I
104TH CONGRESS
1ST SESSION
H. R. 2316
To amend the Internal Revenue Code of 1986 to impose an excise tax
on amounts of private excess benefits from certain charitable organiza-
tions, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 12, 1995
Mr. STARK (for himself and Mr. HOUGHTON) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to impose
an excise tax on amounts of private excess benefits from
certain charitable organizations, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Exempt Organization Reform Act of 1995’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. EXCISE TAXES FOR FAILURE BY CERTAIN CHARI-
TABLE ORGANIZATIONS TO MEET CERTAIN
QUALIFICATION REQUIREMENTS.
(a) IN GENERAL.—Chapter 42 (relating to private
foundations and certain other tax-exempt organizations)
is amended by redesignating subchapter D as subchapter
E and by inserting after subchapter C the following new
subchapter:
‘‘Subchapter D—Failure By Certain
Charitable 
Organizations 
To
Meet Certain Qualification Re-
quirements
‘‘Sec. 4958. Taxes on excess benefit transactions.
‘‘SEC. 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 any organization manager who
participates in the excess benefit transaction, know-
ing that it is such a transaction, a tax equal to 10
percent of the excess benefit, unless such participa-
tion 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 PER-
SON.—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 dis-
qualified person referred to in subsection (f)(1) with re-
spect to such transaction.
‘‘(c) EXCESS BENEFIT TRANSACTION; EXCESS BEN-
EFIT.—For purposes of this section—
‘‘(1) EXCESS BENEFIT TRANSACTION.—
‘‘(A) IN GENERAL.—The term ‘excess ben-
efit transaction’ means any transaction in
which an economic benefit is provided by an ap-
plicable tax-exempt organization 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.
‘‘(B) 
LOANS
AND
CERTAIN
PRIVATE
INUREMENT INCLUDED.—The term ‘excess ben-
efit transaction’ includes—
‘‘(i) any loan of money or other exten-
sion of credit by an applicable tax-exempt
organization to or for the use of a disquali-
fied 
person 
described 
in 
subsection
(f)(1)(A)(i), and
‘‘(ii) 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
gross or net revenues of 1 or more activi-
ties of the organization but only if such
transaction results in inurement not per-
mitted under paragraph (3) or (4) of sec-
tion 501(c), as the case may be.
‘‘(2) EXCESS BENEFIT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘excess benefit’
means the excess referred to in paragraph
(1)(A).
‘‘(B) LOANS AND PRIVATE INUREMENT IN-
CLUDED.—The term ‘excess benefit’ means—
‘‘(i) in the case of a loan or extension
of credit described in paragraph (1)(B)(i),
the amount of the loan or the credit ex-
tended, and
‘‘(ii) in the case of a transaction de-
scribed 
in 
paragraph 
(1)(B)(ii), 
the
amount of the inurement.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) JOINT AND SEVERAL LIABILITY.—If more
than 1 person is liable for any tax imposed by sub-
section (a) or subsection (b), all such persons shall
be jointly and severally liable for such tax.
‘‘(2) LIMIT FOR MANAGEMENT.—With respect
to any 1 excess benefit transaction, the maximum
amount of the tax imposed by subsection (a)(2) shall
not exceed $10,000.
‘‘(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—
For purposes of this subchapter, the term ‘applicable tax-
exempt organization’ means any organization which (with-
out regard to any excess benefit) would be described in
paragraph (3) or (4) of section 501(c) and exempt from
tax under section 501(a). Such term shall not include a
private foundation (as defined in section 509(a)).
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) DISQUALIFIED PERSON.—The term ‘dis-
qualified person’ means, with respect to any trans-
action—
‘‘(A) any person who was, at any time dur-
ing the 5-year period ending on the date of
such transaction—
‘‘(i) an organization manager, or
‘‘(ii) an individual (other than an or-
ganization manager) in a position to exer-
cise substantial influence over the affairs
of the organization,
‘‘(B) a member of the family of an individ-
ual described in subparagraph (A), and
‘‘(C) a 35-percent controlled entity.
