CHAPTER 42 —PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS
Editorial Notes
Amendments
2017—
2006—
1996—
1987—
1984—
1980—
1978—
1969—
1 Section numbers editorially supplied.
Subchapter A—Private Foundations
Editorial Notes
Amendments
1978—
1969—
§4940. Excise tax based on investment income
(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 of its activities, a tax equal to 1.39 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. Such term shall also include income from sources similar to those in the preceding sentence.
(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 not be taken into account any gain or loss from the sale or other disposition of property to the extent that such gain or loss is taken into account for purposes of computing the tax imposed by section 511.
(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 or carrybacks.
(D) Except to the extent provided by regulation, under rules similar to the rules of section 1031 (including the exception under subsection (a)(2) thereof), no gain or loss shall be taken into account with respect to any portion of property used for a period of not less than 1 year for a purpose or function constituting the basis of the private foundation's exemption if the entire property is exchanged immediately following such period solely for property of like kind which is to be used primarily for a purpose or function constituting the basis for such foundation's exemption.
(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).
(Added
Editorial Notes
Codification
Section 1221(a)(1), (b) of
Amendments
2019—Subsec. (a).
Subsec. (e).
2007—Subsec. (c)(4)(A).
2006—Subsec. (c)(2).
Subsec. (c)(4)(A).
Subsec. (c)(4)(C).
Subsec. (c)(4)(D).
1986—Subsec. (c)(5).
Subsec. (e)(2).
"(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 '31/3 percent' for '5 percent'."
1984—Subsec. (d).
Subsec. (e).
1978—Subsec. (a).
Subsec. (c)(2).
1976—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2019 Amendment
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1301(j)(6) of
Amendment by section 1832 of
Effective Date of 1984 Amendment
Effective Date of 1978 Amendments
Amendment by
Effective Date
"(1)
"(2)
"(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
"(3)
Savings Provision
"(1)
"(2)
"(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)
"(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 4½ percent, 5 percent, and 5½ 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)
"(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)
"(6)
"(7)
"(8)
[
[
[
[
Determination of Operating Foundation Status for Certain Purposes
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Public Support Requirement Not Applicable to Certain Existing Foundations
§4941. Taxes on self-dealing
(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 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 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 5 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) $20,000 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 $20,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $20,000.
(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
(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
(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.
(Added
Editorial Notes
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
Codification
Section 1212(a)(1), (2) of
Amendments
2006—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (c)(2).
1988—Subsec. (d)(2)(G)(ii).
1986—Subsec. (d)(2)(B).
Subsec. (d)(2)(G)(i).
Subsec. (d)(2)(G)(vii).
1980—Subsec. (b)(1).
Subsec. (d)(2)(H).
Subsec. (e)(1)(B), (C).
Subsec. (e)(2)(B).
Subsec. (e)(4).
1976—Subsec. (d)(2)(G)(ii).
Subsec. (e)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendments
Amendment by section 122(a)(2)(A) of
Amendment by section 1812(b)(1) of
Amendment by
Effective Date of 1980 Amendment
For effective date of amendment by
Savings Provision
Exceptions to applicability of section, see section 101(l)(2) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Tax on Self-Dealing Not To Apply to Certain Stock Purchases
"(a)
"(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)
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
§4942. Taxes on failure to distribute income
(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 30 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
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 distributions by nonoperating private foundations to supporting organizations
(A) In general
For purposes of this section, the term "qualifying distribution" shall not include any amount paid by a private foundation which is not an operating foundation to—
(i) any type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and
(ii) any organization which is described in subparagraph (B) or (C) if—
(I) a disqualified person of the private foundation directly or indirectly controls such organization or a supported organization (as defined in section 509(f)(3)) of such organization, or
(II) the Secretary determines by regulations that a distribution to such organization otherwise is inappropriate.
(B) Type I and type II supporting organizations
An organization is described in this subparagraph if the organization meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and is—
(i) operated, supervised, or controlled by one or more organizations described in paragraph (1) or (2) of section 509(a), or
(ii) supervised or controlled in connection with one or more such organizations.
(C) Functionally integrated type III supporting organizations
An organization is described in this subparagraph if the organization is a functionally integrated type III supporting organization (as defined under section 4943(f)(5)(B)).
(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)(F)(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) 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).
(Added
Editorial Notes
Codification
Sections 1212(b) and 1244(a) of
Amendments
2014—Subsec. (g)(2)(A).
Subsec. (i)(2).
2007—Subsec. (i)(1)(A).
2006—Subsec. (a).
Subsec. (g)(4).
1986—Subsec. (f)(2)(A).
1984—Subsec. (a)(2)(B).
Subsec. (d)(1).
Subsec. (f)(1).
Subsec. (g)(1)(A).
Subsec. (g)(2)(C)(ii).
Subsec. (g)(4).
1983—Subsec. (j)(3)(A)(i).
1981—Subsec. (d)(1).
Subsec. (j)(3).
1980—Subsec. (b).
Subsec. (g)(2)(C)(ii).
Subsec. (j)(1).
Subsec. (j)(2).
