II 

113TH CONGRESS 

2D SESSION S. 2710 

To amend the Internal Revenue Code of 1986 to exempt private foundations 

from the tax on excess business holdings in the case of certain philanthropic enterprises which are independently supervised, and for other 

purposes. 

IN THE SENATE OF THE UNITED STATES 

JULY 30, 2014 

Mr. MENENDEZ (for himself and Mr. THUNE) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to exempt 

private foundations from the tax on excess business holdings in the case of certain philanthropic enterprises 

which are independently supervised, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Philanthropic Enter5 prise Act of 2014’’. 


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1 SEC. 2. EXCEPTION FROM PRIVATE FOUNDATION EXCESS 

2 BUSINESS HOLDING TAX FOR CERTAIN PHIL3 ANTHROPIC BUSINESS HOLDINGS. 

4 (a) IN GENERAL.—Section 4943 of the Internal Rev5 enue Code of 1986 is amended by adding at the end the 

6 following new subsection: 

7 ‘‘(g) EXCEPTION FOR CERTAIN PHILANTHROPIC

8 BUSINESS HOLDINGS.— 

9 ‘‘(1) IN GENERAL.—Subsection (a) shall not 

10 apply with respect to the holdings of a private foun11 dation in any business enterprise which for the tax12 able year meets— 

13 ‘‘(A) the exclusive ownership requirements 

14 of paragraph (2), 

15 ‘‘(B) the all profits to charity requirement 

16 of paragraph (3), and 

17 ‘‘(C) the independent operation require18 ments of paragraph (4). 

19 ‘‘(2) EXCLUSIVE OWNERSHIP.—The exclusive 

20 ownership requirements of this paragraph are met 

21 if— 

22 ‘‘(A) all ownership interests in the business 

23 enterprise are held by the private foundation at 

24 all times during the taxable year, and 

25 ‘‘(B) all the private foundation’s ownership 

26 interests in the business enterprise were acVerDate Mar 15 2010 05:31 Aug 07, 2014 Jkt 039060 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2710.IS S2710

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1 quired under the terms of a will or trust upon 

2 the death of the testator or settlor, as the case 

3 may be. 

4 ‘‘(3) ALL PROFITS TO CHARITY.— 

5 ‘‘(A) IN GENERAL.—The all profits to 

6 charity requirement of this paragraph is met if 

7 the business enterprise, not later than 120 days 

8 after the close of the taxable year, distributes 

9 an amount equal to its net operating income for 

10 such taxable year to the private foundation. 

11 ‘‘(B) NET OPERATING INCOME.—For pur12 poses of this paragraph, the net operating in13 come of any business enterprise for any taxable 

14 year is an amount equal to the gross income of 

15 the business enterprise for the taxable year, re16 duced by the sum of— 

17 ‘‘(i) the deductions allowed by chapter 

18 1 for the taxable year which are directly 

19 connected with the production of such in20 come, 

21 ‘‘(ii) the tax imposed by chapter 1 on 

22 the business enterprise for the taxable 

23 year, and 


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1 ‘‘(iii) an amount for a reasonable re2 serve for working capital and other busi3 ness needs of the business enterprise. 

4 ‘‘(4) INDEPENDENT OPERATION.—The inde5 pendent operation requirements of this paragraph 

6 are met if, at all times during the taxable year— 

7 ‘‘(A) no substantial contributor (as defined 

8 in section 4958(c)(3)(C)) to the private founda9 tion, or family member of such a contributor 

10 (determined under section 4958(f)(4)) is a di11 rector, officer, trustee, manager, employee, or 

12 contractor of the business enterprise (or an in13 dividual having powers or responsibilities simi14 lar to any of the foregoing), 

15 ‘‘(B) at least a majority of the board of di16 rectors of the private foundation are not— 

17 ‘‘(i) also directors or officers of the 

18 business enterprise, or 

19 ‘‘(ii) members of the family (deter20 mined under section 4958(f)(4)) of a sub21 stantial contributor (as defined in section 

22 4958(c)(3)(C)) to the private foundation, 

23 and 

24 ‘‘(C) there is no loan outstanding from the 

25 business enterprise to a substantial contributor 


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1 (as so defined) to the private foundation or a 

2 family member of such contributor (as so deter3 mined). 

4 ‘‘(5) CERTAIN DEEMED PRIVATE FOUNDATIONS

5 EXCLUDED.—This subsection shall not apply to— 

6 ‘‘(A) any fund or organization treated as a 

7 private foundation for purposes of this section 

8 by reason of subsection (e) or (f), 

9 ‘‘(B) any trust described in section 

10 4947(a)(1) (relating to charitable trusts), and 

11 ‘‘(C) any trust described in section 

12 4947(a)(2) (relating to split-interest trusts).’’. 

13 (b) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to taxable years beginning after 

15 December 31, 2013. 

16 SEC. 3. EXCEPTION TO UNRELATED BUSINESS TAX ON 

17 SPECIFIED PAYMENTS FROM CERTAIN CON18 TROLLED ENTITIES. 

19 (a) IN GENERAL.—Paragraph (13) of section 512(b) 

20 of the Internal Revenue Code of 1986 is amended by add21 ing at the end the following new subparagraph: 

22 ‘‘(G) SUBPARAGRAPH NOT TO APPLY TO

23 PAYMENTS FROM CERTAIN PHILANTHROPIC

24 CONTROLLED ENTITIES.—Subparagraph (A) 

25 shall not apply to any payment not in excess of 


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1 fair market value to a private foundation from 

2 an entity which is a business enterprise de3 scribed in section 4943(g)(1) with respect to 

4 such foundation.’’. 

5 (b) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to taxable years beginning after 

7 December 31, 2013. 

Æ 


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