
(2) Gross investment income
For purposes of paragraph (1), the term "gross investment
income" means the gross amount of income from interest,
dividends, rents, payments with respect to securities loans (as
defined in section 512(a)(5)), and royalties, but not including
any such income to the extent included in computing the tax
imposed by section 511.
(3) Deductions
(A) In general
For purposes of paragraph (1), there shall be allowed as a
deduction all the ordinary and necessary expenses paid or
incurred for the production or collection of gross investment
income or for the management, conservation, or maintenance of
property held for the production of such income, determined
with the modifications set forth in subparagraph (B).
(B) Modifications
For purposes of subparagraph (A) -
(i) The deduction provided by section 167 shall be allowed,
but only on the basis of the straight line method of
depreciation.
(ii) The deduction for depletion provided by section 611
shall be allowed, but such deduction shall be determined
without regard to section 613 (relating to percentage
depletion).
(4) Capital gains and losses
For purposes of paragraph (1) in determining capital gain net
income -
(A) There shall be taken into account only gains and losses
from the sale or other disposition of property used for the
production of interest, dividends, rents, and royalties, and
property used for the production of income included in
computing the tax imposed by section 511 (except to the extent
gain or loss from the sale or other disposition of such
property is taken into account for purposes of such tax).
(B) The basis for determining gain in the case of property
held by the private foundation on December 31, 1969, and
continuously thereafter to the date of its disposition shall be
deemed to be not less than the fair market value of such
property on December 31, 1969.
(C) Losses from sales or other dispositions of property shall
be allowed only to the extent of gains from such sales or other
dispositions, and there shall be no capital loss carryovers.
(5) Tax-exempt income
For purposes of this section, net investment income shall be
determined by applying section 103 (relating to State and local
bonds) and section 265 (relating to expenses and interest
relating to tax-exempt income).
(d) Exemption for certain operating foundations
(1) In general
No tax shall be imposed by this section on any private
foundation which is an exempt operating foundation for the
taxable year.
(2) Exempt operating foundation
For purposes of this subsection, the term "exempt operating
foundation" means, with respect to any taxable year, any private
foundation if -
(A) such foundation is an operating foundation (as defined in
section 4942(j)(3)),
(B) such foundation has been publicly supported for at least
10 taxable years,
(C) at all times during the taxable year, the governing body
of such foundation -
(i) consists of individuals at least 75 percent of whom are
not disqualified individuals, and
(ii) is broadly representative of the general public, and
(D) at no time during the taxable year does such foundation
have an officer who is a disqualified individual.
(3) Definitions
For purposes of this subsection -
(A) Publicly supported
A private foundation is publicly supported for a taxable year
if it meets the requirements of section 170(b)(1)(A)(vi) or
509(a)(2) for such taxable year.
(B) Disqualified individual
The term "disqualified individual" means, with respect to any
private foundation, an individual who is -
(i) a substantial contributor to the foundation,
(ii) an owner of more than 20 percent of -
(I) the total combined voting power of a corporation,
(II) the profits interest of a partnership, or
(III) the beneficial interest of a trust or
unincorporated enterprise,
which is a substantial contributor to the foundation, or
(iii) a member of the family of any individual described in
clause (i) or (ii).
(C) Substantial contributor
The term "substantial contributor" means a person who is
described in section 507(d)(2).
(D) Family
The term "family" has the meaning given to such term by
section 4946(d).
(E) Constructive ownership
The rules of paragraphs (3) and (4) of section 4946(a) shall
apply for purposes of subparagraph (B)(ii).
(e) Reduction in tax where private foundation meets certain
distribution requirements
(1) In general
In the case of any private foundation which meets the
requirements of paragraph (2) for any taxable year, subsection
(a) shall be applied with respect to such taxable year by
substituting "1 percent" for "2 percent".
(2) Requirements
A private foundation meets the requirements of this paragraph
for any taxable year if -
(A) the amount of the qualifying distributions made by the
private foundation during such taxable year equals or exceeds
the sum of -
(i) an amount equal to the assets of such foundation for
such taxable year multiplied by the average percentage payout
for the base period, plus
(ii) 1 percent of the net investment income of such
foundation for such taxable year, and
(B) such private foundation was not liable for tax under
section 4942 with respect to any year in the base period.
(3) Average percentage payout for base period
For purposes of this subsection -
(A) In general
The average percentage payout for the base period is the
average of the percentage payouts for taxable years in the base
period.
(B) Percentage payout
The term "percentage payout" means, with respect to any
taxable year, the percentage determined by dividing -
(i) the amount of the qualifying distributions made by the
private foundation during the taxable year, by
(ii) the assets of the private foundation for the taxable
year.
(C) Special rule where tax reduced under this subsection
For purposes of this paragraph, if the amount of the tax
imposed by this section for any taxable year in the base period
is reduced by reason of this subsection, the amount of the
qualifying distributions made by the private foundation during
such year shall be reduced by the amount of such reduction in
tax.
(4) Base period
For purposes of this subsection -
(A) In general
The term "base period" means, with respect to any taxable
year, the 5 taxable years preceding such taxable year.
(B) New private foundations, etc.
If an organization has not been a private foundation
throughout the base period referred to in subparagraph (A), the
base period shall consist of the taxable years during which
such foundation has been in existence.
(5) Other definitions
For purposes of this subsection -
(A) Qualifying distribution
The term "qualifying distribution" has the meaning given such
term by section 4942(g).
(B) Assets
The assets of a private foundation for any taxable year shall
be treated as equal to the excess determined under section
4942(e)(1).
(6) Treatment of successor organizations, etc.
In the case of -
(A) a private foundation which is a successor to another
private foundation, this subsection shall be applied with
respect to such successor by taking into account the experience
of such other foundation, and
(B) a merger, reorganization, or division of a private
foundation, this subsection shall be applied under regulations
prescribed by the Secretary.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 498; amended Pub. L. 94-455, title XIX, Sec. 1901(b)(33)(N),
Oct. 4, 1976, 90 Stat. 1802; Pub. L. 95-345, Sec. 2(a)(4), Aug. 15,
1978, 92 Stat. 481; Pub. L. 95-600, title V, Sec. 520(a), Nov. 6,
1978, 92 Stat. 2884; Pub. L. 98-369, div. A, title III, Secs.
302(a), 303(a), July 18, 1984, 98 Stat. 779, 781; Pub. L. 99-514,
title XIII, Sec. 1301(j)(6), title XVIII, Sec. 1832, Oct. 22, 1986,
100 Stat. 2658, 2851.)
-MISC1-
AMENDMENTS
1986 - Subsec. (c)(5). Pub. L. 99-514, Sec. 1301(j), substituted
"(relating to State and local bonds)" for "(relating to interest on
certain governmental obligations)".
Subsec. (e)(2). Pub. L. 99-514, Sec. 1832, added subpar. (B) and
struck out former subpar. (B) and concluding provision which read
as follows:
"(B) the average percentage payout for the base period equals
or exceeds 5 percent.
In the case of an operating foundation (as defined in section
4942(j)(3)), subparagraph (B) shall be applied by substituting '3
1/3 percent' for '5 percent'."
1984 - Subsec. (d). Pub. L. 98-369, Sec. 302(a), added subsec.
(d).
Subsec. (e). Pub. L. 98-369, Sec. 303(a), added subsec. (e).
1978 - Subsec. (a). Pub. L. 95-600 substituted "2 percent" for "4
percent".
Subsec. (c)(2). Pub. L. 95-345 inserted provision relating to
payments with respect to securities loans.
1976 - Subsec. (c). Pub. L. 94-455 substituted "capital gain net
income" for "net capital gain" in par. (1) after "investment income
and the", and in par. (4) after "par. (1) in determining".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1301(j)(6) of Pub. L. 99-514 applicable to
bonds issued after Aug. 15, 1986, except as otherwise provided, see
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective
Date; Transitional Rules note under section 141 of this title.
Amendment by section 1832 of Pub. L. 99-514 effective, except as
otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 302(c)(1) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1984."
Section 303(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1984."
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 520(b) of Pub. L. 95-600 provided that: "The amendment
made by the first section of this Act [probably meaning section
520(a), which amended this section] shall apply to taxable years
beginning after September 30, 1977."
Amendment by Pub. L. 95-345 applicable with respect to amounts
received after Dec. 31, 1976, as payments with respect to
securities loans (as defined in section 512(a)(5) of this title),
and transfers of securities, under agreements described in section
1058 of this title, occurring after such date, see section 2(e) of
Pub. L. 95-345, set out as a note under section 509 of this title.
EFFECTIVE DATE
Section 101(k) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided:
"(1) In general. - Except as otherwise provided in this
subsection and subsection (l) [set out as a note below] the
amendments made by this section [enacting this section and sections
507 to 509, 4941 to 4848, 6056, 6684, and 6685 of this title,
amending sections 101, 170, 501, 503, 542, 663, 681, 878, 884,
1443, 2039, 2517, 4057, 4221, 4253, 4294, 5214, 6033, 6034, 6043,
6104, 6161, 6201, 6211 to 6214, 6344, 6501, 6503, 6511, 6512, 6601,
6652, 6653, 6659, 6676, 6677, 6679, 6682, 7207, 7422, and 7454 of
this title, repealing section 504 of this title, and enacting
provisions set out as notes under this section and section 1 of
this title] shall take effect on January 1, 1970.
"(2) Provisions effective for taxable years beginning after
december 31, 1969. - The following provisions shall apply to
taxable years beginning after December 31, 1969:
"(A) Sections 4940, 4942, 4943, and 4948 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this
section), and
"(B) The amendments made by subsection (d) [enacting section
6056 of this title, and amending sections 6033 and 6652 of this
title] and paragraphs (3), (15), (16), (20), (21), (30), (31),
(32), (33), (34), (35), and (61) of subsection (j) [amending
sections 501, 542, 878, 884, 6033, 6034, and 6043 of this title
and repealing section 504 of this title].
"(3) Sections 508(a), (b), and (c). - Sections 508 (a),(b), and
(c) of the Internal Revenue Code of 1986 (as added by this section)
shall take effect on October 9, 1969."
SAVINGS PROVISION
Section 101(l) of Pub. L. 91-172, as amended by Pub. L. 93-490,
Sec. 4(a), Oct. 26, 1974, 88 Stat. 1467; Pub. L. 94-455, title
XIII, Secs. 1301(a), 1309(a), Oct. 4, 1976, 90 Stat. 1713, 1729;
Pub. L. 95-600, title VII, Sec. 703(f), Nov. 6, 1978, 92 Stat.
2940; Pub. L. 98-369, div. A, title III, Sec. 314(b)(1), July 18,
1984, 98 Stat. 787; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(1) References to internal revenue code provisions. - Except as
otherwise expressly provided, references in the following
paragraphs of this subsection are to sections of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] as amended by this
section.
"(2) Section 4941. - Section 4941 shall not apply to -
"(A) any transaction between a private foundation and a
corporation which is a disqualified person (as defined in section
4946), pursuant to the terms of securities of such corporation in
existence at the time acquired by the foundation, if such
securities were acquired by the foundation before May 27, 1969;
"(B) the sale, exchange, or other disposition of property which
is owned by a private foundation on May 26, 1969 (or which is
acquired by a private foundation under the terms of a trust which
was irrevocable on May 26, 1969, or under the terms of a will
executed on or before such date, which are in effect on such date
and at all times thereafter), to a disqualified person, if such
foundation is required to dispose of such property in order not
to be liable for tax under section 4943 (relating to taxes on
excess business holdings) applied, in the case of a disposition
before January 1, 1977, without taking section 4943(c)(4) into
account and it receives in return an amount which equals or
exceeds the fair market value of such property at the time of
such disposition or at the time a contract for such disposition
was previously executed in a transaction which would not
constitute a prohibited transaction (within the meaning of
section 503(b) or the corresponding provisions of prior law);
"(C) the leasing of property or the lending of money or other
extension of credit between a disqualified person and a private
foundation pursuant to a binding contract in effect on October 9,
1969 (or pursuant to renewals of such a contract), until taxable
years beginning after December 31, 1979, if such leasing or
lending (or other extension of credit) remains at least as
favorable as an arm's-length transaction with an unrelated party
and if the execution of such contract was not at the time of such
execution a prohibited transaction (within the meaning of section
503(b) or the corresponding provisions of prior law);
"(D) the use of goods, services, or facilities which are shared
by a private foundation and a disqualified person until taxable
years beginning after December 31, 1979, if such use is pursuant
to an arrangement in effect before October 9, 1969, and such
arrangement was not a prohibited transaction (within the meaning
of section 503(b) or the corresponding provisions of prior law)
at the time it was made and would not be a prohibited transaction
if such section continued to apply;
"(E) the use of property in which a private foundation and a
disqualified person have a joint or common interest, if the
interests of both in such property were acquired before October
9, 1969; and
"(F) the sale, exchange, or other disposition (other than by
lease) of property which is owned by a private foundation to a
disqualified person if -
"(i) such foundation is leasing substantially all of such
property under a lease to which subparagraph (C) applies,
"(ii) the disposition to such disqualified person occurs
before January 1, 1978, and
"(iii) such foundation receives in return for the disposition
to such disqualified person an amount which equals or exceeds
the fair market value of such property at the time of the
disposition or at the time (after June 30, 1976) a contract for
the disposition was previously executed in a transaction which
would not constitute a prohibited transaction (within the
meaning of section 503(b) or any corresponding provision of
prior law).
"(3) Section 4942. - In the case of organizations organized
before May 27, 1969, section 4942 shall -
"(A) for all purposes other than the determination of the
minimum investment return under section 4942(j)(3)(B)(ii), for
taxable years beginning before January 1, 1972, apply without
regard to section 4942(e) (relating to minimum investment
return), and for taxable years beginning in 1972, 1973, and 1974,
apply with an applicable percentage (as prescribed in section
4942(e)(3)) which does not exceed 4 1/2 percent, 5 percent, and
5 1/2 percent, respectively;
"(B) not apply to an organization to the extent its income is
required to be accumulated pursuant to the mandatory terms (as in
effect on May 26, 1969, and at all times thereafter) of an
instrument executed before May 27, 1969, with respect to the
transfer of income producing property to such organization,
except that section 4942 shall apply to such organization if the
organization would have been denied exemption if section 504(a)
had not been repealed by this Act, or would have had its
deductions under section 642(c) limited if section 681(c) had not
been repealed by this Act. In applying the preceding sentence, in
addition to the limitations contained in section 504(a) or 681(c)
before its repeal, section 504(a)(1) or 681(c)(1) shall be
treated as not applying to an organization to the extent its
income is required to be accumulated pursuant to the mandatory
terms (as in effect on January 1, 1951, and at all times
thereafter) of an instrument executed before January 1, 1951,
with respect to the transfer of income producing property to such
organization before such date, if such transfer was irrevocable
on such date;
"(C) apply to a grant to a private foundation described in
section 4942(g)(1)(A)(ii) which is not described in section
4942(g)(1)(A)(i), pursuant to a written commitment which was
binding on May 26, 1969, and at all times thereafter, as if such
grant is a grant to an operating foundation (as defined in
section 4942(j)(3)), if such grant is made for one or more of the
purposes described in section 170(c)(2)(B) and is to be paid out
to such private foundation on or before December 31, 1974;
"(D) apply, for purposes of section 4942(f), in such a manner
as to treat any distribution made to a private foundation in
redemption of stock held by such private foundation in a business
enterprise as not essentially equivalent to a dividend under
section 302(b)(1) if such redemption is described in paragraph
(2)(B) of this subsection;
"(E) not apply to an organization which is prohibited by its
governing instrument or other instrument from distributing
capital or corpus to the extent the requirements of section 4942
are inconsistent with such prohibition; and
"(F) apply, in the case of an organization described in
paragraph (4)(A) of this subsection,
"(i) by applying section 4942(e) without regard to the stock
to which paragraph (4)(A)(ii) of this subsection applies,
"(ii) by applying section 4942(f) without regard to dividend
income for such stock, and
"(iii) by defining the distributable amount as the sum of the
amount determined under section 4942(d) (after the application
of clauses (i) and (ii)), and the amount of the dividend income
from such stock.
With respect to taxable years beginning after December 31, 1971,
subparagraphs (B) and (E) shall apply only during the pendency of
any judicial proceeding by the private foundation which is
necessary to reform, or to excuse such foundation from compliance
with, its governing instrument or any other instrument (as in
effect on May 26, 1969) in order to comply with the provisions of
section 4942, and in the case of subparagraph (B) for all periods
after the termination of such judicial proceeding during which the
governing instrument or any other instrument does not permit
compliance with such provisions.
"(4) Section 4943. -
"(A) In the case of a private foundation -
"(i) which was incorporated before January 1, 1951;
"(ii) substantially all of the assets of which on May 26,
1969, consist of more than 90 percent of the stock of an
incorporated business enterprise which is licensed and
regulated, the sales or contracts of which are regulated, and
the professional representatives of which are licensed, by
State regulatory agencies in at least 10 States; and
"(iii) which acquired such stock solely by gift, devise, or
bequest, section 4943(c)(4)(A)(i) shall be applied with respect
to the holdings of such foundation in such incorporated
business enterprise as if it did not contain the phrase ', but
in no event shall the percentage so substituted be more than 50
percent', and section 4943(c)(4)(D) shall not apply with
respect to such holdings. For purposes of the preceding
sentence, stock of such enterprise in a trust created before
May 27, 1969, of which the foundation is the remainder
beneficiary shall be deemed to be held by such foundation on
May 26, 1969, if such foundation held (without regard to such
trust) more than 20 percent of the stock of such enterprise on
May 26, 1969.