Subsec. (j)(3)(B)(i).
Subsec. (j)(4) to (6).
1978—Subsec. (j)(6).
1976—Subsec. (a)(2)(C).
Subsec. (e).
Subsec. (f)(2)(D).
Subsec. (g)(2).
Subsecs. (h)(2), (j)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by section 1212(b) of
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by section 305(b)(4) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Effective Date of 1980 Amendment
For effective date of amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Savings Provision
Applicability of section to organizations organized before May 27, 1969, see section 101(l)(3) of
§4943. Taxes on excess business holdings
(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 10 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).
(e) Application of tax to donor advised funds
(1) In general
For purposes of this section, a donor advised fund (as defined in section 4966(d)(2)) shall be treated as a private foundation.
(2) Disqualified person
In applying this section to any donor advised fund (as so defined), the term "disqualified person" means, with respect to the donor advised fund, any person who is—
(A) described in section 4966(d)(2)(A)(iii),
(B) a member of the family of an individual described in subparagraph (A), or
(C) a 35-percent controlled entity (as defined in section 4958(f)(3) by substituting "persons described in subparagraph (A) or (B) of section 4943(e)(2)" for "persons described in subparagraph (A) or (B) of paragraph (1)" in subparagraph (A)(i) thereof).
(3) Present holdings
For purposes of this subsection, rules similar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to donor advised funds (as so defined), except that—
(A) "the date of the enactment of this subsection" shall be substituted for "May 26, 1969" each place it appears in paragraphs (4), (5), and (6), and
(B) "January 1, 2007" shall be substituted for "January 1, 1971" in paragraph (4)(E).
(f) Application of tax to supporting organizations
(1) In general
For purposes of this section, an organization which is described in paragraph (3) shall be treated as a private foundation.
(2) Exception
The Secretary may exempt the excess business holdings of any organization from the application of this subsection if the Secretary determines that such holdings are consistent with the purpose or function constituting the basis for its exemption under section 501.
(3) Organizations described
An organization is described in this paragraph if such organization is—
(A) a type III supporting organization (other than a functionally integrated type III supporting organization), or
(B) an organization which meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and which is supervised or controlled in connection with one or more organizations described in paragraph (1) or (2) of section 509(a), but only if such organization accepts any gift or contribution from any person described in section 509(f)(2)(B).
(4) Disqualified person
(A) In general
In applying this section to any organization described in paragraph (3), the term "disqualified person" means, with respect to the organization—
(i) any person who was, at any time during the 5-year period ending on the date described in subsection (a)(2)(A), in a position to exercise substantial influence over the affairs of the organization,
(ii) any member of the family (determined under section 4958(f)(4)) of an individual described in clause (i),
(iii) any 35-percent controlled entity (as defined in section 4958(f)(3) by substituting "persons described in clause (i) or (ii) of section 4943(f)(4)(A)" for "persons described in subparagraph (A) or (B) of paragraph (1)" in subparagraph (A)(i) thereof),
(iv) any person described in section 4958(c)(3)(B), and
(v) any organization—
(I) which is effectively controlled (directly or indirectly) by the same person or persons who control the organization 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 (B) or a member of the family (within the meaning of section 4946(d)) of such a person.
(B) Persons described
A person is described in this subparagraph if such person is—
(i) a substantial contributor to the organization (as defined in section 4958(c)(3)(C)),
(ii) an officer, director, or trustee of the organization (or an individual having powers or responsibilities similar to those of the officers, directors, or trustees of the organization), or
(iii) 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 (as so defined) to the organization.
(5) Type III supporting organization; functionally integrated type III supporting organization
For purposes of this subsection—
(A) Type III supporting organization
The term "type III supporting organization" means an organization which meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and which is operated in connection with one or more organizations described in paragraph (1) or (2) of section 509(a).
(B) Functionally integrated type III supporting organization
The term "functionally integrated type III supporting organization" means a type III supporting organization which is not required under regulations established by the Secretary to make payments to supported organizations (as defined under section 509(f)(3)) due to the activities of the organization related to performing the functions of, or carrying out the purposes of, such supported organizations.
(6) Special rule for certain holdings of type III supporting organizations
For purposes of this subsection, the term "excess business holdings" shall not include any holdings of a type III supporting organization in any business enterprise if, as of November 18, 2005, the holdings were held (and at all times thereafter, are held) for the benefit of the community pursuant to the direction of a State attorney general or a State official with jurisdiction over such organization.
(7) Present holdings
For purposes of this subsection, rules similar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to organizations described in section 509(a)(3), except that—
(A) "the date of the enactment of this subsection" shall be substituted for "May 26, 1969" each place it appears in paragraphs (4), (5), and (6), and
(B) "January 1, 2007" shall be substituted for "January 1, 1971" in paragraph (4)(E).
(g) Exception for certain holdings limited to independently-operated philanthropic business
(1) In general
Subsection (a) shall not apply with respect to the holdings of a private foundation in any business enterprise which meets the requirements of paragraphs (2), (3), and (4) for the taxable year.