‘‘(2) ORGANIZATION MANAGER.—The term ‘or-
ganization manager’ means, with respect to any ap-
plicable tax-exempt organization, any officer, direc-
tor, or trustee of such organization (or any individ-
ual having powers or responsibilities similar to those
of officers, directors, or trustees of the organiza-
tion).
‘‘(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 per-
sons 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 para-
graphs (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 in-
clude the brothers and sisters (whether by the whole
or half blood) of the individual and their spouses.
‘‘(5) TAXABLE PERIOD.—The term ‘taxable pe-
riod’ means, with respect to any excess benefit
transaction, the period beginning with the date on
which the transaction occurs and ending on the ear-
liest of—
‘‘(A) the date of mailing a notice of defi-
ciency 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, establishing safeguards to prevent future
such excess benefit, and where fully undoing the ex-
cess benefit is not possible, such additional correc-
tive action as is prescribed by the Secretary by regu-
lations.
‘‘(g) TREATMENT OF PREVIOUSLY EXEMPT ORGANI-
ZATIONS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the status of any organization as an applicable
tax-exempt organization shall be terminated only
if—
‘‘(A)(i) such organization notifies the Sec-
retary (at such time and in such manner as the
Secretary may by regulations prescribe) of its
intent to accomplish such termination, or
‘‘(ii) there is a final determination by the
Secretary that such status has terminated, and
‘‘(B)(i) such organization pays the tax im-
posed by paragraph (2) (or any portion not
abated pursuant to paragraph (3)), or
‘‘(ii) the entire amount of such tax is
abated pursuant to paragraph (3).
‘‘(2) IMPOSITION OF TAX.—There is hereby im-
posed on each organization referred to in paragraph
(1) a tax equal to the lesser of—
‘‘(A) the amount which the organization
substantiates by adequate records or other cor-
roborating evidence as the aggregate tax benefit
resulting from its exemption from tax under
section 501(a), or
‘‘(B) the value of the net assets of such or-
ganization.
‘‘(3) ABATEMENT OF TAX.—The Secretary may
abate the unpaid portion of the assessment of any
tax imposed by paragraph (2), or any liability in re-
spect thereof, if the applicable tax-exempt organiza-
tion distributes all of its net assets to 1 or more or-
ganizations each of which has been in existence, and
described in section 501(c)(3), for a continuous pe-
riod of at least 60 calendar months. If the distribut-
ing organization is described in section 501(c)(4),
the preceding sentence shall be applied by treating
the reference to section 501(c)(3) as including a ref-
erence to section 501(c)(4).
‘‘(4) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of subsections (d), (e), and
(f) of section 507 shall apply for purposes of this
subsection.’’
(b) APPLICATION OF PRIVATE INUREMENT RULE TO
TAX-EXEMPT ORGANIZATIONS DESCRIBED IN SECTION
501(c)(4).—Paragraph (4) of section 501(c) is amended
by inserting ‘‘(A)’’ after ‘‘(4)’’ and by adding at the end
the following:
‘‘(B) Subparagraph (A) shall not apply to an
entity unless no part of the net earnings of such en-
tity inures to the benefit of any private shareholder
or individual.’’
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (e) of section 4955 is amend-
ed—
(A) by striking ‘‘SECTION 4945’’ in the
heading and inserting ‘‘SECTIONS 4945 and
4958’’, and
(B) by inserting before the period ‘‘or an
excess benefit for purposes of section 4958’’.
(2) Subsections (a), (b), and (c) of section 4963
are each amended by inserting ‘‘4958,’’ after
‘‘4955,’’.
(3) Subsection (e) of section 6213 is amended
by inserting ‘‘4958 (relating to private excess bene-
fit),’’ before ‘‘4971’’.
(4) Paragraphs (2) and (3) of section 7422(g)
are each amended by inserting ‘‘4958,’’ after
‘‘4955,’’.
(5) Subsection (b) of section 7454 is amended
by inserting ‘‘or whether an organization manager
(as defined in section 4958(f)(2)) has ‘knowingly’
participated in an excess benefit transaction (as de-
fined in section 4958(c)),’’ after ‘‘section 4912(b),’’.