"(B) Subparagraph (A) shall apply to a private foundation only
if -
"(i) the foundation does not purchase any stock or other
interest in the enterprise described in subparagraph (A) after
May 26, 1969, and does not acquire any stock or other interest
in any other business enterprise which constitutes excess
business holdings under section 4943; and
"(ii) in the last 5 taxable years ending on or before
December 31, 1970, the foundation expends substantially all of
its adjusted net income (as defined in section 4942(f)) for the
purpose or function for which it is organized and operated.
"(C) For purposes of section 4943(c)(6), the term 'purchase'
does not include an exchange which is described in paragraph
(2)(B) of this subsection and which is pursuant to a plan for
disposition of excess business holdings.
"(5) Section 4945. - Section 4945(d)(4) and (h) shall not apply
to a grant which is described in paragraph (3)(C) of this
subsection.
"(6) Section 508(e). - Section 508(e) shall not apply to require
inclusion in governing instruments of any provisions inconsistent
with this subsection.
"(7) Section 509(a). - In the case of any trust created under the
terms of a will or a codicil to a will executed on or before March
30, 1924, by which the testator bequeathed all of the outstanding
common stock of a corporation in trust, the income of which trust
is to be used principally for the benefit of those from time to
time employed by the corporation and their families, the trustees
of which trust are elected or selected from among the employees of
such corporation, and which trust does not own directly any stock
in any other corporation, if the trust makes an irrevocable
election under this paragraph within one year after the date of the
enactment of this Act [Dec. 30, 1969], such trust shall be treated
as not being a private foundation for purposes of the Internal
Revenue Code of 1986 but shall be treated for purposes of such Code
as if it were not exempt from tax under section 501(a) for any
taxable year beginning after the date of the enactment of this Act
[Dec. 30, 1969] and before the date (if any) on which such trust
has complied with the requirements of section 507 for termination
of the status of an organization as a private foundation.
"(8) Certain redemptions. - For purposes of applying section
302(b)(1) to the determination of the amount of gross investment
income under sections 4940 and 4948(a), any distribution made to a
private foundation in redemption of stock held by such private
foundation in a business enterprise shall be treated as not
essentially equivalent to a dividend, if such redemption is
described in paragraph (2)(B) of this subsection."
[Section 314(b)(2) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) [amending section 101(4)(A)(iii) of
Pub. L. 91-172, set out above] shall apply as if included in
section 101(l)(4) of the Tax Reform Act of 1969 [Pub. L. 91-172]."]
[Section 1301(b) of Pub. L. 94-455 provided that: "The amendments
made by subsection (a) [enacting subpar. (F) of section 101(2) of
Pub. L. 91-172, set out above] shall apply to dispositions after
the date of the enactment of this Act [Oct. 4, 1976] in taxable
years ending after such date."]
[Section 1309(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending section 101(2)(B) of Pub. L. 91-172,
set out above] shall apply to dispositions made after the date of
enactment of this Act [Oct. 4, 1976]."]
[Section 4(b) of Pub. L. 93-490 provided that: "The amendment
made by this section [enacting subpar. (F) of section 101(3) of
Pub. L. 91-172, set out above] shall apply to taxable years
beginning after December 31, 1971."]
DETERMINATION OF OPERATING FOUNDATION STATUS FOR CERTAIN PURPOSES
Pub. L. 100-647, title VI, Sec. 6204, Nov. 10, 1988, 102 Stat.
3730, provided that: "For purposes of section 302(c)(3) of the
Deficit Reduction Act of 1984 [Pub. L. 98-369, set out below], a
private foundation which constituted an operating foundation (as
defined in section 4942(j)(3) of the Internal Revenue Code of 1986)
for its last taxable year ending before January 1, 1983, shall be
treated as constituting an operating foundation as of January 1,
1983."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
PUBLIC SUPPORT REQUIREMENT NOT APPLICABLE TO CERTAIN EXISTING
FOUNDATIONS
Section 302(c)(3) of Pub. L. 98-369 provided that: "A foundation
which was an operating foundation (as defined in section 4942(j)(3)
of the Internal Revenue Code of 1954) as of January 1, 1983, shall
be treated as meeting the requirements of section 4940(d)(2)(B) of
such Code (as added by subsection (a))."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 41, 4942, 4945, 4948,
6212, 6501, 6655 of this title.
-End-
-CITE-
26 USC Sec. 4941 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4941. Taxes on self-dealing
-STATUTE-
(a) Initial taxes
(1) On self-dealer
There is hereby imposed a tax on each act of self-dealing
between a disqualified person and a private foundation. The rate
of tax shall be equal to 5 percent of the amount involved with
respect to the act of self-dealing for each year (or part
thereof) in the taxable period. The tax imposed by this paragraph
shall be paid by any disqualified person (other than a foundation
manager acting only as such) who participates in the act of
self-dealing. In the case of a government official (as defined in
section 4946(c)), a tax shall be imposed by this paragraph only
if such disqualified person participates in the act of
self-dealing knowing that it is such an act.
(2) On foundation manager
In any case in which a tax is imposed by paragraph (1), there
is hereby imposed on the participation of any foundation manager
in an act of self-dealing between a disqualified person and a
private foundation, knowing that it is such an act, a tax equal
to 2 1/2 percent of the amount involved with respect to the act
of self-dealing for each year (or part thereof) in the taxable
period, unless such participation is not willful and is due to
reasonable cause. The tax imposed by this paragraph shall be paid
by any foundation manager who participated in the act of
self-dealing.
(b) Additional taxes
(1) On self-dealer
In any case in which an initial tax is imposed by subsection
(a)(1) on an act of self-dealing by a disqualified person with a
private foundation and the act is not corrected within the
taxable period, there is hereby imposed a tax equal to 200
percent of the amount involved. The tax imposed by this paragraph
shall be paid by any disqualified person (other than a foundation
manager acting only as such) who participated in the act of
self-dealing.
(2) On foundation manager
In any case in which an additional tax is imposed by paragraph
(1), if a foundation manager refused to agree to part or all of
the correction, there is hereby imposed a tax equal to 50 percent
of the amount involved. The tax imposed by this paragraph shall
be paid by any foundation manager who refused to agree to part or
all of the correction.
(c) Special rules
For purposes of subsections (a) and (b) -
(1) Joint and several liability
If more than one person is liable under any paragraph of
subsection (a) or (b) with respect to any one act of
self-dealing, all such persons shall be jointly and severally
liable under such paragraph with respect to such act.
(2) $10,000 limit for management
With respect to any one act of self-dealing, the maximum amount
of the tax imposed by subsection (a)(2) shall not exceed $10,000,
and the maximum amount of the tax imposed by subsection (b)(2)
shall not exceed $10,000.
(d) Self-dealing
(1) In general
For purposes of this section, the term "self-dealing" means any
direct or indirect -
(A) sale or exchange, or leasing, of property between a
private foundation and a disqualified person;
(B) lending of money or other extension of credit between a
private foundation and a disqualified person;
(C) furnishing of goods, services, or facilities between a
private foundation and a disqualified person;
(D) payment of compensation (or payment or reimbursement of
expenses) by a private foundation to a disqualified person;
(E) transfer to, or use by or for the benefit of, a
disqualified person of the income or assets of a private
foundation; and
(F) agreement by a private foundation to make any payment of
money or other property to a government official (as defined in
section 4946(c)), other than an agreement to employ such
individual for any period after the termination of his
government service if such individual is terminating his
government service within a 90-day period.
(2) Special rules
For purposes of paragraph (1) -
(A) the transfer of real or personal property by a
disqualified person to a private foundation shall be treated as
a sale or exchange if the property is subject to a mortgage or
similar lien which the foundation assumes or if it is subject
to a mortgage or similar lien which a disqualified person
placed on the property within the 10-year period ending on the
date of the transfer;
(B) the lending of money by a disqualified person to a
private foundation shall not be an act of self-dealing if the
loan is without interest or other charge (determined without
regard to section 7872) and if the proceeds of the loan are
used exclusively for purposes specified in section 501(c)(3);
(C) the furnishing of goods, services, or facilities by a
disqualified person to a private foundation shall not be an act
of self-dealing if the furnishing is without charge and if the
goods, services, or facilities so furnished are used
exclusively for purposes specified in section 501(c)(3);
(D) the furnishing of goods, services, or facilities by a
private foundation to a disqualified person shall not be an act
of self-dealing if such furnishing is made on a basis no more
favorable than that on which such goods, services, or
facilities are made available to the general public;
(E) except in the case of a government official (as defined
in section 4946(c)), the payment of compensation (and the
payment or reimbursement of expenses) by a private foundation
to a disqualified person for personal services which are
reasonable and necessary to carrying out the exempt purpose of
the private foundation shall not be an act of self-dealing if
the compensation (or payment or reimbursement) is not
excessive;
(F) any transaction between a private foundation and a
corporation which is a disqualified person (as defined in
section 4946(a)), pursuant to any liquidation, merger,
redemption, recapitalization, or other corporate adjustment,
organization, or reorganization, shall not be an act of
self-dealing if all of the securities of the same class as that
held by the foundation are subject to the same terms and such
terms provide for receipt by the foundation of no less than
fair market value;
(G) in the case of a government official (as defined in
section 4946(c)), paragraph (1) shall in addition not apply to
-
(i) prizes and awards which are subject to the provisions
of section 74(b) (without regard to paragraph (3) thereof),
if the recipients of such prizes and awards are selected from
the general public,
(ii) scholarships and fellowship grants which would be
subject to the provisions of section 117(a) (as in effect on
the day before the date of the enactment of the Tax Reform
Act of 1986) and are to be used for study at an educational
organization described in section 170(b)(1)(A)(ii),
(iii) any annuity or other payment (forming part of a
stock-bonus, pension, or profit-sharing plan) by a trust
which is a qualified trust under section 401,
(iv) any annuity or other payment under a plan which meets
the requirements of section 404(a)(2),
(v) any contribution or gift (other than a contribution or
gift of money) to, or services or facilities made available
to, any such individual, if the aggregate value of such
contributions, gifts, services, and facilities to, or made
available to, such individual during any calendar year does
not exceed $25,
(vi) any payment made under chapter 41 of title 5, United
States Code, or
(vii) any payment or reimbursement of traveling expenses
for travel solely from one point in the United States to
another point in the United States, but only if such payment
or reimbursement does not exceed the actual cost of the
transportation involved plus an amount for all other
traveling expenses not in excess of 125 percent of the
maximum amount payable under section 5702 of title 5, United
States Code, for like travel by employees of the United
States; and
(H) the leasing by a disqualified person to a private
foundation of office space for use by the foundation in a
building with other tenants who are not disqualified persons
shall not be treated as an act of self-dealing if -
(i) such leasing of office space is pursuant to a binding
lease which was in effect on October 9, 1969, or pursuant to
renewals of such a lease;
(ii) the execution of such lease was not a prohibited
transaction (within the meaning of section 503(b) or any
corresponding provision of prior law) at the time of such
execution; and
(iii) the terms of the lease (or any renewal) reflect an
arm's-length transaction.
(e) Other definitions
For purposes of this section -
(1) Taxable period
The term "taxable period" means, with respect to any act of
self-dealing, the period beginning with the date on which the act
of self-dealing occurs and ending on the earliest of -
(A) the date of mailing a notice of deficiency with respect
to the tax imposed by subsection (a)(1) under section 6212,
(B) the date on which the tax imposed by subsection (a)(1) is
assessed, or
(C) the date on which correction of the act of self-dealing
is completed.
(2) Amount involved
The term "amount involved" means, with respect to any act of
self-dealing, the greater of the amount of money and the fair
market value of the other property given or the amount of money
and the fair market value of the other property received; except
that, in the case of services described in subsection (d)(2)(E),
the amount involved shall be only the excess compensation. For
purposes of the preceding sentence, the fair market value -
(A) in the case of the taxes imposed by subsection (a), shall
be determined as of the date on which the act of self-dealing
occurs; and
(B) in the case of the taxes imposed by subsection (b), shall
be the highest fair market value during the taxable period.
(3) Correction
The terms "correction" and "correct" mean, with respect to any
act of self-dealing, undoing the transaction to the extent
possible, but in any case placing the private foundation in a
financial position not worse than that in which it would be if
the disqualified person were dealing under the highest fiduciary
standards.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 499; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(8)(H),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96-596,
Sec. 2(a)(1)(A), (B), (2)(A), (3)(A), Dec. 24, 1980, 94 Stat. 3469,
3471; Pub. L. 96-608, Sec. 5, Dec. 28, 1980, 94 Stat. 3553; Pub. L.
99-234, title I, Sec. 107(c), Jan. 2, 1986, 99 Stat. 1759; Pub. L.
99-514, title I, Sec. 122(a)(2)(A), title XVIII, Sec. 1812(b)(1),
Oct. 22, 1986, 100 Stat. 2110, 2833; Pub. L. 100-647, title I, Sec.
1001(d)(1)(A), Nov. 10, 1988, 102 Stat. 3350.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (d)(2)(G)(ii), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
-MISC1-
AMENDMENTS
1988 - Subsec. (d)(2)(G)(ii). Pub. L. 100-647 amended cl. (ii)
generally. Prior to amendment, cl. (ii) read as follows:
"scholarships and fellowship grants which are subject to the
provisions of section 117(a) and are to be used for study at an
educational organization described in section 170(b)(1)(A)(ii),".
1986 - Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1812(b)(1),
inserted "(determined without regard to section 7872)" after
"without interest or other charge".
Subsec. (d)(2)(G)(i). Pub. L. 99-514, Sec. 122(a)(2)(A), inserted
"(without regard to paragraph (3) thereof)" after "section 74(b)".
Subsec. (d)(2)(G)(vii). Pub. L. 99-234 substituted "5702" for
"5702(a)".
1980 - Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(A),
substituted "taxable period" for "correction period".
Subsec. (d)(2)(H). Pub. L. 96-608 added subpar. (H).
Subsec. (e)(1)(B), (C). Pub. L. 96-596, Sec. 2(a)(2)(A), added
subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (e)(2)(B). Pub. L. 96-596, Sec. 2(a)(1)(B), substituted
"taxable period" for "correction period".
Subsec. (e)(4). Pub. L. 96-596, Sec. 2(a)(3)(A), struck out par.
(4) which defined correction period, with respect to any act of
self-dealing, as the period beginning with the date on which the
act of self-dealing occurs and ending 90 days after the date of
mailing of a notice of deficiency with respect to the tax imposed
by subsec. (b)(1) of this section under section 6212 of this title,
extended by any period in which the deficiency cannot be assessed
under section 6213(a) of this title and any other period which the
Secretary determines is reasonable and necessary to bring about
correction of the act of self-dealing.
1976 - Subsec. (d)(2)(G)(ii). Pub. L. 94-455, Sec. 1901(b)(8)(H),
substituted "educational organization described in section
170(b)(1)(A)(ii)" for "educational institution described in section
151(e)(4)" after "study at an".
Subsec. (e)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 122(a)(2)(A) of Pub. L. 99-514 applicable to
prizes and awards granted after Dec. 31, 1986, see section 151(c)
of Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1812(b)(1) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
Amendment by Pub. L. 99-234 effective (1) on effective date of
regulations to be promulgated not later than 150 days after Jan. 2,
1986, or (2) 180 days after Jan. 2, 1986, whichever occurs first,
see section 301(a) of Pub. L. 99-234, set out as a note under
section 5701 of Title 5, Government Organization and Employees.
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
SAVINGS PROVISION
Exceptions to applicability of section, see section 101(l)(2) of
Pub. L. 91-172, set out as a note under section 4940 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TAX ON SELF-DEALING NOT TO APPLY TO CERTAIN STOCK PURCHASES
Pub. L. 98-369, div. A, title III, Sec. 312, July 18, 1984, 98
Stat. 786, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100
Stat. 2095, provided that:
"(a) General Rule. - Section 4941 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] (relating to taxes on self-dealing)
shall not apply to the purchase during 1978 of stock from a private
foundation (and to any note issued in connection with such
purchase) if -
"(1) consideration for such purchase equaled or exceeded the
fair market value of such stock,
"(2) the purchaser of such stock did not make any contribution
to such foundation at any time during the 5-year period ending on
the date of such purchase,
"(3) the aggregate contributions to such foundation by the
purchaser before such date were less than $10,000 and less than 2
percent of the total contributions received by the foundation as
of such date, and
"(4) such purchase was pursuant to the settlement of litigation
involving the purchaser.
"(b) Statute of Limitations. - If credit or refund of any
overpayment of tax resulting from subsection (a) is prevented at
any time before the close of the 1-year period beginning on the
date of the enactment of this Act [July 18, 1984] by the operation
of any law or rule of law, refund or credit of such overpayment
may, nevertheless, be made or allowed if claim therefor is filed
before the close of such 1-year period."
APPLICABILITY TO DETERMINATION OF STATUS AS SUBSTANTIAL CONTRIBUTOR
FOR PURPOSES OF TAXES ON SELF-DEALING OF CONTRIBUTIONS MADE PRIOR
TO OCTOBER 9, 1969
Determination of status as substantial contributor within section
507(d)(2) of this title for purposes of applying this section, see
section 3 of Pub. L. 95-170, set out as a note under section 507 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 508, 4946, 4947, 4962,
4963, 6213, 7422, 7454 of this title.