(2) Ownership
The requirements of this paragraph are met if—
(A) 100 percent of the voting stock in the business enterprise is held by the private foundation at all times during the taxable year, and
(B) all the private foundation's ownership interests in the business enterprise were acquired by means other than by purchase.
(3) All profits to charity
(A) In general
The requirements of this paragraph are met if the business enterprise, not later than 120 days after the close of the taxable year, distributes an amount equal to its net operating income for such taxable year to the private foundation.
(B) Net operating income
For purposes of this paragraph, the net operating income of any business enterprise for any taxable year is an amount equal to the gross income of the business enterprise for the taxable year, reduced by the sum of—
(i) the deductions allowed by
(ii) the tax imposed by
(iii) an amount for a reasonable reserve for working capital and other business needs of the business enterprise.
(4) Independent operation
The requirements of this paragraph are met if, at all times during the taxable year—
(A) no substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation or family member (as determined under section 4958(f)(4)) of such a contributor is a director, officer, trustee, manager, employee, or contractor of the business enterprise (or an individual having powers or responsibilities similar to any of the foregoing),
(B) at least a majority of the board of directors of the private foundation are persons who are not—
(i) directors or officers of the business enterprise, or
(ii) family members (as so determined) of a substantial contributor (as so defined) to the private foundation, and
(C) there is no loan outstanding from the business enterprise to a substantial contributor (as so defined) to the private foundation or to any family member of such a contributor (as so determined).
(5) Certain deemed private foundations excluded
This subsection shall not apply to—
(A) any fund or organization treated as a private foundation for purposes of this section by reason of subsection (e) or (f),
(B) any trust described in section 4947(a)(1) (relating to charitable trusts), and
(C) any trust described in section 4947(a)(2) (relating to split-interest trusts).
(Added
Editorial Notes
References in Text
The date of enactment of this subsection, referred to in subsecs. (e)(3)(A) and (f)(7)(A), probably means the date of enactment of subsecs. (e) and (f) which were enacted by
Codification
Sections 1212(c), 1233(a), and 1243(a) of
Amendments
2018—Subsec. (g).
2014—Subsecs. (e)(3)(B), (f)(7)(B).
2006—Subsec. (a)(1).
Subsec. (e).
Subsec. (f).
1984—Subsec. (c)(4)(A)(ii).
Subsec. (c)(4)(B)(i).
Subsec. (c)(6).
Subsec. (c)(7).
Subsec. (d)(4).
1980—Subsec. (b).
Subsec. (d)(2).
Subsec. (d)(3), (4).
1976—Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Effective Date of 2006 Amendment
Amendment by section 1212(c) of
Effective Date of 1984 Amendment
"(1)
"(2)
Effective Date of 1980 Amendment
For effective date of amendment by
Savings Provision
Applicability of section to private foundations, see section 101(l)(4) of
§4944. Taxes on investments which jeopardize charitable purpose
(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 10 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 10 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 $10,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $20,000.
(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.
(Added
Editorial Notes
Codification
Section 1212(d) of
Amendments
2006—Subsec. (a).
Subsec. (d)(2).
1980—Subsec. (b)(1).
Subsec. (e)(1)(B), (C).
Subsec. (e)(3).
1976—Subsec. (e)(3)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Amendment by
Effective Date of 1980 Amendment
For effective date of amendment by
§4945. Taxes on taxable expenditures
(a) Initial taxes
(1) On the foundation
There is hereby imposed on each taxable expenditure (as defined in subsection (d)) a tax equal to 20 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 5 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 $10,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $20,000.
(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—
(i) is described in paragraph (1) or (2) of section 509(a),
(ii) is an organization described in section 509(a)(3) (other than an organization described in clause (i) or (ii) of section 4942(g)(4)(A)), or
(iii) 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. 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" mean, 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.
(Added
Editorial Notes
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
Codification
Sections 1212(e) and 1244(b) of
Amendments
2014—Subsec. (f).
2006—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (c)(2).
Subsec. (d)(4)(A).
1988—Subsec. (g)(1).
1986—Subsec. (g)(2).
1984—Subsec. (d)(4).
1980—Subsec. (b)(1).
Subsec. (i)(2).
1976—Subsec. (g).
Subsecs. (h), (i).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by section 1212(e) of
Amendment by section 1244(b) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Effective Date of 1980 Amendment
For effective date of amendment by
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
§4946. Definitions and special rules
(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
(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
(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.
(Added
Editorial Notes
Amendments
2000—Subsec. (c)(3)(B).
1998—Subsec. (c)(7).
1986—Subsec. (c)(5).
1984—Subsec. (d).
1978—Subsecs. (a)(1), (b).
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Effective Date of 1984 Amendment
Effective Date of 1978 Amendment
Amendment by
§4947. Application of taxes to certain nonexempt trusts
(a) Application of tax
(1) Charitable trusts
For purposes of part II of subchapter F of
(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), 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), 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), 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), 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)).
(Added
Editorial Notes
Amendments
2010—Subsec. (a)(2)(A).
2004—Subsecs. (a)(1), (2), (b)(3).
2001—Subsec. (a)(2)(A).