(6) The table of subchapters for chapter 42 is
amended by striking the last item and inserting the
following:
‘‘Subchapter D. Failure by certain charitable organizations to
meet certain qualification requirements.
‘‘Subchapter E. Abatement of first and second tier taxes in cer-
tain cases.’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (b)) shall apply
to excess benefit transactions occurring on or after
September 6, 1995.
501(c)(4) which is subject to the requirements of sub-
section (a) shall include on the return required under sub-
section (a) the information referred to in paragraphs (10)
and (11) of subsection (b) with respect to such organiza-
tion.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns for taxable years begin-
ning after the date of the enactment of this Act.
SEC. 4. EXEMPT ORGANIZATIONS REQUIRED TO PROVIDE
COPY OF RETURN.
(a) GENERAL RULE.—
(1) Subparagraph (A) of section 6104(e)(1) (re-
lating to public inspection of annual returns) is
amended to read as follows:
‘‘(A) IN GENERAL.—During the 3-year pe-
riod beginning on the filing date—
‘‘(i) a copy of the annual return filed
under section 6033 (relating to returns by
exempt organizations) by any organization
to which this paragraph applies shall be
made available by such organization for in-
spection during regular business hours by
any individual at the principal office of
such organization and, if such organization
regularly maintains 1 or more regional or
district offices having 3 or more employees,
at each such regional or district office, and
‘‘(ii) upon request of an individual
made at such principal office or such a re-
gional or district office, a copy of such an-
nual return shall be provided to such indi-
vidual without charge other than a reason-
able fee for any reproduction and mailing
costs.
If the request under clause (ii) is made in per-
son, such copy shall be provided immediately
and, if made other than in person, shall be pro-
vided within 30 days. If the organization deter-
mines that a request under clause (ii) is part of
a harassment campaign, the requirement of
clause (ii) shall be treated as met if the organi-
zation places a copy of such return on a pub-
licly available electronic network.’’
(2) Clause (ii) of section 6104(e)(2)(A) is
amended by inserting before the period at the end
thereof the following: ‘‘(and, upon request of an in-
dividual made at such principal office or such a re-
gional or district office, a copy of the material re-
quired to be available for inspection under this sub-
paragraph shall be provided (in accordance with the
last sentence of paragraph (1)(A)) to such individual
without charge other than a reasonable fee for any
reproduction and mailing costs)’’.
(3) Subsection (e) of section 6104 is amended
by adding at the end the following new paragraph:
‘‘(3) LIMITATION.—Paragraph (1)(A)(ii) (and
the corresponding provision of paragraph (2)) shall
not apply to any request if the Secretary determines,
upon application by an organization, that such re-
quest is part of a harassment campaign and that
compliance with such request is not in the public in-
terest.’’
(b) ADVERTISEMENTS ETC., REQUIRED
TO DIS-
CLOSE AVAILABILITY OF ANNUAL RETURN.—
(1) Paragraph (1) of section 6104(e) is amend-
ed by adding at the end thereof the following new
subparagraph:
‘‘(E) ADVERTISEMENTS
ETC., REQUIRED
TO
DISCLOSE
AVAILABILITY
OF
ANNUAL
RE-
TURN.—In the case of an organization required
by subparagraph (A) to provide a copy of its
annual return under section 6033 upon request
to individuals, each advertisement or solicitation
by (or on behalf of) such organization shall con-
tain an express statement (in a conspicuous and
easily recognizable format) that such return
shall be provided to individuals upon request.’’
(2) Section 6716, as added by section 5 of this
Act, is amended—
(A) by striking ‘‘section 6116’’ each place
it appears and inserting ‘‘section 6116 or sec-
tion 6104(e)(1)(E)’’,
(B) by striking ‘‘$1,000’’ in subsection (a)
and inserting ‘‘$1,000 ($100 in the case of a
failure 
to 
meet 
the 
requirements 
of
6104(e)(1)(E))’’, and
(C) by inserting before the period at the
end of the section heading ‘‘; FAILURE
OF
CERTAIN EXEMPT ORGANIZATIONS TO DIS-
CLOSE
AVAILABILITY
OF
ANNUAL
RE-
TURN’’.