-End-
-CITE-
26 USC Sec. 4942 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4942. Taxes on failure to distribute income
-STATUTE-
(a) Initial tax
There is hereby imposed on the undistributed income of a private
foundation for any taxable year, which has not been distributed
before the first day of the second (or any succeeding) taxable year
following such taxable year (if such first day falls within the
taxable period), a tax equal to 15 percent of the amount of such
income remaining undistributed at the beginning of such second (or
succeeding) taxable year. The tax imposed by this subsection shall
not apply to the undistributed income of a private foundation -
(1) for any taxable year for which it is an operating
foundation (as defined in subsection (j)(3)), or
(2) to the extent that the foundation failed to distribute any
amount solely because of an incorrect valuation of assets under
subsection (e), if -
(A) the failure to value the assets properly was not willful
and was due to reasonable cause,
(B) such amount is distributed as qualifying distributions
(within the meaning of subsection (g)) by the foundation during
the allowable distribution period (as defined in subsection
(j)(2)),
(C) the foundation notifies the Secretary that such amount
has been distributed (within the meaning of subparagraph (B))
to correct such failure, and
(D) such distribution is treated under subsection (h)(2) as
made out of the undistributed income for the taxable year for
which a tax would (except for this paragraph) have been imposed
under this subsection.
(b) Additional tax
In any case in which an initial tax is imposed under subsection
(a) on the undistributed income of a private foundation for any
taxable year, if any portion of such income remains undistributed
at the close of the taxable period, there is hereby imposed a tax
equal to 100 percent of the amount remaining undistributed at such
time.
(c) Undistributed income
For purposes of this section, the term "undistributed income"
means, with respect to any private foundation for any taxable year
as of any time, the amount by which -
(1) the distributable amount for such taxable year, exceeds
(2) the qualifying distributions made before such time out of
such distributable amount.
(d) Distributable amount
For purposes of this section, the term "distributable amount"
means, with respect to any foundation for any taxable year, an
amount equal to -
(1) the sum of the minimum investment return plus the amounts
described in subsection (f)(2)(C), reduced by
(2) the sum of the taxes imposed on such private foundation for
the taxable year under subtitle A and section 4940.
(e) Minimum investment return
(1) In general
For purposes of subsection (d), the minimum investment return
for any private foundation for any taxable year is 5 percent of
the excess of -
(A) the aggregate fair market value of all assets of the
foundation other than those which are used (or held for use)
directly in carrying out the foundation's exempt purpose, over
(B) the acquisition indebtedness with respect to such assets
(determined under section 514(c)(1) without regard to the
taxable year in which the indebtedness was incurred).
(2) Valuation
(A) In general
For purposes of paragraph (1)(A), the fair market value of
securities for which market quotations are readily available
shall be determined on a monthly basis. For all other assets,
the fair market value shall be determined at such times and in
such manner as the Secretary shall by regulations prescribe.
(B) Reductions in value for blockage or similar factors
In determining the value of any securities under this
paragraph, the fair market value of such securities (determined
without regard to any reduction in value) shall not be reduced
unless, and only to the extent that, the private foundation
establishes that as a result of -
(i) the size of the block of such securities,
(ii) the fact that the securities held are securities in a
closely held corporation, or
(iii) the fact that the sale of such securities would
result in a forced or distress sale,
the securities could not be liquidated within a reasonable
period of time except at a price less than such fair market
value. Any reduction in value allowable under this subparagraph
shall not exceed 10 percent of such fair market value.
(f) Adjusted net income
(1) Defined
For purposes of subsection (j), the term "adjusted net income"
means the excess (if any) of -
(A) the gross income for the taxable year (determined with
the income modifications provided by paragraph (2)), over
(B) the sum of the deductions (determined with the deduction
modifications provided by paragraph (3)) which would be allowed
to a corporation subject to the tax imposed by section 11 for
the taxable year.
(2) Income modifications
The income modifications referred to in paragraph (1)(A) are as
follows:
(A) section 103 (relating to State and local bonds) shall not
apply,
(B) capital gains and losses from the sale or other
disposition of property shall be taken into account only in an
amount equal to any net short-term capital gain for the taxable
year;
(C) there shall be taken into account -
(i) amounts received or accrued as repayments of amounts
which were taken into account as a qualifying distribution
within the meaning of subsection (g)(1)(A) for any taxable
year;
(ii) notwithstanding subparagraph (B), amounts received or
accrued from the sale or other disposition of property to the
extent that the acquisition of such property was taken into
account as a qualifying distribution (within the meaning of
subsection (g)(1)(B)) for any taxable year; and
(iii) any amount set aside under subsection (g)(2) to the
extent it is determined that such amount is not necessary for
the purposes for which it was set aside; and
(D) section 483 (relating to imputed interest) shall not
apply in the case of a binding contract made in a taxable year
beginning before January 1, 1970.
(3) Deduction modifications
The deduction modifications referred to in paragraph (1)(B) are
as follows:
(A) no deduction shall be allowed other than all the ordinary
and necessary expenses paid or incurred for the production or
collection of gross income or for the management, conservation,
or maintenance of property held for the production of such
income and the allowances for depreciation and depletion
determined under section 4940(c)(3)(B), and
(B) section 265 (relating to expenses and interest relating
to tax-exempt interest) shall not apply.
(4) Transitional rule
For purposes of paragraph (2)(B), the basis (for purposes of
determining gain) of property held by a private foundation on
December 31, 1969, and continuously thereafter to the date of its
disposition, shall be deemed to be not less than the fair market
value of such property on December 31, 1969.
(g) Qualifying distributions defined
(1) In general
For purposes of this section, the term "qualifying
distribution" means -
(A) any amount (including that portion of reasonable and
necessary administrative expenses) paid to accomplish one or
more purposes described in section 170(c)(2)(B), other than any
contribution to (i) an organization controlled (directly or
indirectly) by the foundation or one or more disqualified
persons (as defined in section 4946) with respect to the
foundation, except as provided in paragraph (3), or (ii) a
private foundation which is not an operating foundation (as
defined in subsection (j)(3)), except as provided in paragraph
(3), or
(B) any amount paid to acquire an asset used (or held for
use) directly in carrying out one or more purposes described in
section 170(c)(2)(B).
(2) Certain set-asides
(A) In general
For all taxable years beginning on or after January 1, 1975,
subject to such terms and conditions as may be prescribed by
the Secretary, an amount set aside for a specific project which
comes within one or more purposes described in section
170(c)(2)(B) may be treated as a qualifying distribution if it
meets the requirements of subparagraph (B).
(B) Requirements
An amount set aside for a specific project shall meet the
requirements of this subparagraph if at the time of the
set-aside the foundation establishes to the satisfaction of the
Secretary that the amount will be paid for the specific project
within 5 years, and either -
(i) at the time of the set-aside the private foundation
establishes to the satisfaction of the Secretary that the
project is one which can better be accomplished by such
set-aside than by immediate payment of funds, or
(ii)(I) the project will not be completed before the end of
the taxable year of the foundation in which the set-aside is
made,
(II) the private foundation in each taxable year beginning
after December 31, 1975 (or after the end of the fourth
taxable year following the year of its creation, whichever is
later), distributes amounts, in cash or its equivalent, equal
to not less than the distributable amount determined under
subsection (d) (without regard to subsection (i)) for
purposes described in section 170(c)(2)(B) (including but not
limited to payments with respect to set-asides which were
treated as qualifying distributions in one or more prior
years), and
(III) the private foundation has distributed (including but
not limited to payments with respect to set-asides which were
treated as qualifying distributions in one or more prior
years) during the four taxable years immediately preceding
its first taxable year beginning after December 31, 1975, or
the fifth taxable year following the year of its creation,
whichever is later, an aggregate amount, in cash or its
equivalent, of not less than the sum of the following: 80
percent of the first preceding taxable year's distributable
amount; 60 percent of the second preceding taxable year's
distributable amount; 40 percent of the third preceding
taxable year's distributable amount; and 20 percent of the
fourth preceding taxable year's distributable amount.
(C) Certain failures to distribute
If, for any taxable year to which clause (ii)(II) of
subparagraph (B) applies, the private foundation fails to
distribute in cash or its equivalent amounts not less than
those required by such clause and -
(i) the failure to distribute such amounts was not willful
and was due to reasonable cause, and
(ii) the foundation distributes an amount in cash or its
equivalent which is not less than the difference between the
amounts required to be distributed under clause (ii)(II) of
subparagraph (B) and the amounts actually distributed in cash
or its equivalent during that taxable year within the
correction period (as defined in section 4963(e)),
such distribution in cash or its equivalent shall be treated
for the purposes of this subparagraph as made during such year.
(D) Reduction in distribution amount
If, during the taxable years in the adjustment period for
which the organization is a private foundation, the foundation
distributes amounts in cash or its equivalent which exceed the
amount required to be distributed under clause (ii)(II) of
subparagraph (B) (including but not limited to payments with
respect to set-asides which were treated as qualifying
distributions in prior years), then for purposes of this
subsection the distribution required under clause (ii)(II) of
subparagraph (B) for the taxable year shall be reduced by an
amount equal to such excess.
(E) Adjustment period
For purposes of subparagraph (D), with respect to any taxable
year of a private foundation, the taxable years in the
adjustment period are the taxable years (not exceeding 5)
beginning after December 31, 1975, and immediately preceding
the taxable year.
In the case of a set-aside which satisfies the requirements of
clause (i) of subparagraph (B), for good cause shown, the period
for paying the amount set aside may be extended by the Secretary.
(3) Certain contributions to section 501(c)(3) organizations
For purposes of this section, the term "qualifying
distribution" includes a contribution to a section 501(c)(3)
organization described in paragraph (1)(A)(i) or (ii) if -
(A) not later than the close of the first taxable year after
its taxable year in which such contribution is received, such
organization makes a distribution equal to the amount of such
contribution and such distribution is a qualifying distribution
(within the meaning of paragraph (1) or (2), without regard to
this paragraph) which is treated under subsection (h) as a
distribution out of corpus (or would be so treated if such
section 501(c)(3) organization were a private foundation which
is not an operating foundation), and
(B) the private foundation making the contribution obtains
adequate records or other sufficient evidence from such
organization showing that the qualifying distribution described
in subparagraph (A) has been made by such organization.
(4) Limitation on administrative expenses allocable to making of
contributions, gifts, and grants
(A) In general
The amount of the grant administrative expenses paid during
any taxable year which may be taken into account as qualifying
distributions shall not exceed the excess (if any) of -
(i) .65 percent of the sum of the net assets of the private
foundation for such taxable year and the immediately
preceding 2 taxable years, over
(ii) the aggregate amount of grant administrative expenses
paid during the 2 preceding taxable years which were taken
into account as qualifying distributions.
(B) Grant administrative expenses
For purposes of this paragraph, the term "grant
administrative expenses" means any administrative expenses
which are allocable to the making of qualified grants.
(C) Qualified grants
For purposes of this paragraph, the term "qualified grant"
means any contribution, gift, or grant which is a qualifying
distribution.
(D) Net asset
For purposes of this paragraph, the term "net assets" means,
with respect to any taxable year, the excess determined under
subsection (e)(1) for such taxable year.
(E) Transitional rule
In the case of any preceding taxable year which begins before
January 1, 1985, the amount of the grant administrative
expenses taken into account under subparagraph (A)(ii) shall
not exceed .65 percent of the net assets of the private
foundation for such taxable year.
(F) Termination
This paragraph shall not apply to taxable years beginning
after December 31, 1990.
(h) Treatment of qualifying distributions
(1) In general
Except as provided in paragraph (2), any qualifying
distribution made during a taxable year shall be treated as made
-
(A) first out of the undistributed income of the immediately
preceding taxable year (if the private foundation was subject
to the tax imposed by this section for such preceding taxable
year) to the extent thereof,
(B) second out of the undistributed income for the taxable
year to the extent thereof, and
(C) then out of corpus.
For purposes of this paragraph, distributions shall be taken into
account in the order of time in which made.
(2) Correction of deficient distributions for prior taxable
years, etc.
In the case of any qualifying distribution which (under
paragraph (1)) is not treated as made out of the undistributed
income of the immediately preceding taxable year, the foundation
may elect to treat any portion of such distribution as made out
of the undistributed income of a designated prior taxable year or
out of corpus. The election shall be made by the foundation at
such time and in such manner as the Secretary shall by
regulations prescribe.
(i) Adjustment of distributable amount where distributions during
prior years have exceeded income
(1) In general
If, for the taxable years in the adjustment period for which an
organization is a private foundation -
(A) the aggregate qualifying distributions treated (under
subsection (h)) as made out of the undistributed income for
such taxable year or as made out of corpus (except to the
extent subsection (g)(3) with respect to the recipient private
foundation or section 170(b)(1)(E)(ii) applies) during such
taxable years, exceed
(B) the distributable amounts for such taxable years
(determined without regard to this subsection),
then, for purposes of this section (other than subsection (h)),
the distributable amount for the taxable year shall be reduced by
an amount equal to such excess.
(2) Taxable years in adjustment period
For purposes of paragraph (1), with respect to any taxable year
of a private foundation the taxable years in the adjustment
period are the taxable years (not exceeding 5) beginning after
December 31, 1969, and immediately preceding the taxable year.
(j) Other definitions
For purposes of this section -
(1) Taxable period
The term "taxable period" means, with respect to the
undistributed income for any taxable year, the period beginning
with the first day of the taxable year and ending on the earlier
of -
(A) the date of mailing of a notice of deficiency with
respect to the tax imposed by subsection (a) under section
6212, or
(B) the date on which the tax imposed by subsection (a) is
assessed.
(2) Allowable distribution period
The term "allowable distribution period" means, with respect to
any private foundation, the period beginning with the first day
of the first taxable year following the taxable year in which the
incorrect valuation (described in subsection (a)(2)) occurred and
ending 90 days after the date of mailing of a notice of
deficiency (with respect to the tax imposed by subsection (a))
under section 6212 extended by -
(A) any period in which a deficiency cannot be assessed under
section 6213(a), and
(B) any other period which the Secretary determines is
reasonable and necessary to permit a distribution of
undistributed income under this section.
(3) Operating foundation
For purposes of this section, the term "operating foundation"
means any organization -
(A) which makes qualifying distributions (within the meaning
of paragraph (1) or (2) of subsection (g)) directly for the
active conduct of the activities constituting the purpose or
function for which it is organized and operated equal to
substantially all of the lesser of -
(i) its adjusted net income (as defined in subsection (f)),
or
(ii) its minimum investment return; and
(B)(i) substantially more than half of the assets of which
are devoted directly to such activities or to functionally
related businesses (as defined in paragraph (4)), or to both,
or are stock of a corporation which is controlled by the
foundation and substantially all of the assets of which are so
devoted.
(ii) which normally makes qualifying distributions (within
the meaning of paragraph (1) or (2) of subsection (g)) directly
for the active conduct of the activities constituting the
purpose or function for which it is organized and operated in
an amount not less than two-thirds of its minimum investment
return (as defined in subsection (e)), or
(iii) substantially all of the support (other than gross
investment income as defined in section 509(e)) of which is
normally received from the general public and from 5 or more
exempt organizations which are not described in section
4946(a)(1)(H) with respect to each other or the recipient
foundation; not more than 25 percent of the support (other than
gross investment income) of which is normally received from any
one such exempt organization; and not more than half of the
support of which is normally received from gross investment
income.
Notwithstanding the provisions of subparagraph (A), if the
qualifying distributions (within the meaning of paragraph (1) or
(2) of subsection (g)) of an organization for the taxable year
exceed the minimum investment return for the taxable year, clause
(ii) of subparagraph (A) shall not apply unless substantially all
of such qualifying distributions are made directly for the active
conduct of the activities constituting the purpose or function
for which it is organized and operated.
(4) Functionally related business
The term "functionally related business" means -
(A) a trade or business which is not an unrelated trade or
business (as defined in section 513), or
(B) an activity which is carried on within a larger aggregate
of similar activities or within a larger complex of other
endeavors which is related (aside from the need of the
organization for income or funds or the use it makes of the
profits derived) to the exempt purposes of the organization.
(5) Certain elderly care facilities
For purposes of this section (but no other provisions of this
title), the term "operating foundation" includes any organization
which, on May 26, 1969, and at all times thereafter before the
close of the taxable year, operated and maintained as its
principal functional purpose facilities for the long-term care,
comfort, maintenance, or education of permanently and totally
disabled persons, elderly persons, needy widows, or children but
only if such organization meets the requirements of paragraph
(3)(B)(ii).
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 502; amended Pub. L. 94-455, title XIII, Secs. 1302(a),
1303(a), 1310(a), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1713, 1715, 1729, 1834; Pub. L. 95-600, title V, Sec. 522(a),
Nov. 6, 1978, 92 Stat. 2885; Pub. L. 96-596, Sec. 2(a)(1)(C),
(2)(B), (3)(B), (4)(A), Dec. 24, 1980, 94 Stat. 3469-3472; Pub. L.
97-34, title VIII, Sec. 823(a), Aug. 13, 1981, 95 Stat. 351; Pub.
L. 97-448, title I, Sec. 108(b), Jan. 12, 1983, 96 Stat. 2391; Pub.
L. 98-369, div. A, title III, Secs. 304(a), (b), 305(b)(4),
314(a)(1), (2), July 18, 1984, 98 Stat. 782-784, 787; Pub. L.
99-514, title XIII, Sec. 1301(j)(6), Oct. 22, 1986, 100 Stat.
2658.)
-MISC1-
AMENDMENTS
1986 - Subsec. (f)(2)(A). Pub. L. 99-514 substituted "(relating
to State and local bonds)" for "(relating to interest on certain
governmental obligations)".
1984 - Subsec. (a)(2)(B). Pub. L. 98-369, Sec. 314(a)(1),
substituted "subsection (j)(2)" for "subsection (j)(4)".
Subsec. (d)(1). Pub. L. 98-369, Sec. 304(b), substituted "the sum
of the minimum investment return plus the amounts described in
subsection (f)(2)(C), reduced by" for "the minimum investment
return reduced by".