1997—Subsec. (b)(4).
1976—Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2001 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
§4948. Application of taxes and denial of exemption with respect to certain foreign organizations
(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), 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).
(Added
Editorial Notes
Amendments
2004—Subsec. (c)(4).
1976—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Amendment by
Subchapter B—Black Lung Benefit Trusts
§4951. Taxes on self-dealing
(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 2½ 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.
(Added
Editorial Notes
Amendments
1992—Subsec. (f).
1980—Subsec. (b)(1).
Subsec. (e)(1)(B), (C).
Subsec. (e)(2)(B).
Subsec. (e)(4), (5).
Statutory Notes and Related Subsidiaries
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1980 Amendment
For effective date of amendment by
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
§4952. Taxes on taxable expenditures
(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 2½ 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.
(Added
Editorial Notes
Amendments
1980—Subsec. (b)(1).
Subsec. (e)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 1980 Amendment
For effective date of amendment by
§4953. Tax on excess contributions to black lung benefit trusts
(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).
(Added
Subchapter C—Political Expenditures of Section 501(c)(3) Organizations
Editorial Notes
Prior Provisions
A prior subchapter C, consisting of
§4955. Taxes on political expenditures of section 501(c)(3) organizations
(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 2½ 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.
(Added
Editorial Notes
Amendments
1996—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment
"(1)
"(2)
Effective Date
Subchapter D—Failure by Certain Charitable Organizations To Meet Certain Qualification Requirements
Editorial Notes
Prior Provisions
A prior subchapter D, consisting of
Amendments
2017—
2010—
§4958. Taxes on excess benefit transactions
(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) Special rules for donor advised funds
In the case of any donor advised fund (as defined in section 4966(d)(2))—
(A) the term "excess benefit transaction" includes any grant, loan, compensation, or other similar payment from such fund to a person described in subsection (f)(7) with respect to such fund, and
(B) the term "excess benefit" includes, with respect to any transaction described in subparagraph (A), the amount of any such grant, loan, compensation, or other similar payment.
(3) Special rules for supporting organizations
(A) In general
In the case of any organization described in section 509(a)(3)—
(i) the term "excess benefit transaction" includes—
(I) any grant, loan, compensation, or other similar payment provided by such organization to a person described in subparagraph (B), and
(II) any loan provided by such organization to a disqualified person (other than an organization described in subparagraph (C)(ii)), and
(ii) the term "excess benefit" includes, with respect to any transaction described in clause (i), the amount of any such grant, loan, compensation, or other similar payment.
(B) Person described
A person is described in this subparagraph if such person is—
(i) a substantial contributor to such organization,
(ii) a member of the family (determined under section 4958(f)(4)) of an individual described in clause (i), or
(iii) a 35-percent controlled entity (as defined in section 4958(f)(3) by substituting "persons described in clause (i) or (ii) of section 4958(c)(3)(B)" for "persons described in subparagraph (A) or (B) of paragraph (1)" in subparagraph (A)(i) thereof).
(C) Substantial contributor
For purposes of this paragraph—
(i) In general
The term "substantial contributor" means any person who contributed or bequeathed an aggregate amount of more than $5,000 to the organization, if such amount is more than 2 percent of the total contributions and bequests received by the organization before the close of the taxable year of the organization in which the contribution or bequest is received by the organization from such person. In the case of a trust, such term also means the creator of the trust. Rules similar to the rules of subparagraphs (B) and (C) of section 507(d)(2) shall apply for purposes of this subparagraph.
(ii) Exception
Such term shall not include—
(I) any organization described in paragraph (1), (2), or (4) of section 509(a), and
(II) any organization which is treated as described in such paragraph (2) by reason of the last sentence of section 509(a) and which is a supported organization (as defined in section 509(f)(3)) of the organization to which subparagraph (A) applies.
(4) 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 $20,000.
(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), (4), or (29) 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),
(C) a 35-percent controlled entity,
(D) any person who is described in subparagraph (A), (B), or (C) with respect to an organization described in section 509(a)(3) and organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of the applicable tax-exempt organization,
(E) which involves a donor advised fund (as defined in section 4966(d)(2)), any person who is described in paragraph (7) with respect to such donor advised fund (as so defined), and
(F) which involves a sponsoring organization (as defined in section 4966(d)(1)), any person who is described in paragraph (8) with respect to such sponsoring organization (as so defined).
(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, except that in the case of any correction of an excess benefit transaction described in subsection (c)(2), no amount repaid in a manner prescribed by the Secretary may be held in any donor advised fund.
(7) Donors and donor advisors
For purposes of paragraph (1)(E), a person is described in this paragraph if such person—
(A) is described in section 4966(d)(2)(A)(iii),
(B) is a member of the family of an individual described in subparagraph (A), or
(C) is a 35-percent controlled entity (as defined in paragraph (3) by substituting "persons described in subparagraph (A) or (B) of paragraph (7)" for "persons described in subparagraph (A) or (B) of paragraph (1)" in subparagraph (A)(i) thereof).