(3) Subparagraph (C) of section 6652(c)(1) is
amended by striking ‘‘(e)(1)’’ and inserting ‘‘(e)(1)
(other than subparagraph (E))’’, by striking ‘‘$10’’
and inserting ‘‘$20’’, and by striking ‘‘$5,000’’ and
inserting ‘‘$10,000’’.
(4) Subparagraph (D) of section 6652(c)(1) is
amended by striking ‘‘$10’’ and inserting ‘‘$20’’.
(5) The item relating to section 6716 in the
table of sections for part I of subchapter B of chap-
ter 68 is amended by inserting before the period ‘‘;
failure of certain exempt organizations to disclose
availability of annual return’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1996 (or, if
later, the 90th day after the date of the enactment of this
Act).
SEC. 5. CERTAIN 
ORGANIZATIONS 
REQUIRED 
TO 
DIS-
CLOSE NONEXEMPT STATUS.
(a) GENERAL RULE.—Subchapter B of chapter 61
(relating to miscellaneous provisions) is amended by redes-
ignating section 6116 as section 6117 and by inserting
after section 6115 the following new section:
‘‘SEC. 6116. CERTAIN ORGANIZATIONS REQUIRED TO DIS-
CLOSE NONEXEMPT STATUS.
‘‘(a) IN GENERAL.—If—
‘‘(1) in an advertisement or solicitation by (or
on behalf of) an organization, such organization is
referred to as being nonprofit, and
‘‘(2) such organization is not exempt from tax
under subtitle A,
such advertisement or solicitation shall contain an express
statement (in a conspicuous and easily recognizable for-
mat) that such organization is not exempt from Federal
income taxes.
‘‘(b) CROSS REFERENCE.—
‘‘For penalties for violation of subsection (a), see
section 6716.’’
(b) PENALTY.—Part I of subchapter B of chapter 68
is amended by adding at the end thereof the following new
section:
‘‘SEC. 6716. FAILURE TO DISCLOSE NONEXEMPT STATUS.
‘‘(a) IMPOSITION OF PENALTY.—If there is a failure
to meet the requirements of section 6116 with respect to
any advertisement or solicitation by (or on behalf of) an
organization, such organization shall pay a penalty of
$1,000 for each day on which such a failure occurred. The
maximum penalty imposed under this subsection on fail-
ures by any organization during any calendar year shall
not exceed $10,000.
‘‘(b) REASONABLE CAUSE EXEMPTION.—No penalty
shall be imposed under this section with respect to any
failure if it is shown that such failure is due to reasonable
cause.
‘‘(c) $10,000 LIMITATION NOT TO APPLY WHERE
INTENTIONAL DISREGARD.—If any failure to which sub-
section (a) applies is due to intentional disregard of the
requirements of section 6116—
‘‘(1) the penalty under subsection (a) for the
day on which failure occurred shall be the greater
of—
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1996 (or, if
later, the 90th day after the date of the enactment of this
Act).
SEC. 6. INCREASE IN PENALTIES ON EXEMPT ORGANIZA-
TIONS FOR FAILURE TO FILE COMPLETE AND
TIMELY ANNUAL RETURNS.
(a) IN GENERAL.—Subparagraph (A) of section
6652(c)(1) (relating to annual returns under section
6033) is amended by striking ‘‘$10’’ and inserting ‘‘$20’’
and by striking ‘‘$5,000’’ and inserting ‘‘$10,000’’.
(b) LARGER PENALTY ON ORGANIZATIONS HAVING
GROSS RECEIPTS IN EXCESS OF $1,000,000.—Subpara-
graph (A) of section 6652(c)(1) is amended by adding at
the end the following new sentence: ‘‘In the case of an
organization having gross receipts exceeding $1,000,000
for any year, with respect to the return required under
section 6033 for such year, the first sentence of this sub-
paragraph shall be applied by substituting ‘$100’ for ‘$20’
and, in lieu of applying the second sentence of this sub-
paragraph, the maximum penalty under this subparagraph
shall not exceed $50,000.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns for taxable years ending
on or after December 31, 1995.
Æ
HR 2316 IH——2
HR 2316 IH——3