Subsec. (f)(1). Pub. L. 98-369, Sec. 314(a)(2), substituted
"subsection (j)" for "subsection (d)".
Subsec. (g)(1)(A). Pub. L. 98-369, Sec. 304(a)(2), substituted
"including that portion of reasonable and necessary administrative
expenses" for "including administrative expenses".
Subsec. (g)(2)(C)(ii). Pub. L. 98-369, Sec. 305(b)(4),
substituted "section 4963(e)" for "section 4962(e)".
Subsec. (g)(4). Pub. L. 98-369, Sec. 304(a)(1), added par. (4).
1983 - Subsec. (j)(3)(A)(i). Pub. L. 97-448 substituted "or" for
"and" at the end.
1981 - Subsec. (d)(1). Pub. L. 97-34, Sec. 823(a)(1), struck out
"or the adjusted net income (whichever is higher)" after "return".
Subsec. (j)(3). Pub. L. 97-34, Sec. 823(a)(2), (3), inserted in
subpar. (A) "the lesser of" after "substantially all of",
designated existing provisions as cl. (i), added cl. (ii), and
inserted provision respecting applicability of subpar. (A)(ii).
1980 - Subsec. (b). Pub. L. 96-596, Sec. 2(a)(1)(C), substituted
"taxable period" for "correction period".
Subsec. (g)(2)(C)(ii). Pub. L. 96-596, Sec. 2(a)(4)(A),
substituted "the correction period (as defined in section 4962(e))"
for "the initial correction period provided in subsection (j)(2)".
Subsec. (j)(1). Pub. L. 96-596, Sec. 2(a)(2)(B), substituted
provision ending the taxable period on the earlier of the date of
mailing of a notice of deficiency with respect to the tax imposed
by subsec. (a) of this section under section 6212 of this title or
the date on which the tax imposed by subsec. (a) of this section is
assessed for provision ending the taxable period on the date of
mailing the notice of deficiency with respect to a tax imposed by
subsec. (a) of this section under section 6212 of this title.
Subsec. (j)(2). Pub. L. 96-596, Sec. 2(a)(3)(B)(i), (iii),
redesignated par. (4) as (2) and struck out former par. (2), which
defined correction period, with respect to any private foundation
for any taxable year, as the period beginning with the first day of
the taxable year and ending 90 days after the date of mailing a
notice of deficiency with respect to the tax imposed by subsec. (b)
of this section under section 6212 of this title, extended by any
period in which a deficiency cannot be assessed under section
6213(a) of this title and any other period which the Secretary
determines is reasonable and necessary to permit a distribution of
undistributed income.
Subsec. (j)(3)(B)(i). Pub. L. 96-596, Sec. 2(a)(3)(B)(ii),
substituted "paragraph (4)" for "paragraph (5)".
Subsec. (j)(4) to (6). Pub. L. 96-596, Sec. 2(a)(3)(B)(iii),
(iv), redesignated pars. (5) and (6) as (4) and (5), respectively.
1978 - Subsec. (j)(6). Pub. L. 95-600 added par. (6).
1976 - Subsec. (a)(2)(C). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 1303(a), among other changes,
substituted provisions establishing a fixed percentage rate to be
used in computing the minimum investment return for any private
foundation for provisions establishing a variable applicable
percentage rate of 7 percent in 1970 and an applicable rate to be
determined by the Secretary after 1970, for use in computing the
minimum investment return for any private foundation and inserted
provisions relating to reduction in value for blockage or similar
factors.
Subsec. (f)(2)(D). Pub. L. 94-455, Sec. 1310(a), added subpar.
(D).
Subsec. (g)(2). Pub. L. 94-455, Sec. 1302(a), among other
changes, inserted reference to all taxable years beginning on or
after Jan. 1, 1975, requirement that the project will not be
completed before the end of the taxable year of the foundation in
which the set-aside is made, and subpars. (C) to (E).
Subsecs. (h)(2), (j)(2)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to bonds issued after Aug.
15, 1986, except as otherwise provided, see sections 1311 to 1318
of Pub. L. 99-514, set out as an Effective Date; Transitional Rules
note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 304(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1984."
Amendment by section 305(b)(4) of Pub. L. 98-369 applicable to
taxable events occurring after Dec. 31, 1984, see section 305(c) of
Pub. L. 98-369, set out as an Effective Date note under section
4962 of this title.
Section 314(a)(4) of Pub. L. 98-369 provided that: "The
amendments made by this subsection [amending this section and
section 6501 of this title] shall take effect on the date of the
enactment of this Act [July 18, 1984].".
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 823(b) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 522(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1302(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and section 6501 of
this title] shall apply to taxable years beginning after December
31, 1974."
Section 1303(b) of Pub. L. 94-455 provided that: "The amendment
made by this section [amending this section] applies to taxable
years beginning after December 31, 1975."
Section 1310(b) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending after the date of the enactment of this Act [Oct. 4,
1976]."
SAVINGS PROVISION
Applicability of section to organizations organized before May
27, 1969, see section 101(l)(3) of Pub. L. 91-172, set out as a
note under section 4940 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 150, 170, 508, 2055,
2503, 4940, 4943, 4948, 4963, 6110, 6213, 6501, 7422, 7428 of this
title.
-End-
-CITE-
26 USC Sec. 4943 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4943. Taxes on excess business holdings
-STATUTE-
(a) Initial tax
(1) Imposition
There is hereby imposed on the excess business holdings of any
private foundation in a business enterprise during any taxable
year which ends during the taxable period a tax equal to 5
percent of the value of such holdings.
(2) Special rules
The tax imposed by paragraph (1) -
(A) shall be imposed on the last day of the taxable year, but
(B) with respect to the private foundation's holdings in any
business enterprise, shall be determined as of that day during
the taxable year when the foundation's excess holdings in such
enterprise were the greatest.
(b) Additional tax
In any case in which an initial tax is imposed under subsection
(a) with respect to the holdings of a private foundation in any
business enterprise, if, at the close of the taxable period with
respect to such holdings, the foundation still has excess business
holdings in such enterprise, there is hereby imposed a tax equal to
200 percent of such excess business holdings.
(c) Excess business holdings
For purposes of this section -
(1) In general
The term "excess business holdings" means, with respect to the
holdings of any private foundation in any business enterprise,
the amount of stock or other interest in the enterprise which the
foundation would have to dispose of to a person other than a
disqualified person in order for the remaining holdings of the
foundation in such enterprise to be permitted holdings.
(2) Permitted holdings in a corporation
(A) In general
The permitted holdings of any private foundation in an
incorporated business enterprise are -
(i) 20 percent of the voting stock, reduced by
(ii) the percentage of the voting stock owned by all
disqualified persons.
In any case in which all disqualified persons together do not
own more than 20 percent of the voting stock of an incorporated
business enterprise, nonvoting stock held by the private
foundation shall also be treated as permitted holdings.
(B) 35 percent rule where third person has effective control of
enterprise
If -
(i) the private foundation and all disqualified persons
together do not own more than 35 percent of the voting stock
of an incorporated business enterprise, and
(ii) it is established to the satisfaction of the Secretary
that effective control of the corporation is in one or more
persons who are not disqualified persons with respect to the
foundation,
then subparagraph (A) shall be applied by substituting 35
percent for 20 percent.
(C) 2 percent de minimis rule
A private foundation shall not be treated as having excess
business holdings in any corporation in which it (together with
all other private foundations which are described in section
4946(a)(1)(H)) owns not more than 2 percent of the voting stock
and not more than 2 percent in value of all outstanding shares
of all classes of stock.
(3) Permitted holdings in partnerships, etc.
The permitted holdings of a private foundation in any business
enterprise which is not incorporated shall be determined under
regulations prescribed by the Secretary. Such regulations shall
be consistent in principle with paragraphs (2) and (4), except
that -
(A) in the case of a partnership or joint venture, "profits
interest" shall be substituted for "voting stock", and "capital
interest" shall be substituted for "nonvoting stock",
(B) in the case of a proprietorship, there shall be no
permitted holdings, and
(C) in any other case, "beneficial interest" shall be
substituted for "voting stock".
(4) Present holdings
(A)(i) In applying this section with respect to the holdings of
any private foundation in a business enterprise, if such
foundation and all disqualified persons together have holdings in
such enterprise in excess of 20 percent of the voting stock on
May 26, 1969, the percentage of such holdings shall be
substituted for "20 percent," and for "35 percent" (if the
percentage of such holdings is greater than 35 percent), wherever
it appears in paragraph (2), but in no event shall the percentage
so substituted be more than 50 percent.
(ii) If the percentage of the holdings of any private
foundation and all disqualified persons together in a business
enterprise (or if the percentage of the holdings of the private
foundation in such enterprise) decreases for any reason, clause
(i) and subparagraph (D) shall, except as provided in the next
sentence, be applied for all periods after such decrease by
substituting such decreased percentage for the percentage held on
May 26, 1969, but in no event shall the percentage substituted be
less than 20 percent. For purposes of the preceding sentence, any
decrease in percentage holdings attributable to issuances of
stock (or to issuances of stock coupled with redemptions of
stock) shall be disregarded so long as -
(I) the net percentage decrease disregarded under this
sentence does not exceed 2 percent, and
(II) the number of shares held by the foundation is not
affected by any such issuance or redemption.
(iii) The percentage substituted under clause (i), and any
percentage substituted under subparagraph (D), shall be applied
both with respect to the voting stock and, separately, with
respect to the value of all outstanding shares of all classes of
stock.
(iv) In the case of any merger, recapitalization, or other
reorganization involving one or more business enterprises, the
application of clauses (i), (ii), and (iii) shall be determined
under regulations prescribed by the Secretary.
(B) Any interest in a business enterprise which a private
foundation holds on May 26, 1969, if the private foundation on
such date has excess business holdings, shall (while held by the
foundation) be treated as held by a disqualified person (rather
than by the private foundation) -
(i) during the 20-year period beginning on such date, if the
private foundation and all disqualified persons have more than
a 95 percent voting stock interest on such date,
(ii) except as provided in clause (i), during the 15-year
period beginning on such date, if the foundation and all
disqualified persons have more than a 75 percent voting stock
interest (or more than a 75 percent profits or beneficial
interest in the case of any unincorporated enterprise) on such
date or more than a 75 percent interest in the value of all
outstanding shares of all classes of stock (or more than a 75
percent capital interest in the case of a partnership or joint
venture) on such date, or
(iii) during the 10-year period beginning on such date, in
any other case.
(C) The 20-year, 15-year, and 10-year periods described in
subparagraph (B) for the disposition of excess business holdings
shall be suspended during the pendency of any judicial proceeding
by the private foundation which is necessary to reform, or to
excuse such foundation from compliance with, its governing
instrument or any other instrument (as in effect on May 26, 1969)
in order to allow disposition of such holdings.
(D)(i) If, at any time during the second phase, all
disqualified persons together have holdings in a business
enterprise in excess of 2 percent of the voting stock of such
enterprise, then subparagraph (A)(i) shall be applied by
substituting for "50 percent" the following: "50 percent, of
which not more than 25 percent shall be voting stock held by the
private foundation".
(ii) If, immediately before the close of the second phase,
clause (i) of this subparagraph did not apply with respect to a
business enterprise, then for all periods after the close of the
second phase subparagraph (A)(i) shall be applied by substituting
for "50 percent" the following: "35 percent, or if at any time
after the close of the second phase all disqualified persons
together have had holdings in such enterprise which exceed 2
percent of the voting stock, 35 percent, of which not more than
25 percent shall be voting stock held by the private foundation".
(iii) For purposes of this subparagraph, the term "second
phase" means the 15-year period immediately following the
20-year, 15-year, or 10-year period described in subparagraph
(B), whichever applies, as modified by subparagraph (C).
(E) Clause (ii) of subparagraph (B) shall not apply with
respect to any business enterprise if before January 1, 1971, one
or more individuals who are substantial contributors (or members
of the family (within the meaning of section 4946(d)) of one or
more substantial contributors) to the private foundation and who
on May 26, 1969, held more than 15 percent of the voting stock of
the enterprise elect, in such manner as the Secretary may by
regulations prescribe, not to have such clause (ii) apply with
respect to such enterprise.
(5) Holdings acquired by trust or will
Paragraph (4) (other than subparagraph (B)(i)) shall apply to
any interest in a business enterprise which a private foundation
acquires under the terms of a trust which was irrevocable on May
26, 1969, or under the terms of a will executed on or before such
date, which are in effect on such date and at all times
thereafter, as if such interest were held on May 26, 1969, except
that the 15-year and 10-year periods prescribed in clauses (ii)
and (iii) of paragraph (4)(B) shall commence with respect to such
interest on the date of distribution under the trust or will in
lieu of May 26, 1969.
(6) 5-year period to dispose of gifts, bequests, etc.
Except as provided in paragraph (5), if, after May 26, 1969,
there is a change in the holdings in a business enterprise (other
than by purchase by the private foundation or by a disqualified
person) which causes the private foundation to have -
(A) excess business holdings in such enterprise, the interest
of the foundation in such enterprise (immediately after such
change) shall (while held by the foundation) be treated as held
by a disqualified person (rather than by the foundation) during
the 5-year period beginning on the date of such change in
holdings; or
(B) an increase in excess business holdings in such
enterprise (determined without regard to subparagraph (A)),
subparagraph (A) shall apply, except that the excess holdings
immediately preceding the increase therein shall not be
treated, solely because of such increase, as held by a
disqualified person (rather than by the foundation).
In any case where an acquisition by a disqualified person would
result in a substitution under clause (i) or (ii) of subparagraph
(D) of paragraph (4), the preceding sentence shall be applied
with respect to such acquisition as if it did not contain the
phrase "or by a disqualified person" in the material preceding
subparagraph (A).
(7) 5-year extension of period to dispose of certain large gifts
and bequests
The Secretary may extend for an additional 5-year period the
period under paragraph (6) for disposing of excess business
holdings in the case of an unusually large gift or bequest of
diverse business holdings or holdings with complex corporate
structures if -
(A) the foundation establishes that -
(i) diligent efforts to dispose of such holdings have been
made within the initial 5-year period, and
(ii) disposition within the initial 5-year period has not
been possible (except at a price substantially below fair
market value) by reason of such size and complexity or
diversity of such holdings,
(B) before the close of the initial 5-year period -
(i) the private foundation submits to the Secretary a plan
for disposing of all of the excess business holdings involved
in the extension, and
(ii) the private foundation submits the plan described in
clause (i) to the Attorney General (or other appropriate
State official) having administrative or supervisory
authority or responsibility with respect to the foundation's
disposition of the excess business holdings involved and
submits to the Secretary any response received by the private
foundation from the Attorney General (or other appropriate
State official) to such plan during such 5-year period, and
(C) the Secretary determines that such plan can reasonably be
expected to be carried out before the close of the extension
period.
(d) Definitions; special rules
For purposes of this section -
(1) Business holdings
In computing the holdings of a private foundation, or a
disqualified person (as defined in section 4946) with respect
thereto, in any business enterprise, any stock or other interest
owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned
proportionately by or for its shareholders, partners, or
beneficiaries. The preceding sentence shall not apply with
respect to an income or remainder interest of a private
foundation in a trust described in section 4947(a)(2), but only
if, in the case of property transferred in trust after May 26,
1969, such foundation holds only an income interest or only a
remainder interest in such trust.
(2) Taxable period
The term "taxable period" means, with respect to any excess
business holdings of a private foundation in a business
enterprise, the period beginning on the first day on which there
are excess holdings and ending on the earlier of -
(A) the date of mailing of a notice of deficiency with
respect to the tax imposed by subsection (a) under section 6212
in respect of such holdings, or
(B) the date on which the tax imposed by subsection (a) in
respect of such holdings is assessed.
(3) Business enterprise
The term "business enterprise" does not include -
(A) a functionally related business (as defined in section
4942(j)(4)), or
(B) a trade or business at least 95 percent of the gross
income of which is derived from passive sources.
For purposes of subparagraph (B), gross income from passive
sources includes the items excluded by section 512(b)(1), (2),
(3), and (5), and income from the sale of goods (including
charges or costs passed on at cost to purchasers of such goods or
income received in settlement of a dispute concerning or in lieu
of the exercise of the right to sell such goods) if the seller
does not manufacture, produce, physically receive or deliver,
negotiate sales of, or maintain inventories in such goods.
(4) Disqualified person
The term "disqualified person" (as defined in section 4946(a))
does not include a plan described in section 4975(e)(7) with
respect to the holdings of a private foundation described in
paragraphs (4) and (5) of subsection (c).
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 507; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-596, Sec. 2(a)(1)(D),
(2)(C), (3)(C), (4)(B), Dec. 24, 1980, 94 Stat. 3469-3472; Pub. L.
98-369, div. A, title III, Secs. 307(a), 308(a), 309(a), 310(a),
314(c)(1), July 18, 1984, 98 Stat. 784, 785, 787.)
-MISC1-
AMENDMENTS
1984 - Subsec. (c)(4)(A)(ii). Pub. L. 98-369, Sec. 308(a),
substituted "For purposes of the preceding sentence, any decrease
in percentage holdings attributable to issuances of stock (or to
issuances of stock coupled with redemptions of stock) shall be
disregarded so long as (I) the net percentage decrease disregarded
under this sentence does not exceed 2 percent, and (II) the number
of shares held by the foundation is not affected by any such
issuance or redemption" for "For purposes of this clause, any
decrease in percentage holdings attributable to issuances of stock
(or to issuances of stock coupled with redemptions of stock) shall
be determined only as of the close of each taxable year of the
private foundation unless the aggregate of the percentage decreases
attributable to the issuances of stock (or such issuances and
redemptions) during such taxable year equals or exceeds 1 percent".