(8) Investment advisors
For purposes of paragraph (1)(F)—
(A) In general
A person is described in this paragraph if such person—
(i) is an investment advisor,
(ii) is a member of the family of an individual described in clause (i), or
(iii) is a 35-percent controlled entity (as defined in paragraph (3) by substituting "persons described in clause (i) or (ii) of paragraph (8)(A)" for "persons described in subparagraph (A) or (B) of paragraph (1)" in subparagraph (A)(i) thereof).
(B) Investment advisor defined
For purposes of subparagraph (A), the term "investment advisor" means, with respect to any sponsoring organization (as defined in section 4966(d)(1)), any person (other than an employee of such organization) compensated by such organization for managing the investment of, or providing investment advice with respect to, assets maintained in donor advised funds (as defined in section 4966(d)(2)) owned by such organization.
(Added
Editorial Notes
Codification
Sections 1212(a)(3), 1232(a), (b), and 1242(a), (b) of
Amendments
2018—Subsec. (f)(1)(D).
2010—Subsec. (e)(1).
2007—Subsec. (c)(3)(A)(i)(II).
Subsec. (c)(3)(C)(ii).
2006—Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (c)(4).
Subsec. (d)(2).
Subsec. (f)(1)(D).
Subsec. (f)(1)(E).
Subsec. (f)(1)(F).
Subsec. (f)(6).
Subsec. (f)(7), (8).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by section 1212(a)(3) of
"(1)
"(2)
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
§4959. Taxes on failures by hospital organizations
If a hospital organization to which section 501(r) applies fails to meet the requirement of section 501(r)(3) for any taxable year, there is imposed on the organization a tax equal to $50,000.
(Added
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to failures occurring after Mar. 23, 2010, see section 9007(f)(3) of
§4960. Tax on excess tax-exempt organization executive compensation
(a) Tax imposed
There is hereby imposed a tax equal to the product of the rate of tax under section 11 and the sum of—
(1) so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus
(2) any excess parachute payment paid by such an organization to any covered employee.
For purposes of the preceding sentence, remuneration shall be treated as paid when there is no substantial risk of forfeiture (within the meaning of section 457(f)(3)(B)) of the rights to such remuneration.
(b) Liability for tax
The employer shall be liable for the tax imposed under subsection (a).
(c) Definitions and special rules
For purposes of this section—
(1) Applicable tax-exempt organization
The term "applicable tax-exempt organization" means any organization which for the taxable year—
(A) is exempt from taxation under section 501(a),
(B) is a farmers' cooperative organization described in section 521(b)(1),
(C) has income excluded from taxation under section 115(1), or
(D) is a political organization described in section 527(e)(1).
(2) Covered employee
For purposes of this section, the term "covered employee" means any employee (including any former employee) of an applicable tax-exempt organization if the employee—
(A) is one of the 5 highest compensated employees of the organization for the taxable year, or
(B) was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2016.
(3) Remuneration
For purposes of this section:
(A) In general
The term "remuneration" means wages (as defined in section 3401(a)), except that such term shall not include any designated Roth contribution (as defined in section 402A(c)) and shall include amounts required to be included in gross income under section 457(f).
(B) Exception for remuneration for medical services
The term "remuneration" shall not include the portion of any remuneration paid to a licensed medical professional (including a veterinarian) which is for the performance of medical or veterinary services by such professional.
(4) Remuneration from related organizations
(A) In general
Remuneration of a covered employee by an applicable tax-exempt organization shall include any remuneration paid with respect to employment of such employee by any related person or governmental entity.
(B) Related organizations
A person or governmental entity shall be treated as related to an applicable tax-exempt organization if such person or governmental entity—
(i) controls, or is controlled by, the organization,
(ii) is controlled by one or more persons which control the organization,
(iii) is a supported organization (as defined in section 509(f)(3)) during the taxable year with respect to the organization,
(iv) is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or
(v) in the case of an organization which is a voluntary employees' beneficiary association described in section 501(c)(9), establishes, maintains, or makes contributions to such voluntary employees' beneficiary association.
(C) Liability for tax
In any case in which remuneration from more than one employer is taken into account under this paragraph in determining the tax imposed by subsection (a), each such employer shall be liable for such tax in an amount which bears the same ratio to the total tax determined under subsection (a) with respect to such remuneration as—
(i) the amount of remuneration paid by such employer with respect to such employee, bears to
(ii) the amount of remuneration paid by all such employers to such employee.
(5) Excess parachute payment
For purposes of determining the tax imposed by subsection (a)(2)—
(A) In general
The term "excess parachute payment" means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment.
(B) Parachute payment
The term "parachute payment" means any payment in the nature of compensation to (or for the benefit of) a covered employee if—
(i) such payment is contingent on such employee's separation from employment with the employer, and
(ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to 3 times the base amount.
(C) Exception
Such term does not include any payment—
(i) described in section 280G(b)(6) (relating to exemption for payments under qualified plans),
(ii) made under or to an annuity contract described in section 403(b) or a plan described in section 457(b),
(iii) to a licensed medical professional (including a veterinarian) to the extent that such payment is for the performance of medical or veterinary services by such professional, or
(iv) to an individual who is not a highly compensated employee as defined in section 414(q).
(D) Base amount
Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount.
(E) Property transfers; present value
Rules similar to the rules of paragraphs (3) and (4) of section 280G(d) shall apply.
(6) Coordination with deduction limitation
Remuneration the deduction for which is not allowed by reason of section 162(m) shall not be taken into account for purposes of this section.
(d) Regulations
The Secretary shall prescribe such regulations as may be necessary to prevent avoidance of the tax under this section, including regulations to prevent avoidance of such tax through the performance of services other than as an employee or by providing compensation through a pass-through or other entity to avoid such tax.
(Added
Statutory Notes and Related Subsidiaries
Effective Date
Subchapter E—Abatement of First and Second Tier Taxes in Certain Cases
Editorial Notes
Amendments
1996—
1987—
1984—
§4961. Abatement of second tier taxes where there is correction
(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.
(Added
Editorial Notes
Amendments
2018—Subsec. (c)(1).
1986—Subsec. (c)(1).
Statutory Notes and Related Subsidiaries
Effective Date
"(1)
"(2)
"(3)
§4962. Abatement of first tier taxes in certain cases
(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, D, or G 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".
(Added
Editorial Notes
Prior Provisions
A prior section 4962 was renumbered
Amendments
2007—Subsec. (b).
1997—Subsec. (b).
1987—
Subsec. (a).
Subsec. (b).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1987 Amendment
Amendment by
Effective Date
§4963. Definitions
(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, 4966, 4967, 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, 4966, 4967, 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.
(Added
Editorial Notes
Amendments
2006—Subsecs. (a), (c).
1996—Subsecs. (a) to (c).
1987—Subsecs. (a) to (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2006 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
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
Subchapter F—Tax Shelter Transactions
§4965. Excise tax on certain tax-exempt entities entering into prohibited tax shelter transactions
(a) Being a party to and approval of prohibited transactions
(1) Tax-exempt entity
(A) In general
If a transaction is a prohibited tax shelter transaction at the time any tax-exempt entity described in paragraph (1), (2), or (3) of subsection (c) becomes a party to the transaction, such entity shall pay a tax for the taxable year in which the entity becomes such a party and any subsequent taxable year in the amount determined under subsection (b)(1).
(B) Post-transaction determination
If any tax-exempt entity described in paragraph (1), (2), or (3) of subsection (c) is a party to a subsequently listed transaction at any time during a taxable year, such entity shall pay a tax for such taxable year in the amount determined under subsection (b)(1).
(2) Entity manager
If any entity manager of a tax-exempt entity approves such entity as (or otherwise causes such entity to be) a party to a prohibited tax shelter transaction at any time during the taxable year and knows or has reason to know that the transaction is a prohibited tax shelter transaction, such manager shall pay a tax for such taxable year in the amount determined under subsection (b)(2).
(b) Amount of tax
(1) Entity
In the case of a tax-exempt entity—
(A) In general
Except as provided in subparagraph (B), the amount of the tax imposed under subsection (a)(1) with respect to any transaction for a taxable year shall be an amount equal to the product of the highest rate of tax under section 11, and the greater of—
(i) the entity's net income (after taking into account any tax imposed by this subtitle (other than by this section) with respect to such transaction) for such taxable year which—
(I) in the case of a prohibited tax shelter transaction (other than a subsequently listed transaction), is attributable to such transaction, or
(II) in the case of a subsequently listed transaction, is attributable to such transaction and which is properly allocable to the period beginning on the later of the date such transaction is identified by guidance as a listed transaction by the Secretary or the first day of the taxable year, or
(ii) 75 percent of the proceeds received by the entity for the taxable year which—
(I) in the case of a prohibited tax shelter transaction (other than a subsequently listed transaction), are attributable to such transaction, or
(II) in the case of a subsequently listed transaction, are attributable to such transaction and which are properly allocable to the period beginning on the later of the date such transaction is identified by guidance as a listed transaction by the Secretary or the first day of the taxable year.
(B) Increase in tax for certain knowing transactions
In the case of a tax-exempt entity which knew, or had reason to know, a transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction, the amount of the tax imposed under subsection (a)(1)(A) with respect to any transaction for a taxable year shall be the greater of—
(i) 100 percent of the entity's net income (after taking into account any tax imposed by this subtitle (other than by this section) with respect to the prohibited tax shelter transaction) for such taxable year which is attributable to the prohibited tax shelter transaction, or
(ii) 75 percent of the proceeds received by the entity for the taxable year which are attributable to the prohibited tax shelter transaction.
This subparagraph shall not apply to any prohibited tax shelter transaction to which a tax-exempt entity became a party on or before the date of the enactment of this section.
(2) Entity manager
In the case of each entity manager, the amount of the tax imposed under subsection (a)(2) shall be $20,000 for each approval (or other act causing participation) described in subsection (a)(2).