Subsec. (c)(4)(B)(i). Pub. L. 98-369, Sec. 309(a), substituted
"the private foundation and all disqualified persons have" for "the
private foundation has".
Subsec. (c)(6). Pub. L. 98-369, Sec. 310(a), inserted following
subpar. (B) "In any case where an acquisition by a disqualified
person would result in a substitution under clause (i) or (ii) of
subparagraph (D) of paragraph (4), the preceding sentence shall be
applied with respect to such acquisition as if it did not contain
the phrase 'or by a disqualified person' in the material preceding
subparagraph (A)."
Subsec. (c)(7). Pub. L. 98-369, Sec. 307(a), added par. (7).
Subsec. (d)(4). Pub. L. 98-369, Sec. 314(c)(1), added par. (4).
1980 - Subsec. (b). Pub. L. 96-596, Sec. 2(a)(1)(D), substituted
"taxable period" for "correction period".
Subsec. (d)(2). Pub. L. 96-596, Sec. 2(a)(2)(C), substituted
provision ending the taxable period on the earlier of the date of
mailing of a notice of deficiency with respect to the tax imposed
by subsec. (a) of this section under section 6212 of this title in
respect to such holdings or the date on which the tax imposed by
subsec. (a) of this section in respect to such holdings is assessed
for provision ending the taxable period on the date of mailing the
notice of deficiency with respect to a tax imposed by subsec. (a)
of this section under section 6212 of this title in respect to such
holdings.
Subsec. (d)(3), (4). Pub. L. 96-596, Sec. 2(a)(3)(C), (4)(B),
redesignated par. (4) as (3), and in subpar. (A) of par. (3) as so
redesignated, substituted "section 4942(j)(4)" for "section
4942(j)(5)", and struck out par. (3), which defined correction
period, with respect to excess business holdings of a private
foundation in a business enterprise, as the period ending 90 days
after the date of mailing of a notice of deficiency with respect to
the tax imposed by subsec. (b) of this section under section 6212
of this title, extended by any period in which a deficiency cannot
be assessed under section 6213(a) of this title and any other
period which the Secretary determines is reasonable and necessary
to permit orderly disposition of such excess business holdings.
1976 - Subsecs. (c), (d). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 307(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to business holdings with respect to
which the 5-year period described in section 4943(c)(6) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] ends on or
after November 1, 1983.
"(2) Transitional rule. - Any plan submitted to the Secretary of
the Treasury or his delegate on or before the 60th day after the
date of the enactment of this Act [July 18, 1984] shall be treated
as submitted before the close of the initial 5-year period referred
to in section 4943(c)(7)(B) of the Internal Revenue Code of 1986
(as added by subsection (a))."
Section 308(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
increases and decreases occurring after the date of the enactment
of this Act [July 18, 1984]."
Section 309(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall take effect as
if included in the amendment made by section 101(b) of the Tax
Reform Act of 1969 [section 101(b) of Pub. L. 91-172 which enacted
this section]."
Section 310(b) of Pub. L. 98-369 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
acquisitions after the date of the enactment of this Act [July 18,
1984]."
Section 314(c)(2) of Pub. L. 98-369 provided that: "The amendment
made by paragraph (1) [amending this section] shall apply with
respect to taxable years beginning after the date of the enactment
of this Act [July 18, 1984]."
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
SAVINGS PROVISION
Applicability of section to private foundations, see section
101(l)(4) of Pub. L. 91-172, set out as a note under section 4940
of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 150, 508, 537, 4946,
4947, 4963, 6213, 7422 of this title.
-End-
-CITE-
26 USC Sec. 4944 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4944. Taxes on investments which jeopardize charitable purpose
-STATUTE-
(a) Initial taxes
(1) On the private foundation
If a private foundation invests any amount in such a manner as
to jeopardize the carrying out of any of its exempt purposes,
there is hereby imposed on the making of such investment a tax
equal to 5 percent of the amount so invested for each year (or
part thereof) in the taxable period. The tax imposed by this
paragraph shall be paid by the private foundation.
(2) On the management
In any case in which a tax is imposed by paragraph (1), there
is hereby imposed on the participation of any foundation manager
in the making of the investment, knowing that it is jeopardizing
the carrying out of any of the foundation's exempt purposes, a
tax equal to 5 percent of the amount so invested for each year
(or part thereof) in the taxable period, unless such
participation is not willful and is due to reasonable cause. The
tax imposed by this paragraph shall be paid by any foundation
manager who participated in the making of the investment.
(b) Additional taxes
(1) On the foundation
In any case in which an initial tax is imposed by subsection
(a)(1) on the making of an investment and such investment is not
removed from jeopardy within the taxable period, there is hereby
imposed a tax equal to 25 percent of the amount of the
investment. The tax imposed by this paragraph shall be paid by
the private foundation.
(2) On the management
In any case in which an additional tax is imposed by paragraph
(1), if a foundation manager refused to agree to part or all of
the removal from jeopardy, there is hereby imposed a tax equal to
5 percent of the amount of the investment. The tax imposed by
this paragraph shall be paid by any foundation manager who
refused to agree to part or all of the removal from jeopardy.
(c) Exception for program-related investments
For purposes of this section, investments, the primary purpose of
which is to accomplish one or more of the purposes described in
section 170(c)(2)(B), and no significant purpose of which is the
production of income or the appreciation of property, shall not be
considered as investments which jeopardize the carrying out of
exempt purposes.
(d) Special rules
For purposes of subsections (a) and (b) -
(1) Joint and several liability
If more than one person is liable under subsection (a)(2) or
(b)(2) with respect to any one investment, all such persons shall
be jointly and severally liable under such paragraph with respect
to such investment.
(2) Limit for management
With respect to any one investment, the maximum amount of the
tax imposed by subsection (a)(2) shall not exceed $5,000, and the
maximum amount of the tax imposed by subsection (b)(2) shall not
exceed $10,000.
(e) Definitions
For purposes of this section -
(1) Taxable period
The term "taxable period" means, with respect to any investment
which jeopardizes the carrying out of exempt purposes, the period
beginning with the date on which the amount is so invested and
ending on the earliest of -
(A) the date of mailing of a notice of deficiency with
respect to the tax imposed by subsection (a)(1) under section
6212,
(B) the date on which the tax imposed by subsection (a)(1) is
assessed, or
(C) the date on which the amount so invested is removed from
jeopardy.
(2) Removal from jeopardy
An investment which jeopardizes the carrying out of exempt
purposes shall be considered to be removed from jeopardy when
such investment is sold or otherwise disposed of, and the
proceeds of such sale or other disposition are not investments
which jeopardize the carrying out of exempt purposes.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 511; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-596, Sec. 2(a)(1)(E),
(2)(D), (3)(D), Dec. 24, 1980, 94 Stat. 3469-3471.)
-MISC1-
AMENDMENTS
1980 - Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(E),
substituted "taxable period" for "correction period".
Subsec. (e)(1)(B), (C). Pub. L. 96-596, Sec. 2(a)(2)(D), added
subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (e)(3). Pub. L. 96-596, Sec. 2(a)(3)(D), struck out par.
(3), which defined correction period, with respect to any
investment which jeopardizes the carrying out of exempt purposes,
as the period beginning with the date on which such investment is
entered into and ending 90 days after the date of mailing of a
notice of deficiency with respect to the tax imposed by subsec.
(b)(1) of this section under section 6212 of this title, extended
by any period in which a deficiency cannot be assessed under
section 6213(a) of this title and any other period which the
Secretary determines is reasonable and necessary to bring about
removal from jeopardy.
1976 - Subsec. (e)(3)(B). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 501, 508, 4947, 4963,
6213, 7422, 7454 of this title.
-End-
-CITE-
26 USC Sec. 4945 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4945. Taxes on taxable expenditures
-STATUTE-
(a) Initial taxes
(1) On the foundation
There is hereby imposed on each taxable expenditure (as defined
in subsection (d)) a tax equal to 10 percent of the amount
thereof. The tax imposed by this paragraph shall be paid by the
private foundation.
(2) On the management
There is hereby imposed on the agreement of any foundation
manager to the making of an expenditure, knowing that it is a
taxable expenditure, a tax equal to 2 1/2 percent of the amount
thereof, unless such agreement is not willful and is due to
reasonable cause. The tax imposed by this paragraph shall be paid
by any foundation manager who agreed to the making of the
expenditure.
(b) Additional taxes
(1) On the foundation
In any case in which an initial tax is imposed by subsection
(a)(1) on a taxable expenditure and such expenditure is not
corrected within the taxable period, there is hereby imposed a
tax equal to 100 percent of the amount of the expenditure. The
tax imposed by this paragraph shall be paid by the private
foundation.
(2) On the management
In any case in which an additional tax is imposed by paragraph
(1), if a foundation manager refused to agree to part or all of
the correction, there is hereby imposed a tax equal to 50 percent
of the amount of the taxable expenditure. The tax imposed by this
paragraph shall be paid by any foundation manager who refused to
agree to part or all of the correction.
(c) Special rules
For purposes of subsections (a) and (b) -
(1) Joint and several liability
If more than one person is liable under subsection (a)(2) or
(b)(2) with respect to the making of a taxable expenditure, all
such persons shall be jointly and severally liable under such
paragraph with respect to such expenditure.
(2) Limit for management
With respect to any one taxable expenditure, the maximum amount
of the tax imposed by subsection (a)(2) shall not exceed $5,000,
and the maximum amount of the tax imposed by subsection (b)(2)
shall not exceed $10,000.
(d) Taxable expenditure
For purposes of this section, the term "taxable expenditure"
means any amount paid or incurred by a private foundation -
(1) to carry on propaganda, or otherwise to attempt, to
influence legislation, within the meaning of subsection (e),
(2) except as provided in subsection (f), to influence the
outcome of any specific public election, or to carry on, directly
or indirectly, any voter registration drive,
(3) as a grant to an individual for travel, study, or other
similar purposes by such individual, unless such grant satisfies
the requirements of subsection (g),
(4) as a grant to an organization unless -
(A) such organization is described in paragraph (1), (2), or
(3) of section 509(a) or is an exempt operating foundation (as
defined in section 4940(d)(2)), or
(B) the private foundation exercises expenditure
responsibility with respect to such grant in accordance with
subsection (h), or
(5) for any purpose other than one specified in section
170(c)(2)(B).
(e) Activities within subsection (d)(1)
For purposes of subsection (d)(1), the term "taxable expenditure"
means any amount paid or incurred by a private foundation for -
(1) any attempt to influence any legislation through an attempt
to affect the opinion of the general public or any segment
thereof, and
(2) any attempt to influence legislation through communication
with any member or employee of a legislative body, or with any
other government official or employee who may participate in the
formulation of the legislation (except technical advice or
assistance provided to a governmental body or to a committee or
other subdivision thereof in response to a written request by
such body or subdivision, as the case may be),
other than through making available the results of nonpartisan
analysis, study, or research. Paragraph (2) of this subsection
shall not apply to any amount paid or incurred in connection with
an appearance before, or communication to, any legislative body
with respect to a possible decision of such body which might affect
the existence of the private foundation, its powers and duties, its
tax-exempt status, or the deduction of contributions to such
foundation.
(f) Nonpartisan activities carried on by certain organizations
Subsection (d)(2) shall not apply to any amount paid or incurred
by any organization -
(1) which is described in section 501(c)(3) and exempt from
taxation under section 501(a),
(2) the activities of which are nonpartisan, are not confined
to one specific election period, and are carried on in 5 or more
States,
(3) substantially all of the income of which is expended
directly for the active conduct of the activities constituting
the purpose or function for which it is organized and operated,
(4) substantially all of the support (other than gross
investment income as defined in section 509(e)) of which is
received from exempt organizations, the general public,
governmental units described in section 170(c)(1), or any
combination of the foregoing; not more than 25 percent of such
support is received from any one exempt organization (for this
purpose treating private foundations which are described in
section 4946(a)(1)(H) with respect to each other as one exempt
organization); and not more than half of the support of which is
received from gross investment income, and
(5) contributions to which for voter registration drives are
not subject to conditions that they may be used only in specified
States, possessions of the United States, or political
subdivisions or other areas of any of the foregoing, or the
District of Columbia, or that they may be used in only one
specific election period.
In determining whether the organization meets the requirements of
paragraph (4) for any taxable year of such organization, there
shall be taken into account the support received by such
organization during such taxable year and during the immediately
preceding 4 taxable years of such organization (excluding therefrom
any preceding taxable year which begins before January 1, 1970).
Subsection (d)(4) shall not apply to any grant to an organization
which meets the requirements of this subsection.
(g) Individual grants
Subsection (d)(3) shall not apply to an individual grant awarded
on an objective and nondiscriminatory basis pursuant to a procedure
approved in advance by the Secretary, if it is demonstrated to the
satisfaction of the Secretary that -
(1) the grant constitutes a scholarship or fellowship grant
which would be subject to the provisions of section 117(a) (as in
effect on the day before the date of the enactment of the Tax
Reform Act of 1986) and is to be used for study at an educational
organization described in section 170(b)(1)(A)(ii),
(2) the grant constitutes a prize or award which is subject to
the provisions of section 74(b) (without regard to paragraph (3)
thereof), if the recipient of such prize or award is selected
from the general public, or
(3) the purpose of the grant is to achieve a specific
objective, produce a report or other similar product, or improve
or enhance a literary, artistic, musical, scientific, teaching,
or other similar capacity, skill, or talent of the grantee.
(h) Expenditure responsibility
The expenditure responsibility referred to in subsection (d)(4)
means that the private foundation is responsible to exert all
reasonable efforts and to establish adequate procedures -
(1) to see that the grant is spent solely for the purpose for
which made,
(2) to obtain full and complete reports from the grantee on how
the funds are spent, and
(3) to make full and detailed reports with respect to such
expenditures to the Secretary.
(i) Other definitions
For purposes of this section -
(1) Correction
The terms "correction" and "correct" means, with respect to any
taxable expenditure, (A) recovering part or all of the
expenditure to the extent recovery is possible, and where full
recovery is not possible such additional corrective action as is
prescribed by the Secretary by regulations, or (B) in the case of
a failure to comply with subsection (h)(2) or (h)(3), obtaining
or making the report in question.
(2) Taxable period
The term "taxable period" means, with respect to any taxable
expenditure, the period beginning with the date on which the
taxable expenditure occurs and ending on the earlier of -
(A) the date of mailing a notice of deficiency with respect
to the tax imposed by subsection (a)(1) under section 6212, or
(B) the date on which the tax imposed by subsection (a)(1) is
assessed.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 512; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(8)(H),
1906(b)(13(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96-596,
Sec. 2(a)(1)(F), (2)(E), Dec. 24, 1980, 94 Stat. 3469, 3470; Pub.
L. 98-369, div. A, title III, Sec. 302(b), July 18, 1984, 98 Stat.
780; Pub. L. 99-514, title I, Sec. 122(a)(2)(B), Oct. 22, 1986, 100
Stat. 2110; Pub. L. 100-647, title I, Sec. 1001(d)(1)(B), Nov. 10,
1988, 102 Stat. 3350.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (g)(1), is the date of enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
-MISC1-
AMENDMENTS
1988 - Subsec. (g)(1). Pub. L. 100-647 amended par. (1)
generally. Prior to amendment, par. (1) read as follows: "the grant
constitutes a scholarship or fellowship grant which is subject to
the provisions of section 117(a) and is to be used for study at an
educational organization described in section 170(b)(1)(A)(ii),".
1986 - Subsec. (g)(2). Pub. L. 99-514 inserted "(without regard
to paragraph (3) thereof)" after "section 74(b)".
1984 - Subsec. (d)(4). Pub. L. 98-369, in amending par. (4)
generally, divided existing provisions into subpars. (A) and (B)
and inserted reference in subpar. (A) to exempt foundations (as
defined in section 4940(d)(2)).
1980 - Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(F),
substituted "taxable period" for "correction period".
Subsec. (i)(2). Pub. L. 96-596, Sec. 2(a)(2)(E), substituted
provision defining taxable period as the period beginning with the
date on which the taxable expenditure occurs and ending on the
earlier of the date of mailing a notice of deficiency with respect
to the tax imposed by subsec. (a)(1) of this section under section
6212 of this title or the date on which the tax imposed by subsec.
(a)(1) of this section is assessed for provision defining
correction period as the period beginning with the date on which
the taxable expenditure occurs and ending 90 days after the date of
mailing of a notice of deficiency with respect to the tax imposed
by subsec. (b)(1) of this section under section 6212 of this title,
extended by any period in which the deficiency cannot be assessed
under section 6213(a) of this title and any other period which the
Secretary determines to be reasonable and necessary, except that
such determination not be made with respect to any taxable
expenditure within the meaning of pars. (1), (2), (3), or (4) of
subsec. (d) of this section because of any action by an appropriate
State officer.
1976 - Subsec. (g). Pub. L. 94-455, Secs. 1901(b)(8)(H),
1906(b)(13)(A), struck out in provisions preceding par. (1) "or his
delegate" after "Secretary" and substituted in par. (1)
"educational organization described in section 170(b)(1)(A)(ii)"
for "educational institution described in section 151(e)(4)".
Subsecs. (h), (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to prizes and awards
granted after Dec. 31, 1986, see section 151(c) of Pub. L. 99-514,
set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 302(c)(2) of Pub. L. 98-369 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
grants made after December 31, 1984, in taxable years ending after
such date."
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
SAVINGS PROVISION
Applicability of subsecs. (d)(4) and (h) of this section to
grants to private foundations described in section 101(l)(C)(3) of
Pub. L. 91-172, see section 101(l)(5) of Pub. L. 91-172, set out as
a note under section 4940 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 508, 4947, 4955, 4963,
6213, 7422, 7454 of this title.
-End-
-CITE-
26 USC Sec. 4946 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4946. Definitions and special rules
-STATUTE-
(a) Disqualified person
(1) In general
For purposes of this subchapter, the term "disqualified person"
means, with respect to a private foundation, a person who is -
(A) a substantial contributor to the foundation,
(B) a foundation manager (within the meaning of subsection
(b)(1)),
(C) an owner of more than 20 percent of -
(i) the total combined voting power of a corporation,
(ii) the profits interest of a partnership, or
(iii) the beneficial interest of a trust or unincorporated
enterprise,
which is a substantial contributor to the foundation,
(D) a member of the family (as defined in subsection (d)) of
any individual described in subparagraph (A), (B), or (C),
(E) a corporation of which persons described in subparagraph
(A), (B), (C), or (D) own more than 35 percent of the total
combined voting power,
(F) a partnership in which persons described in subparagraph
(A), (B), (C), or (D) own more than 35 percent of the profits
interest,
(G) a trust or estate in which persons described in
subparagraph (A), (B), (C), or (D) hold more than 35 percent of
the beneficial interest,
(H) only for purposes of section 4943, a private foundation -
(i) which is effectively controlled (directly or
indirectly) by the same person or persons who control the
private foundation in question, or
(ii) substantially all of the contributions to which were
made (directly or indirectly) by the same person or persons
described in subparagraph (A), (B), or (C), or members of
their families (within the meaning of subsection (d)), who
made (directly or indirectly) substantially all of the
contributions to the private foundation in question, and
(I) only for purposes of section 4941, a government official
(as defined in subsection (c)).
(2) Substantial contributors
For purposes of paragraph (1), the term "substantial
contributor" means a person who is described in section
507(d)(2).
(3) Stockholdings
For purposes of paragraphs (1)(C)(i) and (1)(E), there shall be
taken into account indirect stockholdings which would be taken
into account under section 267(c), except that, for purposes of
this paragraph, section 267(c)(4) shall be treated as providing
that the members of the family of an individual are the members
within the meaning of subsection (d).
(4) Partnerships; trusts
For purposes of paragraphs (1)(C)(ii) and (iii), (1)(F), and
(1)(G), the ownership of profits or beneficial interests shall be
determined in accordance with the rules for constructive
ownership of stock provided in section 267(c) (other than
paragraph (3) thereof), except that section 267(c)(4) shall be
treated as providing that the members of the family of an
individual are the members within the meaning of subsection (d).
(b) Foundation manager
For purposes of this subchapter, the term "foundation manager"
means, with respect to any private foundation -
(1) an officer, director, or trustee of a foundation (or an
individual having powers or responsibilities similar to those of
officers, directors, or trustees of the foundation), and
(2) with respect to any act (or failure to act), the employees
of the foundation having authority or responsibility with respect
to such act (or failure to act).
(c) Government official
For purposes of subsection (a)(1)(I) and section 4941, the term
"government official" means, with respect to an act of self-dealing
described in section 4941, an individual who, at the time of such
act, holds any of the following offices or positions (other than as
a "special Government employee", as defined in section 202(a) of
title 18, United States Code):
(1) an elective public office in the executive or legislative
branch of the Government of the United States,
(2) an office in the executive or judicial branch of the
Government of the United States, appointment to which was made by
the President,
(3) a position in the executive, legislative, or judicial
branch of the Government of the United States -
(A) which is listed in schedule C of rule VI of the Civil
Service Rules, or
(B) the compensation for which is equal to or greater than
the lowest rate of basic pay for the Senior Executive Service
under section 5382 of title 5, United States Code,
(4) a position under the House of Representatives or the Senate
of the United States held by an individual receiving gross
compensation at an annual rate of $15,000 or more,
(5) an elective or appointive public office in the executive,
legislative, or judicial branch of the government of a State,
possession of the United States, or political subdivision or
other area of any of the foregoing, or of the District of
Columbia, held by an individual receiving gross compensation at
an annual rate of $20,000 or more,
(6) a position as personal or executive assistant or secretary
to any of the foregoing, or
(7) a member of the Internal Revenue Service Oversight Board.
(d) Members of family
For purposes of subsection (a)(1), the family of any individual
shall include only his spouse, ancestors, children, grandchildren,
great grandchildren, and the spouses of children, grandchildren,
and great grandchildren.
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 515; amended Pub. L. 95-227, Sec. 4(c)(2)(B), Feb. 10, 1978,
92 Stat. 22; Pub. L. 98-369, div. A, title III, Sec. 306(a), July
18, 1984, 98 Stat. 784; Pub. L. 99-514, title XVI, Sec. 1606(a),
Oct. 22, 1986, 100 Stat. 2771; Pub. L. 105-206, title I, Sec.
1101(c)(1), July 22, 1998, 112 Stat. 696; Pub. L. 106-554, Sec.
1(a)(7) [title III, Sec. 319(16)], Dec. 21, 2000, 114 Stat. 2763,
2763A-647.)
-MISC1-
AMENDMENTS
2000 - Subsec. (c)(3)(B). Pub. L. 106-554 substituted "the lowest
rate of basic pay for the Senior Executive Service under section
5382" for "the lowest rate of compensation prescribed for GS-16 of
the General Schedule under section 5332".
1998 - Subsec. (c)(7). Pub. L. 105-206 added par. (7).
1986 - Subsec. (c)(5). Pub. L. 99-514 substituted "$20,000" for
"$15,000".
1984 - Subsec. (d). Pub. L. 98-369 amended subsec. (d) generally,
substituting references to children, grandchildren, and great
grandchildren for references to lineal descendants in two places.
1978 - Subsecs. (a)(1), (b). Pub. L. 95-227 substituted
"subchapter" for "chapter".
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1606(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to
compensation received after December 31, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 306(c) of Pub. L. 98-369 provided that: "The amendments
made by this subsection [probably should be "section", amending
this section and section 6104 of this title] shall take effect on
January 1, 1985."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-227 applicable with respect to
contributions, acts, and expenditures made after Dec. 31, 1977, in
and for taxable years beginning after such date, see section 4(f)
of Pub. L. 95-227, set out as an Effective Date note under section
192 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 507, 509, 4940, 4941,
4942, 4943, 4945, 4948, 4958, 6033, 7454 of this title.
-End-
-CITE-
26 USC Sec. 4947 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4947. Application of taxes to certain nonexempt trusts
-STATUTE-
(a) Application of tax
(1) Charitable trusts
For purposes of part II of subchapter F of chapter 1 (other
than section 508(a), (b), and (c)) and for purposes of this
chapter, a trust which is not exempt from taxation under section
501(a), all of the unexpired interests in which are devoted to
one or more of the purposes described in section 170(c)(2)(B),
and for which a deduction was allowed under section 170,
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 (or the
corresponding provisions of prior law), shall be treated as an
organization described in section 501(c)(3). For purposes of
section 509(a)(3)(A), such a trust shall be treated as if
organized on the day on which it first becomes subject to this
paragraph.
(2) Split-interest trusts
In the case of a trust which is not exempt from tax under
section 501(a), not all of the unexpired interests in which are
devoted to one or more of the purposes described in section
170(c)(2)(B), and which has amounts in trust for which a
deduction was allowed under section 170, 545(b)(2), 556(b)(2),
642(c), 2055, 2106(a)(2), or 2522, section 507 (relating to
termination of private foundation status), section 508(e)
(relating to governing instruments) to the extent applicable to a
trust described in this paragraph, section 4941 (relating to
taxes on self-dealing), section 4943 (relating to taxes on excess
business holdings) except as provided in subsection (b)(3),
section 4944 (relating to investments which jeopardize charitable
purpose) except as provided in subsection (b)(3), and section
4945 (relating to taxes on taxable expenditures) shall apply as
if such trust were a private foundation. This paragraph shall not
apply with respect to -
(A) any amounts payable under the terms of such trust to
income beneficiaries, unless a deduction was allowed under
section 170(f)(2)(B), 2055(e)(2)(B), or 2522(c)(2)(B),
(B) any amounts in trust other than amounts for which a
deduction was allowed under section 170, 545(b)(2), 556(b)(2),
642(c), 2055, 2106(a)(2), or 2522, if such other amounts are
segregated from amounts for which no deduction was allowable,
or
(C) any amounts transferred in trust before May 27, 1969.
(3) Segregated amounts
For purposes of paragraph (2)(B), a trust with respect to which
amounts are segregated shall separately account for the various
income, deduction, and other items properly attributable to each
of such segregated amounts.
(b) Special rules
(1) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
(2) Limit to segregated amounts
If any amounts in the trust are segregated within the meaning
of subsection (a)(2)(B) of this section, the value of the net
assets for purposes of subsections (c)(2) and (g) of section 507
shall be limited to such segregated amounts.
(3) Sections 4943 and 4944
Sections 4943 and 4944 shall not apply to a trust which is
described in subsection (a)(2) if -
(A) all the income interest (and none of the remainder
interest) of such trust is devoted solely to one or more of the
purposes described in section 170(c)(2)(B), and all amounts in
such trust for which a deduction was allowed under section 170,
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 have an
aggregate value not more than 60 percent of the aggregate fair
market value of all amounts in such trusts, or
(B) a deduction was allowed under section 170, 545(b)(2),
556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for amounts
payable under the terms of such trust to every remainder
beneficiary but not to any income beneficiary.
(4) Section 507
The provisions of section 507(a) shall not apply to a trust
which is described in subsection (a)(2) by reason of a
distribution of qualified employer securities (as defined in
section 664(g)(4)) to an employee stock ownership plan (as
defined in section 4975(e)(7)) in a qualified gratuitous transfer
(as defined by section 664(g)).
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 517; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105-34, title XV, Sec.
1530(c)(9), Aug. 5, 1997, 111 Stat. 1079; Pub. L. 107-16, title V,
Sec. 542(e)(4), June 7, 2001, 115 Stat. 85.)
-STATAMEND-
AMENDMENT OF SUBSECTION (A)(2)(A)
Pub. L. 107-16, title V, Sec. 542(e)(4), (f)(3), title IX, Sec.
901, June 7, 2001, 115 Stat. 85, 86, 150, provided that, applicable
to deductions for taxable years beginning after Dec. 31, 2009,
subsection (a)(2)(A) of this section is temporarily amended by
inserting "642(c)," after "170(f)(2)(B),". See Effective and
Termination Dates of 2001 Amendment note below.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(4). Pub. L. 105-34 added par. (4).
1976 - Subsec. (b)(1). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to deductions for taxable
years beginning after Dec. 31, 2009, see section 542(f)(3) of Pub.
L. 107-16, set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers as if such
amendment had never been enacted, see section 901 of Pub. L.
107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to transfers made by
trusts to, or for the use of, an employee stock ownership plan
after Aug. 5, 1997, see section 1530(d) of Pub. L. 105-34, set out
as a note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 508, 644, 2055, 4943,
6033, 6034, 6049 of this title.
-End-
-CITE-
26 USC Sec. 4948 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
-HEAD-
Sec. 4948. Application of taxes and denial of exemption with
respect to certain foreign organizations
-STATUTE-
(a) Tax on income of certain foreign organizations
In lieu of the tax imposed by section 4940, there is hereby
imposed for each taxable year on the gross investment income
(within the meaning of section 4940(c)(2)) derived from sources
within the United States (within the meaning of section 861) by
every foreign organization which is a private foundation for the
taxable year a tax equal to 4 percent of such income.
(b) Certain sections inapplicable
Section 507 (relating to termination of private foundation
status), section 508 (relating to special rules with respect to
section 501(c)(3) organizations), and this chapter (other than this
section) shall not apply to any foreign organization which has
received substantially all of its support (other than gross
investment income) from sources outside the United States.
(c) Denial of exemption to foreign organizations engaged in
prohibited transactions
(1) General rule
A foreign organization described in subsection (b) shall not be
exempt from taxation under section 501(a) if it has engaged in a
prohibited transaction after December 31, 1969.
(2) Prohibited transactions
For purposes of this subsection, the term "prohibited
transaction" means any act or failure to act (other than with
respect to section 4942(e)) which would subject a foreign
organization described in subsection (b), or a disqualified
person (as defined in section 4946) with respect thereto, to
liability for a penalty under section 6684 or a tax under section
507 if such foreign organization were a domestic organization.
(3) Taxable years affected
(A) Except as provided in subparagraph (B), a foreign
organization described in subsection (b) shall be denied
exemption from taxation under section 501(a) by reason of
paragraph (1) for all taxable years beginning with the taxable
year during which it is notified by the Secretary that it has
engaged in a prohibited transaction. The Secretary shall publish
such notice in the Federal Register on the day on which he so
notifies such foreign organization.
(B) Under regulations prescribed by the Secretary any foreign
organization described in subsection (b) which is denied
exemption from taxation under section 501(a) by reason of
paragraph (1) may, with respect to the second taxable year
following the taxable year in which notice is given under
subparagraph (A) (or any taxable year thereafter), file claim for
exemption from taxation under section 501(a). If the Secretary is
satisfied that such organization will not knowingly again engage
in a prohibited transaction, such organization shall not, with
respect to taxable years beginning with the taxable year with
respect to which such claim is filed, be denied exemption from
taxation under section 501(a) by reason of any prohibited
transaction which was engaged in before the date on which such
notice was given under subparagraph (A).
(4) Disallowance of certain charitable deductions
No gift or bequest shall be allowed as a deduction under
section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or
2522, if made -
(A) to a foreign organization described in subsection (b)
after the date on which the Secretary publishes notice under
paragraph (3)(A) that he has notified such organization that it
has engaged in a prohibited transaction, and
(B) in a taxable year of such organization for which it is
not exempt from taxation under section 501(a) by reason of
paragraph (1).
-SOURCE-
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 518; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (c). Pub. L. 94-455 struck out "or his delegate"
after "Secretary" wherever appearing.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 663, 681, 878, 1443,
2055, 2522 of this title.
-End-
-CITE-
26 USC Subchapter B - Black Lung Benefit Trusts 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter B - Black Lung Benefit Trusts
-HEAD-
SUBCHAPTER B - BLACK LUNG BENEFIT TRUSTS
-MISC1-
Sec.
4951. Taxes on self-dealing.
4952. Taxes on taxable expenditures.
4953. Tax on excess contributions to black lung benefit
trusts.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 170, 9501 of this
title.
-End-
-CITE-
26 USC Sec. 4951 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter B - Black Lung Benefit Trusts
-HEAD-
Sec. 4951. Taxes on self-dealing
-STATUTE-
(a) Initial taxes
(1) On self-dealer
There is hereby imposed a tax on each act of self-dealing
between a disqualified person and a trust described in section
501(c)(21). The rate of tax shall be equal to 10 percent of the
amount involved with respect to the act of self-dealing for each
year (or part thereof) in the taxable period. The tax imposed by
this paragraph shall 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.
(2) On trustee
In any case in which a tax is imposed by paragraph (1), there
is hereby imposed on the participation of any trustee of such a
trust in an act of self-dealing between a disqualified person and
the trust, knowing that it is such an act, a tax equal to 2 1/2
percent of the amount involved with respect to the act of
self-dealing for each year (or part thereof) in the taxable
period, unless such participation is not willful and is due to
reasonable cause. The tax imposed by this paragraph shall be paid
by any such trustee who participated in the act of self-dealing.
(b) Additional taxes
(1) On self-dealer
In any case in which an initial tax is imposed by subsection
(a)(1) on an act of self-dealing by a disqualified person with a
trust described in section 501(c)(21) and in which the act is not
corrected within the taxable period, there is hereby imposed a
tax equal to 100 percent of the amount involved. The tax imposed
by this paragraph shall be paid by any disqualified person (other
than a trustee acting only as a trustee of such a trust) who
participated in the act of self-dealing.
(2) On trustee
In any case in which an additional tax is imposed by paragraph
(1), if a trustee of such a trust refused to agree to part or all
of the correction, there is hereby imposed a tax equal to 50
percent of the amount involved. The tax imposed by this paragraph
shall be paid by any such trustee who refused to agree to part or
all of the correction.
(c) Joint and several liability
If more than one person is liable under any paragraph of
subsection (a) or (b) with respect to any one act of self-dealing,
all such persons shall be jointly and severally liable under such
paragraph with respect to such act.
(d) Self-dealing
(1) In general
For purposes of this section, the term "self-dealing" means any
direct or indirect -
(A) sale, exchange, or leasing of real or personal property
between a trust described in section 501(c)(21) and a
disqualified person;
(B) lending of money or other extension of credit between
such a trust and a disqualified person;
(C) furnishing of goods, services, or facilities between such
a trust and a disqualified person;
(D) payment of compensation (or payment or reimbursement of
expenses) by such a trust to a disqualified person; and
(E) transfer to, or use by or for the benefit of, a
disqualified person of the income or assets of such a trust.
(2) Special rules
For purposes of paragraph (1) -
(A) the transfer of personal property by a disqualified
person to such a trust shall be treated as a sale or exchange
if the property is subject to a mortgage or similar lien;
(B) the furnishing of goods, services, or facilities by a
disqualified person to such a trust shall not be an act of
self-dealing if the furnishing is without charge and if the
goods, services, or facilities so furnished are used
exclusively for the purposes specified in section
501(c)(21)(A); and
(C) the payment of compensation (and the payment or
reimbursement of expenses) by such a trust to a disqualified
person for personal services which are reasonable and necessary
to carrying out the exempt purpose of the trust shall not be an
act of self-dealing if the compensation (or payment or
reimbursement) is not excessive.