(c) Tax-exempt entity
For purposes of this section, the term "tax-exempt entity" means an entity which is—
(1) described in section 501(c) or 501(d),
(2) described in section 170(c) (other than the United States),
(3) an Indian tribal government (within the meaning of section 7701(a)(40)),
(4) described in paragraph (1), (2), or (3) of section 4979(e),
(5) a program described in section 529,
(6) an eligible deferred compensation plan described in section 457(b) which is maintained by an employer described in section 457(e)(1)(A),
(7) an arrangement described in section 4973(a), or
(8) a program described in section 529A.
(d) Entity manager
For purposes of this section, the term "entity manager" means—
(1) in the case of an entity described in paragraph (1), (2), or (3) of subsection (c)—
(A) the person with authority or responsibility similar to that exercised by an officer, director, or trustee of an organization, and
(B) with respect to any act, the person having authority or responsibility with respect to such act, and
(2) in the case of an entity described in paragraph (4), (5), (6), or (7) of subsection (c), the person who approves or otherwise causes the entity to be a party to the prohibited tax shelter transaction.
(e) Prohibited tax shelter transaction; subsequently listed transaction
For purposes of this section—
(1) Prohibited tax shelter transaction
(A) In general
The term "prohibited tax shelter transaction" means—
(i) any listed transaction, and
(ii) any prohibited reportable transaction.
(B) Listed transaction
The term "listed transaction" has the meaning given such term by section 6707A(c)(2).
(C) Prohibited reportable transaction
The term "prohibited reportable transaction" means any confidential transaction or any transaction with contractual protection (as defined under regulations prescribed by the Secretary) which is a reportable transaction (as defined in section 6707A(c)(1)).
(2) Subsequently listed transaction
The term "subsequently listed transaction" means any transaction to which a tax-exempt entity is a party and which is determined by the Secretary to be a listed transaction at any time after the entity has become a party to the transaction. Such term shall not include a transaction which is a prohibited reportable transaction at the time the entity became a party to the transaction.
(f) Regulatory authority
The Secretary is authorized to promulgate regulations which provide guidance regarding the determination of the allocation of net income or proceeds of a tax-exempt entity attributable to a transaction to various periods, including before and after the listing of the transaction or the date which is 90 days after the date of the enactment of this section.
(g) Coordination with other taxes and penalties
The tax imposed by this section is in addition to any other tax, addition to tax, or penalty imposed under this title.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsecs. (b)(1)(B) and (f), is the date of enactment of
Amendments
2014—Subsec. (c)(8).
2007—Subsec. (c)(6).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date
"(1)
"(2)
Subchapter G—Donor Advised Funds
Editorial Notes
Codification
§4966. Taxes on taxable distributions
(a) Imposition of taxes
(1) On the sponsoring organization
There is hereby imposed on each taxable distribution a tax equal to 20 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the sponsoring organization with respect to the donor advised fund.
(2) On the fund management
There is hereby imposed on the agreement of any fund manager to the making of a distribution, knowing that it is a taxable distribution, a tax equal to 5 percent of the amount thereof. The tax imposed by this paragraph shall be paid by any fund manager who agreed to the making of the distribution.
(b) Special rules
For purposes of subsection (a)—
(1) Joint and several liability
If more than one person is liable under subsection (a)(2) with respect to the making of a taxable distribution, all such persons shall be jointly and severally liable under such paragraph with respect to such distribution.
(2) Limit for management
With respect to any one taxable distribution, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $10,000.
(c) Taxable distribution
For purposes of this section—
(1) In general
The term "taxable distribution" means any distribution from a donor advised fund—
(A) to any natural person, or
(B) to any other person if—
(i) such distribution is for any purpose other than one specified in section 170(c)(2)(B), or
(ii) the sponsoring organization does not exercise expenditure responsibility with respect to such distribution in accordance with section 4945(h).
(2) Exceptions
Such term shall not include any distribution from a donor advised fund—
(A) to any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization),
(B) to the sponsoring organization of such donor advised fund, or
(C) to any other donor advised fund.
(d) Definitions
For purposes of this subchapter—
(1) Sponsoring organization
The term "sponsoring organization" means any organization which—
(A) is described in section 170(c) (other than in paragraph (1) thereof, and without regard to paragraph (2)(A) thereof),
(B) is not a private foundation (as defined in section 509(a)), and
(C) maintains 1 or more donor advised funds.
(2) Donor advised fund
(A) In general
Except as provided in subparagraph (B) or (C), the term "donor advised fund" means a fund or account—
(i) which is separately identified by reference to contributions of a donor or donors,
(ii) which is owned and controlled by a sponsoring organization, and
(iii) with respect to which a donor (or any person appointed or designated by such donor) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such fund or account by reason of the donor's status as a donor.
(B) Exceptions
The term "donor advised fund" shall not include any fund or account—
(i) which makes distributions only to a single identified organization or governmental entity, or
(ii) with respect to which a person described in subparagraph (A)(iii) advises as to which individuals receive grants for travel, study, or other similar purposes, if—
(I) such person's advisory privileges are performed exclusively by such person in the person's capacity as a member of a committee all of the members of which are appointed by the sponsoring organization,
(II) no combination of persons described in subparagraph (A)(iii) (or persons related to such persons) control, directly or indirectly, such committee, and
(III) all grants from such fund or account are awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the board of directors of the sponsoring organization, and such procedure is designed to ensure that all such grants meet the requirements of paragraph (1), (2), or (3) of section 4945(g).