(e) Definitions
For purposes of this section -
(1) Taxable period
The term "taxable period" means, with respect to any act of
self-dealing, the period beginning with the date on which the act
of self-dealing occurs and ending on the earliest of -
(A) the date of mailing a notice of deficiency with respect
to the tax imposed by subsection (a)(1) under section 6212,
(B) the date on which the tax imposed by subsection (a)(1) is
assessed, or
(C) the date on which correction of the act of self-dealing
is completed.
(2) Amount involved
The term "amount involved" means, with respect to any act of
self-dealing, the greater of the amount of money and the fair
market value of the other property given or the amount of money
and the fair market value of the other property received; except
that in the case of services described in subsection (d)(2)(C),
the amount involved shall be only the excess compensation. For
purposes of the preceding sentence, the fair market value -
(A) in the case of the taxes imposed by subsection (a), shall
be determined as of the date on which the act of self-dealing
occurs; and
(B) in the case of taxes imposed by subsection (b), shall be
the highest fair market value during the taxable period.
(3) Correction
The terms "correction" and "correct" mean, with respect to any
act of self-dealing, undoing the transaction to the extent
possible, but in any case placing the trust in a financial
position not worse than that in which it would be if the
disqualified person were dealing under the highest fiduciary
standards.
(4) Disqualified person
The term "disqualified person" means, with respect to a trust
described in section 501(c)(21), a person who is -
(A) a contributor to the trust,
(B) a trustee of the trust,
(C) an owner of more than 10 percent of -
(i) the total combined voting power of a corporation,
(ii) the profits interest of a partnership, or
(iii) the beneficial interest of a trust or unincorporated
enterprise,
which is a contributor to the trust,
(D) an officer, director, or employee of a person who is a
contributor to the trust,
(E) the spouse, ancestor, lineal descendant, or spouse of a
lineal descendant of an individual described in subparagraph
(A), (B), (C), or (D),
(F) a corporation of which persons described in subparagraph
(A), (B), (C), (D), or (E) own more than 35 percent of the
total combined voting power,
(G) a partnership in which persons described in subparagraph
(A), (B), (C), (D), or (E), own more than 35 percent of the
profits interest, or
(H) a trust or estate in which persons described in
subparagraph (A), (B), (C), (D), or (E), hold more than 35
percent of the beneficial interest.
For purposes of subparagraphs (C)(i) and (F), there shall be
taken into account indirect stockholdings which would be taken
into account under section 267(c), except that, for purposes of
this paragraph, section 267(c)(4) shall be treated as providing
that the members of the family of an individual are only those
individuals described in subparagraph (E) of this paragraph. For
purposes of subparagraphs (C) (ii) and (iii), (G), and (H), the
ownership of profits or beneficial interests shall be determined
in accordance with the rules for constructive ownership of stock
provided in section 267(c) (other than paragraph (3) thereof),
except that section 267(c)(4) shall be treated as providing that
the members of the family of an individual are only those
individuals described in subparagraph (E) of this paragraph.
(f) Payments of benefits
For purposes of this section, a payment, out of assets or income
of a trust described in section 501(c)(21), for the purposes
described in subclause (I) or (IV) of section 501(c)(21)(A)(i)
shall not be considered an act of self-dealing.
-SOURCE-
(Added Pub. L. 95-227, Sec. 4(c)(1), Feb. 10, 1978, 92 Stat. 18;
amended Pub. L. 96-596, Sec. 2(a)(1)(G), (H), (2)(F), (3)(E), Dec.
24, 1980, 94 Stat. 3469-3471; Pub. L. 102-486, title XIX, Sec.
1940(b), Oct. 24, 1992, 106 Stat. 3035.)
-MISC1-
AMENDMENTS
1992 - Subsec. (f). Pub. L. 102-486 substituted "subclause (I) or
(IV) of section 501(c)(21)(A)(i)" for "clause (i) of section
501(c)(21)(A)".
1980 - Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(G),
substituted "taxable period" for "correction period".
Subsec. (e)(1)(B), (C). Pub. L. 96-596, Sec. 2(a)(2)(F), added
subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (e)(2)(B). Pub. L. 96-596, Sec. 2(a)(1)(H), substituted
"taxable period" for "correction period".
Subsec. (e)(4), (5). Pub. L. 96-596, Sec. 2(a)(3)(E),
redesignated par. (5) as (4) and struck out former par. (4) which
defined correction period, with respect to any act of self-dealing,
as the period beginning with the date on which the act of
self-dealing occurs and ending 90 days after the date of mailing of
a notice of deficiency under section 6212 of this title with
respect to the tax imposed by subsec. (b)(1) of this section,
extended by any period in which a deficiency cannot be assessed
under section 6213(a) of this title and any other period which the
Secretary determines is reasonable and necessary to bring about
correction of the act of self-dealing.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-486 applicable to taxable years
beginning after Dec. 31, 1991, see section 1940(d) of Pub. L.
102-486, set out as a note under section 192 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
EFFECTIVE DATE
Subchapter effective with respect to contributions, acts, and
expenditures made after Dec. 31, 1977, in and for taxable years
beginning after such date, see section 4(f) of Pub. L. 95-227, set
out as a note under section 192 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 468A, 4953, 4963, 6213,
7422, 7454 of this title.
-End-
-CITE-
26 USC Sec. 4952 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter B - Black Lung Benefit Trusts
-HEAD-
Sec. 4952. Taxes on taxable expenditures
-STATUTE-
(a) Tax imposed
(1) On the fund
There is hereby imposed on each taxable expenditure (as defined
in subsection (d)) from the assets or income of a trust described
in section 501(c)(21) a tax equal to 10 percent of the amount
thereof. The tax imposed by this paragraph shall be paid by the
trustee out of the assets of the trust.
(2) On the trustee
There is hereby imposed on the agreement of any trustee of such
a trust to the making of an expenditure, knowing that it is a
taxable expenditure, a tax equal to 2 1/2 percent of the amount
thereof, unless such agreement is not willful and is due to
reasonable cause. The tax imposed by this paragraph shall be paid
by the trustee who agreed to the making of the expenditure.
(b) Additional taxes
(1) On the fund
In any case in which an initial tax is imposed by subsection
(a)(1) on a taxable expenditure and such expenditure is not
corrected within the taxable period, there is hereby imposed a
tax equal to 100 percent of the amount of the expenditure. The
tax imposed by this paragraph shall be paid by the trustee out of
the assets of the trust.
(2) On the trustee
In any case in which an additional tax is imposed by paragraph
(1), if a trustee refused to agree to a part or all of the
correction, there is hereby imposed a tax equal to 50 percent of
the amount of the taxable expenditure. The tax imposed by this
paragraph shall be paid by any trustee who refused to agree to
part or all of the correction.
(c) Joint and several liability
For purposes of subsections (a) and (b), if more than one person
is liable under subsection (a)(2) or (b)(2) with respect to the
making of a taxable expenditure, all such persons shall be jointly
and severally liable under such paragraph with respect to such
expenditure.
(d) Taxable expenditure
For purposes of this section, the term "taxable expenditure"
means any amount paid or incurred by a trust described in section
501(c)(21) other than for a purpose specified in such section.
(e) Definitions
(1) Correction
The terms "correction" and "correct" mean, with respect to any
taxable expenditure, recovering part or all of the expenditure to
the extent recovery is possible, and where full recovery is not
possible, contributions by the person or persons whose
liabilities for black lung benefit claims (as defined in section
192(e)) are to be paid out of the trust to the extent necessary
to place the trust in a financial position not worse than that in
which it would be if the taxable expenditure had not been made.
(2) Taxable period
The term "taxable period" means, with respect to any taxable
expenditure, the period beginning with the date on which the
taxable expenditure occurs and ending on the earlier of -
(A) the date of mailing a notice of deficiency with respect
to the tax imposed by subsection (a)(1) under section 6212, or
(B) the date on which the tax imposed by subsection (a)(1) is
assessed.
-SOURCE-
(Added Pub. L. 95-227, Sec. 4(c)(1), Feb. 10, 1978, 92 Stat. 21;
amended Pub. L. 96-596, Sec. 2(a)(1)(I), (2)(G), Dec. 24, 1980, 94
Stat. 3469, 3471.)
-MISC1-
AMENDMENTS
1980 - Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(I),
substituted "taxable period" for "correction period".
Subsec. (e)(2). Pub. L. 96-596, Sec. 2(a)(2)(G), substituted
provision defining taxable period as the period beginning with the
date on which the taxable expenditure occurs and ending on the
earlier of the date of mailing a notice of deficiency with respect
to the tax imposed by subsec. (a)(1) of this section under section
6212 of this title or the date on which the tax imposed by subsec.
(a)(1) of this section is assessed for provision defining
correction period as the period beginning with the date on which
the taxable expenditure occurs and ending 90 days after the date of
mailing a notice of deficiency under section 6212 of this title
with respect to the tax imposed by subsec. (b)(1) of this section,
extended by any period in which the deficiency cannot be assessed
under section 6213(a) of this title and any other period which the
Secretary determines reasonable and necessary to bring about the
correction of the taxable expenditure.
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-596 with respect to
any first tier tax and to any second tier tax, see section 2(d) of
Pub. L. 96-596, set out as an Effective Date note under section
4961 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 4953, 4963, 6213, 7422,
7454 of this title.
-End-
-CITE-
26 USC Sec. 4953 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter B - Black Lung Benefit Trusts
-HEAD-
Sec. 4953. Tax on excess contributions to black lung benefit trusts
-STATUTE-
(a) Tax imposed
There is hereby imposed for each taxable year a tax in an amount
equal to 5 percent of the amount of the excess contributions made
by a person to or under a trust or trusts described in section
501(c)(21). The tax imposed by this subsection shall be paid by the
person making the excess contribution.
(b) Excess contribution
For purposes of this section, the term "excess contribution"
means the sum of -
(1) the amount by which the amount contributed for the taxable
year to a trust or trusts described in section 501(c)(21) exceeds
the amount of the deduction allowable to such person for such
contributions for the taxable year under section 192, and
(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of -
(A) the excess of the maximum amount allowable as a deduction
under section 192 for the taxable year over the amount
contributed to the trust or trusts for the taxable year, and
(B) amounts distributed from the trust to the contributor
which were excess contributions for the preceding taxable year.
(c) Treatment of withdrawal of excess contributions
Amounts distributed during the taxable year from a trust
described in section 501(c)(21) to the contributor thereof the sum
of which does not exceed the amount of the excess contribution made
by the contributor shall not be treated as -
(1) an act of self-dealing (within the meaning of section
4951),
(2) a taxable expenditure (within the meaning of section 4952),
or
(3) an act contrary to the purposes for which the trust is
exempt from taxation under section 501(a).
-SOURCE-
(Added Pub. L. 95-227, Sec. 4(c)(1), Feb. 10, 1978, 92 Stat. 22.)
-End-
-CITE-
26 USC Subchapter C - Political Expenditures of Section
501(c)(3) Organizations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter C - Political Expenditures of Section 501(c)(3)
Organizations
-HEAD-
SUBCHAPTER C - POLITICAL EXPENDITURES OF SECTION 501(C)(3)
ORGANIZATIONS
-MISC1-
Sec.
4955. Taxes on political expenditures of section 501(c)(3)
organizations.
PRIOR PROVISIONS
A prior subchapter C, consisting of sections 4961 to 4963 of this
title, was redesignated subchapter E.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in section 4962 of this title.
-End-
-CITE-
26 USC Sec. 4955 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter C - Political Expenditures of Section 501(c)(3)
Organizations
-HEAD-
Sec. 4955. Taxes on political expenditures of section 501(c)(3)
organizations
-STATUTE-
(a) Initial taxes
(1) On the organization
There is hereby imposed on each political expenditure by a
section 501(c)(3) organization a tax equal to 10 percent of the
amount thereof. The tax imposed by this paragraph shall be paid
by the organization.
(2) On the management
There is hereby imposed on the agreement of any organization
manager to the making of any expenditure, knowing that it is a
political expenditure, a tax equal to 2 1/2 percent of the
amount thereof, unless such agreement is not willful and is due
to reasonable cause. The tax imposed by this paragraph shall be
paid by any organization manager who agreed to the making of the
expenditure.
(b) Additional taxes
(1) On the organization
In any case in which an initial tax is imposed by subsection
(a)(1) on a political expenditure and such expenditure is not
corrected within the taxable period, there is hereby imposed a
tax equal to 100 percent of the amount of the expenditure. The
tax imposed by this paragraph shall be paid by the organization.
(2) On the management
In any case in which an additional tax is imposed by paragraph
(1), if an organization manager refused to agree to part or all
of the correction, there is hereby imposed a tax equal to 50
percent of the amount of the political expenditure. The tax
imposed by this paragraph shall be paid by any organization
manager who refused to agree to part or all of the correction.
(c) Special rules
For purposes of subsections (a) and (b) -
(1) Joint and several liability
If more than 1 person is liable under subsection (a)(2) or
(b)(2) with respect to the making of a political expenditure, all
such persons shall be jointly and severally liable under such
subsection with respect to such expenditure.
(2) Limit for management
With respect to any 1 political expenditure, the maximum amount
of the tax imposed by subsection (a)(2) shall not exceed $5,000,
and the maximum amount of the tax imposed by subsection (b)(2)
shall not exceed $10,000.
(d) Political expenditure
For purposes of this section -
(1) In general
The term "political expenditure" means any amount paid or
incurred by a section 501(c)(3) organization in any participation
in, or intervention in (including the publication or distribution
of statements), any political campaign on behalf of (or in
opposition to) any candidate for public office.
(2) Certain other expenditures included
In the case of an organization which is formed primarily for
purposes of promoting the candidacy (or prospective candidacy) of
an individual for public office (or which is effectively
controlled by a candidate or prospective candidate and which is
availed of primarily for such purposes), the term "political
expenditure" includes any of the following amounts paid or
incurred by the organization:
(A) Amounts paid or incurred to such individual for speeches
or other services.
(B) Travel expenses of such individual.
(C) Expenses of conducting polls, surveys, or other studies,
or preparing papers or other materials, for use by such
individual.
(D) Expenses of advertising, publicity, and fundraising for
such individual.
(E) Any other expense which has the primary effect of
promoting public recognition, or otherwise primarily accruing
to the benefit, of such individual.
(e) Coordination with sections 4945 and 4958
If tax is imposed under this section with respect to any
political expenditure, such expenditure shall not be treated as a
taxable expenditure for purposes of section 4945 or an excess
benefit for purposes of section 4958.
(f) Other definitions
For purposes of this section -
(1) Section 501(c)(3) organization
The term "section 501(c)(3) organization" means any
organization which (without regard to any political expenditure)
would be described in section 501(c)(3) and exempt from taxation
under section 501(a).
(2) Organization manager
The term "organization manager" means -
(A) any officer, director, or trustee of the organization (or
individual having powers or responsibilities similar to those
of officers, directors, or trustees of the organization), and
(B) with respect to any expenditure, any employee of the
organization having authority or responsibility with respect to
such expenditure.
(3) Correction
The terms "correction" and "correct" mean, with respect to any
political expenditure, recovering part or all of the expenditure
to the extent recovery is possible, establishment of safeguards
to prevent future political expenditures, and where full recovery
is not possible, such additional corrective action as is
prescribed by the Secretary by regulations.
(4) Taxable period
The term "taxable period" means, with respect to any political
expenditure, the period beginning with the date on which the
political expenditure occurs and ending on the earlier of -
(A) the date of mailing a notice of deficiency under section
6212 with respect to the tax imposed by subsection (a)(1), or
(B) the date on which tax imposed by subsection (a)(1) is
assessed.
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10712(a), Dec. 22, 1987, 101
Stat. 1330-465; amended Pub. L. 104-168, title XIII, Sec.
1311(c)(1), July 30, 1996, 110 Stat. 1478.)
-MISC1-
AMENDMENTS
1996 - Subsec. (e). Pub. L. 104-168 substituted "sections 4945
and 4958" for "section 4945" in heading and inserted "or an excess
benefit for purposes of section 4958" before period at end of text.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1311(d)(1), (2) of Pub. L. 104-168 provided that:
"(1) In general. - The amendments made by this section [enacting
section 4958 of this title and amending this section and sections
4963, 6213, 7422, and 7454 of this title] (other than subsection
(b)) [amending section 501 of this title] shall apply to excess
benefit transactions occurring on or after September 14, 1995.
"(2) Binding contracts. - The amendments referred to in paragraph
(1) shall not apply to any benefit arising from a transaction
pursuant to any written contract which was binding on September 13,
1995, and at all times thereafter before such transaction
occurred."
EFFECTIVE DATE
Section 10712(d) of Pub. L. 100-203 provided that: "The
amendments made by this section [enacting this section and amending
sections 4962, 4963, 6213, 6501, 6503, 6684, 7422, and 7454 of this
title] shall apply to taxable years beginning after the date of the
enactment of this Act [Dec. 22, 1987]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 4912, 4962, 4963, 6033,
6213, 6852, 7409, 7422, 7454 of this title.
-End-
-CITE-
26 USC Subchapter D - Failure by Certain Charitable
Organizations To Meet Certain Qualification
Requirements 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter D - Failure by Certain Charitable Organizations To Meet
Certain Qualification Requirements
-HEAD-
SUBCHAPTER D - FAILURE BY CERTAIN CHARITABLE ORGANIZATIONS TO MEET
CERTAIN QUALIFICATION REQUIREMENTS
-MISC1-
Sec.
4958. Taxes on excess benefit transactions.
PRIOR PROVISIONS
A prior subchapter D, consisting of sections 4961 to 4963 of this
title, was redesignated subchapter E.
-End-
-CITE-
26 USC Sec. 4958 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter D - Failure by Certain Charitable Organizations To Meet
Certain Qualification Requirements
-HEAD-
Sec. 4958. Taxes on excess benefit transactions
-STATUTE-
(a) Initial taxes
(1) On the disqualified person
There is hereby imposed on each excess benefit transaction a
tax equal to 25 percent of the excess benefit. The tax imposed by
this paragraph shall be paid by any disqualified person referred
to in subsection (f)(1) with respect to such transaction.
(2) On the management
In any case in which a tax is imposed by paragraph (1), there
is hereby imposed on the participation of any organization
manager in the excess benefit transaction, knowing that it is
such a transaction, a tax equal to 10 percent of the excess
benefit, unless such participation is not willful and is due to
reasonable cause. The tax imposed by this paragraph shall be paid
by any organization manager who participated in the excess
benefit transaction.
(b) Additional tax on the disqualified person
In any case in which an initial tax is imposed by subsection
(a)(1) on an excess benefit transaction and the excess benefit
involved in such transaction is not corrected within the taxable
period, there is hereby imposed a tax equal to 200 percent of the
excess benefit involved. The tax imposed by this subsection shall
be paid by any disqualified person referred to in subsection (f)(1)
with respect to such transaction.
(c) Excess benefit transaction; excess benefit
For purposes of this section -
(1) Excess benefit transaction
(A) In general
The term "excess benefit transaction" means any transaction
in which an economic benefit is provided by an applicable
tax-exempt organization directly or indirectly to or for the
use of any disqualified person if the value of the economic
benefit provided exceeds the value of the consideration
(including the performance of services) received for providing
such benefit. For purposes of the preceding sentence, an
economic benefit shall not be treated as consideration for the
performance of services unless such organization clearly
indicated its intent to so treat such benefit.
(B) Excess benefit
The term "excess benefit" means the excess referred to in
subparagraph (A).
(2) Authority to include certain other private inurement
To the extent provided in regulations prescribed by the
Secretary, the term "excess benefit transaction" includes any
transaction in which the amount of any economic benefit provided
to or for the use of a disqualified person is determined in whole
or in part by the revenues of 1 or more activities of the
organization but only if such transaction results in inurement
not permitted under paragraph (3) or (4) of section 501(c), as
the case may be. In the case of any such transaction, the excess
benefit shall be the amount of the inurement not so permitted.
(d) Special rules
For purposes of this section -
(1) Joint and several liability
If more than 1 person is liable for any tax imposed by
subsection (a) or subsection (b), all such persons shall be
jointly and severally liable for such tax.
(2) Limit for management
With respect to any 1 excess benefit transaction, the maximum
amount of the tax imposed by subsection (a)(2) shall not exceed
$10,000.
(e) Applicable tax-exempt organization
For purposes of this subchapter, the term "applicable tax-exempt
organization" means -
(1) any organization which (without regard to any excess
benefit) would be described in paragraph (3) or (4) of section
501(c) and exempt from tax under section 501(a), and
(2) any organization which was described in paragraph (1) at
any time during the 5-year period ending on the date of the
transaction.
Such term shall not include a private foundation (as defined in
section 509(a)).
(f) Other definitions
For purposes of this section -
(1) Disqualified person
The term "disqualified person" means, with respect to any
transaction -
(A) any person who was, at any time during the 5-year period
ending on the date of such transaction, in a position to
exercise substantial influence over the affairs of the
organization,
(B) a member of the family of an individual described in
subparagraph (A), and
(C) a 35-percent controlled entity.
(2) Organization manager
The term "organization manager" means, with respect to any
applicable tax-exempt organization, any officer, director, or
trustee of such organization (or any individual having powers or
responsibilities similar to those of officers, directors, or
trustees of the organization).
(3) 35-percent controlled entity
(A) In general
The term "35-percent controlled entity" means -
(i) a corporation in which persons described in
subparagraph (A) or (B) of paragraph (1) own more than 35
percent of the total combined voting power,
(ii) a partnership in which such persons own more than 35
percent of the profits interest, and
(iii) a trust or estate in which such persons own more than
35 percent of the beneficial interest.
(B) Constructive ownership rules
Rules similar to the rules of paragraphs (3) and (4) of
section 4946(a) shall apply for purposes of this paragraph.
(4) Family members
The members of an individual's family shall be determined under
section 4946(d); except that such members also shall include the
brothers and sisters (whether by the whole or half blood) of the
individual and their spouses.
(5) Taxable period
The term "taxable period" means, with respect to any excess
benefit transaction, the period beginning with the date on which
the transaction occurs and ending on the earliest of -
(A) the date of mailing a notice of deficiency under section
6212 with respect to the tax imposed by subsection (a)(1), or
(B) the date on which the tax imposed by subsection (a)(1) is
assessed.
(6) Correction
The terms "correction" and "correct" mean, with respect to any
excess benefit transaction, undoing the excess benefit to the
extent possible, and taking any additional measures necessary to
place the organization in a financial position not worse than
that in which it would be if the disqualified person were dealing
under the highest fiduciary standards.
-SOURCE-
(Added Pub. L. 104-168, title XIII, Sec. 1311(a), July 30, 1996,
110 Stat. 1475.)
-MISC1-
EFFECTIVE DATE
Section applicable to excess benefit transactions occurring on or
after Sept. 14, 1995, and not applicable to any benefit arising
from a transaction pursuant to any written contract which was
binding on Sept. 13, 1995, and at all times thereafter before such
transaction occurred, see section 1311(d)(1), (2) of Pub. L.
104-168, set out as an Effective Date of 1996 Amendment note under
section 4955 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 4955, 4963, 6033, 6213,
7422, 7454 of this title; title 47 section 396.
-End-
-CITE-
26 USC Subchapter E - Abatement of First and Second Tier
Taxes in Certain Cases 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter E - Abatement of First and Second Tier Taxes in Certain
Cases
-HEAD-
SUBCHAPTER E - ABATEMENT OF FIRST AND SECOND TIER TAXES IN CERTAIN
CASES
-MISC1-
Sec.
4961. Abatement of second tier taxes where there is
correction.
4962. Abatement of first tier taxes in certain cases.
4963. Definitions.
AMENDMENTS
1996 - Pub. L. 104-168, title XIII, Sec. 1311(a), July 30, 1996,
110 Stat. 1475, redesignated former subchapter D as E.
1987 - Pub. L. 100-203, title X, Sec. 10712(a), (b)(5), Dec. 22,
1987, 101 Stat. 1330-465, 1330-467, redesignated former subchapter
C as D, and struck out "private foundation" before "first tier
taxes" in item 4962.
1984 - Pub. L. 98-369, div. A, title III, Sec. 305(b)(1), (2),
July 18, 1984, 98 Stat. 783, substituted "Abatement of First and
Second Tier Taxes in Certain Cases" for "Abatement of Second Tier
Taxes Where There Is Correction During Correction Period" in the
subchapter heading, added item 4962, and renumbered former item
4962 as 4963.
-End-
-CITE-
26 USC Sec. 4961 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter E - Abatement of First and Second Tier Taxes in Certain
Cases
-HEAD-
Sec. 4961. Abatement of second tier taxes where there is correction
-STATUTE-
(a) General rule
If any taxable event is corrected during the correction period
for such event, then any second tier tax imposed with respect to
such event (including interest, additions to the tax, and
additional amounts) shall not be assessed, and if assessed the
assessment shall be abated, and if collected shall be credited or
refunded as an overpayment.
(b) Supplemental proceeding
If the determination by a court that the taxpayer is liable for a
second tier tax has become final, such court shall have
jurisdiction to conduct any necessary supplemental proceeding to
determine whether the taxable event was corrected during the
correction period. Such a supplemental proceeding may be begun only
during the period which ends on the 90th day after the last day of
the correction period. Where such a supplemental proceeding has
begun, the reference in the second sentence of section 6213(a) to a
final decision of the Tax Court shall be treated as including a
final decision in such supplemental proceeding.
(c) Suspension of period of collection for second tier tax
(1) Proceeding in District Court or United States Court of
Federal Claims
If, not later than 90 days after the day on which the second
tier tax is assessed, the first tier tax is paid in full and a
claim for refund of the amount so paid is filed, no levy or
proceeding in court for the collection of the second tier tax
shall be made, begun, or prosecuted until a final resolution of a
proceeding begun as provided in paragraph (2) (and of any
supplemental proceeding with respect thereto under subsection
(b)). Notwithstanding section 7421(a), the collection by levy or
proceeding may be enjoined during the time such prohibition is in
force by a proceeding in the proper court.
(2) Suit must be brought to determine liability
If, within 90 days after the day on which his claim for refund
is denied, the person against whom the second tier tax was
assessed fails to begin a proceeding described in section 7422
for the determination of his liability for such tax, paragraph
(1) shall cease to apply with respect to such tax, effective on
the day following the close of the 90-day period referred to in
this paragraph.
(3) Suspension of running of period of limitations on collection
The running of the period of limitations provided in section
6502 on the collection by levy or by a proceeding in court with
respect to any second tier tax described in paragraph (1) shall
be suspended for the period during which the Secretary is
prohibited from collecting by levy or a proceeding in court.
(4) Jeopardy collection
If the Secretary makes a finding that the collection of the
second tier tax is in jeopardy, nothing in this subsection shall
prevent the immediate collection of such tax.
-SOURCE-
(Added Pub. L. 96-596, Sec. 2(c)(1), Dec. 24, 1980, 94 Stat. 3472;
amended Pub. L. 99-514, title XVIII, Sec. 1899A(50), Oct. 22, 1986,
100 Stat. 2961; Pub. L. 102-572, title IX, Sec. 902(b)(1), Oct. 29,
1992, 106 Stat. 4516.)
-MISC1-
AMENDMENTS
1992 - Subsec. (c)(1). Pub. L. 102-572 substituted "United States
Court of Federal Claims" for "United States Claims Court" in
heading.
1986 - Subsec. (c)(1). Pub. L. 99-514 substituted "United States
Claims Court" for "Court of Claims" in heading.
EFFECTIVE DATE OF 1992 AMENDMENT
Amendment by Pub. L. 102-572 effective Oct. 29, 1992, see section
911 of Pub. L. 102-572, set out as a note under section 171 of
Title 28, Judiciary and Judicial Procedure.
EFFECTIVE DATE
Section 2(d) of Pub. L. 96-596, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) First tier taxes. - The amendments made by this section
[enacting this section and section 4962 of this title and amending
sections 4941 to 4945, 4951, 4952, 4971, 4975, 6213, 6214, 6503,
and 7422 of this title] with respect to any first tier tax shall
take effect as if included in the Internal Revenue Code of 1986
[formerly I.R.C. 1954] when such tax was first imposed.
"(2) Second tier taxes. - The amendments made by this section
with respect to any second tier tax shall apply only with respect
to taxes assessed after the date of the enactment of this Act [Dec.
24, 1980]. Nothing in the preceding sentence shall be construed to
permit the assessment of a tax in a case to which, on the date of
the enactment of this Act, the doctrine of res judicata applies.
"(3) First and second tier tax. - For purposes of this
subsection, the terms 'first tier tax' and 'second tier tax' have
the respective meanings given to such terms by section 4962 of the
Internal Revenue Code of 1986."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 4963 of this title.
-End-
-CITE-
26 USC Sec. 4962 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter E - Abatement of First and Second Tier Taxes in Certain
Cases
-HEAD-
Sec. 4962. Abatement of first tier taxes in certain cases
-STATUTE-
(a) General rule
If it is established to the satisfaction of the Secretary that -
(1) a taxable event was due to reasonable cause and not to
willful neglect, and
(2) such event was corrected within the correction period for
such event,
then any qualified first tier tax imposed with respect to such
event (including interest) shall not be assessed and, if assessed,
the assessment shall be abated and, if collected, shall be credited
or refunded as an overpayment.
(b) Qualified first tier tax
For purposes of this section, the term "qualified first tier tax"
means any first tier tax imposed by subchapter A, C, or D of this
chapter, except that such term shall not include the tax imposed by
section 4941(a) (relating to initial tax on self-dealing).
(c) Special rule for tax on political expenditures of section
501(c)(3) organizations
In the case of the tax imposed by section 4955(a), subsection
(a)(1) shall be applied by substituting "not willful and flagrant"
for "due to reasonable cause and not to willful neglect".
-SOURCE-
(Added Pub. L. 98-369, div. A, title III, Sec. 305(a), July 18,
1984, 98 Stat. 783; amended Pub. L. 100-203, title X, Sec.
10712(b)(1), (2), (4), Dec. 22, 1987, 101 Stat. 1330-467; Pub. L.
105-34, title XVI, Sec. 1603(a), Aug. 5, 1997, 111 Stat. 1096.)
-MISC1-
PRIOR PROVISIONS
A prior section 4962 was renumbered section 4963 of this title.
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34 substituted "subchapter A, C,
or D" for "subchapter A or C".
1987 - Pub. L. 100-203, Sec. 10712(b)(4), struck out "private
foundation" before "first tier taxes" in section catchline.
Subsec. (a). Pub. L. 100-203, Sec. 10712(b)(2), substituted "any
qualified first tier tax" for "any private foundation first tier
tax" in closing provisions.
Subsec. (b). Pub. L. 100-203, Sec. 10712(b)(1), added subsec. (b)
and struck out former subsec. (b) "Private foundation first tier
tax" which read as follows: "For purposes of this section, the term
'private foundation first tier tax' means any first tier tax
imposed by subchapter A of chapter 42, except that such term shall
not include the tax imposed by section 4941(a) (relating to initial
tax on self-dealing)."
Subsec. (c). Pub. L. 100-203, Sec. 10712(b)(1), added subsec.
(c).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1603(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 6033 of
this title] shall take effect as if included in the provisions of
the Taxpayer Bill of Rights 2 [Pub. L. 104-168] to which such
amendments relate."
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 22, 1987, see section 10712(d) of Pub. L.
100-203, set out as an Effective Date note under section 4955 of
this title.
EFFECTIVE DATE
Section 305(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [enacting this section, redesignating former
section 4962 as 4963, and amending sections 4942, 6213, and 6503 of
this title] shall apply to taxable events occurring after December
31, 1984."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6033 of this title.
-End-
-CITE-
26 USC Sec. 4963 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter E - Abatement of First and Second Tier Taxes in Certain
Cases
-HEAD-
Sec. 4963. Definitions
-STATUTE-
(a) First tier tax
For purposes of this subchapter, the term "first tier tax" means
any tax imposed by subsection (a) of section 4941, 4942, 4943,
4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975.
(b) Second tier tax
For purposes of this subchapter, the term "second tier tax" means
any tax imposed by subsection (b) of section 4941, 4942, 4943,
4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975.
(c) Taxable event
For purposes of this subchapter, the term "taxable event" means
any act (or failure to act) giving rise to liability for tax under
section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4971,
or 4975.
(d) Correct
For purposes of this subchapter -
(1) In general
Except as provided in paragraph (2), the term "correct" has the
same meaning as when used in the section which imposes the second
tier tax.
(2) Special rules
The term "correct" means -
(A) in the case of the second tier tax imposed by section
4942(b), reducing the amount of the undistributed income to
zero,
(B) in the case of the second tier tax imposed by section
4943(b), reducing the amount of the excess business holdings to
zero, and
(C) in the case of the second tier tax imposed by section
4944, removing the investment from jeopardy.
(e) Correction period
For purposes of this subchapter -
(1) In general
The term "correction period" means, with respect to any taxable
event, the period beginning on the date on which such event
occurs and ending 90 days after the date of mailing under section
6212 of a notice of deficiency with respect to the second tier
tax imposed on such taxable event, extended by -
(A) any period in which a deficiency cannot be assessed under
section 6213(a) (determined without regard to the last sentence
of section 4961(b)), and
(B) any other period which the Secretary determines is
reasonable and necessary to bring about correction of the
taxable event.
(2) Special rules for when taxable event occurs
For purposes of paragraph (1), the taxable event shall be
treated as occurring -
(A) in the case of section 4942, on the first day of the
taxable year for which there was a failure to distribute
income,
(B) in the case of section 4943, on the first day on which
there are excess business holdings,
(C) in the case of section 4971, on the last day of the plan
year in which there is an accumulated funding deficiency, and
(D) in any other case, the date on which such event occurred.
-SOURCE-
(Added Pub. L. 96-596, Sec. 2(c)(1), Dec. 24, 1980, 94 Stat. 3473,
Sec. 4962; renumbered Sec. 4963, Pub. L. 98-369, div. A, title III,
Sec. 305(a), July 18, 1984, 98 Stat. 783; amended Pub. L. 100-203,
title X, Sec. 10712(b)(3), Dec. 22, 1987, 101 Stat. 1330-467; Pub.
L. 104-168, title XIII, Sec. 1311(c)(2), July 30, 1996, 110 Stat.
1478.)
-MISC1-
AMENDMENTS
1996 - Subsecs. (a) to (c). Pub. L. 104-168 inserted "4958,"
after "4955,".
1987 - Subsecs. (a) to (c). Pub. L. 100-203 inserted reference to
section 4955 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-168 applicable to excess benefit
transactions occurring on or after Sept. 14, 1995, and not
applicable to any benefit arising from a transaction pursuant to
any written contract which was binding on Sept. 13, 1995, and at
all times thereafter before such transaction occurred, see section
1311(d)(1), (2) of Pub. L. 104-168, set out as a note under section
4955 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 22, 1987, see section 10712(d) of Pub. L.
100-203, set out as an Effective Date note under section 4955 of
this title.
EFFECTIVE DATE
For effective date of section with respect to any first tier tax
and to any second tier tax, see section 2(d) of Pub. L. 96-596, set
out as a note under section 4961 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 4942, 6213, 6214, 6503,
7422 of this title.
-End-
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