(C) Secretarial authority
The Secretary may exempt a fund or account not described in subparagraph (B) from treatment as a donor advised fund—
(i) if such fund or account is advised by a committee not directly or indirectly controlled by the donor or any person appointed or designated by the donor for the purpose of advising with respect to distributions from such fund (and any related parties), or
(ii) if such fund benefits a single identified charitable purpose.
(3) Fund manager
The term "fund manager" means, with respect to any sponsoring organization—
(A) an officer, director, or trustee of such sponsoring organization (or an individual having powers or responsibilities similar to those of officers, directors, or trustees of the sponsoring organization), and
(B) with respect to any act (or failure to act), the employees of the sponsoring organization having authority or responsibility with respect to such act (or failure to act).
(4) Disqualified supporting organization
(A) In general
The term "disqualified supporting organization" means, with respect to any distribution—
(i) any type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and
(ii) any organization which is described in subparagraph (B) or (C) if—
(I) the donor or any person designated by the donor for the purpose of advising with respect to distributions from a donor advised fund (and any related parties) directly or indirectly controls a supported organization (as defined in section 509(f)(3)) of such organization, or
(II) the Secretary determines by regulations that a distribution to such organization otherwise is inappropriate.
(B) Type I and type II supporting organizations
An organization is described in this subparagraph if the organization meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and is—
(i) operated, supervised, or controlled by one or more organizations described in paragraph (1) or (2) of section 509(a), or
(ii) supervised or controlled in connection with one or more such organizations.
(C) Functionally integrated type III supporting organizations
An organization is described in this subparagraph if the organization is a functionally integrated type III supporting organization (as defined under section 4943(f)(5)(B)).
(Added
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to taxable years beginning after Aug. 17, 2006, see section 1231(c) of
§4967. Taxes on prohibited benefits
(a) Imposition of taxes
(1) On the donor, donor advisor, or related person
There is hereby imposed on the advice of any person described in subsection (d) to have a sponsoring organization make a distribution from a donor advised fund which results in such person or any other person described in subsection (d) receiving, directly or indirectly, a more than incidental benefit as a result of such distribution, a tax equal to 125 percent of such benefit. The tax imposed by this paragraph shall be paid by any person described in subsection (d) who advises as to the distribution or who receives such a benefit as a result of the distribution.
(2) On the fund management
There is hereby imposed on the agreement of any fund manager to the making of a distribution, knowing that such distribution would confer a benefit described in paragraph (1), a tax equal to 10 percent of the amount of such benefit. The tax imposed by this paragraph shall be paid by any fund manager who agreed to the making of the distribution.
(b) Exception
No tax shall be imposed under this section with respect to any distribution if a tax has been imposed with respect to such distribution under section 4958.
(c) Special rules
For purposes of subsection (a)—
(1) Joint and several liability
If more than one person is liable under paragraph (1) or (2) of subsection (a) with respect to a distribution described in subsection (a), all such persons shall be jointly and severally liable under such paragraph with respect to such distribution.
(2) Limit for management
With respect to any one distribution described in subsection (a), the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $10,000.
(d) Person described
A person is described in this subsection if such person is described in section 4958(f)(7) with respect to a donor advised fund.
(Added
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to taxable years beginning after Aug. 17, 2006, see section 1231(c) of
Subchapter H—Excise Tax Based on Investment Income of Private Colleges and Universities
§4968. Excise tax based on investment income of private colleges and universities
(a) Tax imposed
There is hereby imposed on each applicable educational institution for the taxable year a tax equal to 1.4 percent of the net investment income of such institution for the taxable year.
(b) Applicable educational institution
For purposes of this subchapter—
(1) In general
The term "applicable educational institution" means an eligible educational institution (as defined in section 25A(f)(2))—
(A) which had at least 500 tuition-paying students during the preceding taxable year,
(B) more than 50 percent of the tuition-paying students of which are located in the United States,
(C) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities), and
(D) the aggregate fair market value of the assets of which at the end of the preceding taxable year (other than those assets which are used directly in carrying out the institution's exempt purpose) is at least $500,000 per student of the institution.
(2) Students
For purposes of paragraph (1), the number of students of an institution (including for purposes of determining the number of students at a particular location) shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).
(c) Net investment income
For purposes of this section, net investment income shall be determined under rules similar to the rules of section 4940(c).
(d) Assets and net investment income of related organizations
(1) In general
For purposes of subsections (b)(1)(C) and (c), assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that—
(A) no such amount shall be taken into account with respect to more than 1 educational institution, and
(B) unless such organization is controlled by such institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account.
(2) Related organization
For purposes of this subsection, the term "related organization" means, with respect to an educational institution, any organization which—
(A) controls, or is controlled by, such institution,
(B) is controlled by 1 or more persons which also control such institution, or
(C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution.
(Added
Editorial Notes
Amendments
2018—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).