I 
112TH CONGRESS 
2D SESSION 
H. R. 4035 
To amend the Internal Revenue Code of 1986 to exempt private foundations 
from the tax on excess business holdings in the case of certain philan-
thropic enterprises which are independently supervised, and for other 
purposes. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 15, 2012 
Mr. REICHERT (for himself and Mr. LARSON of Connecticut) 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 exempt 
private foundations from the tax on excess business hold-
ings in the case of certain philanthropic enterprises 
which are independently supervised, and for other pur-
poses. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Philanthropic Enter-
prise Act of 2012’’. 
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SEC. 2. EXCEPTION FROM PRIVATE FOUNDATION EXCESS 
BUSINESS HOLDING TAX FOR CERTAIN PHIL-
ANTHROPIC BUSINESS HOLDINGS. 
(a) IN GENERAL.—Section 4943 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new subsection: 
‘‘(g) EXCEPTION
FOR
CERTAIN
PHILANTHROPIC 
BUSINESS HOLDINGS.— 
‘‘(1) IN
GENERAL.—Subsection (a) shall not 
apply with respect to the holdings of a private foun-
dation in any business enterprise which for the tax-
able year meets— 
‘‘(A) the exclusive ownership requirements 
of paragraph (2), 
‘‘(B) the minimum distribution require-
ment of paragraph (3), and 
‘‘(C) the independent operation require-
ments of paragraph (4). 
‘‘(2) EXCLUSIVE
OWNERSHIP.—The exclusive 
ownership requirements of this paragraph are met 
if— 
‘‘(A) all ownership interests in the business 
enterprise are 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 ac-
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quired under the terms of a will or trust upon 
the death of the testator or settlor, as the case 
may be. 
‘‘(3) MINIMUM DISTRIBUTION.— 
‘‘(A) IN
GENERAL.—The minimum dis-
tribution requirement of this paragraph is met 
if the business enterprise, not later than 120 
days after the close of the taxable year, distrib-
utes an amount equal to its net operating in-
come for such taxable year to the private foun-
dation. 
‘‘(B) NET OPERATING INCOME.—For pur-
poses of this paragraph, the net operating in-
come of any business enterprise for any taxable 
year is an amount equal to the gross income of 
the business enterprise for the taxable year, re-
duced by the sum of— 
‘‘(i) the deductions allowed by chapter 
1 for the taxable year which are directly 
connected with the production of such in-
come, 
‘‘(ii) the tax imposed by chapter 1 on 
the business enterprise for the taxable 
year, and 
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‘‘(iii) an amount for a reasonable re-
serve for working capital and other busi-
ness needs of the business enterprise. 
‘‘(4) INDEPENDENT
OPERATION.—The inde-
pendent operation 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 founda-
tion, or family member of such a contributor 
(determined under section 4958(f)(4)) is a di-
rector, officer, trustee, manager, employee, or 
contractor of the business enterprise (or an in-
dividual having powers or responsibilities simi-
lar to any of the foregoing), 
‘‘(B) at least a majority of the board of di-
rectors of the private foundation are not also 
directors or officers of the business enterprise, 
and 
‘‘(C) there is no loan outstanding from the 
business enterprise to a substantial contributor 
(as so defined) to the private foundation or a 
family member of such contributor (as so deter-
mined). 
‘‘(5) CERTAIN DEEMED PRIVATE FOUNDATIONS 
EXCLUDED.—This subsection shall not apply to— 
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‘‘(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).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2011. 
SEC. 3. EXCEPTION TO UNRELATED BUSINESS TAX ON 
SPECIFIED PAYMENTS FROM CERTAIN CON-
TROLLED ENTITIES. 
(a) IN GENERAL.—Paragraph (13) of section 512(b) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph: 
‘‘(G) SUBPARAGRAPH NOT TO APPLY TO 
PAYMENTS
FROM
CERTAIN
PHILANTHROPIC 
CONTROLLED
ENTITIES.—Subparagraph 
(A) 
shall not apply to any payment not in excess of 
fair market value to a private foundation from 
an entity which is a business enterprise de-
scribed in section 4943(g)(1) with respect to 
such foundation.’’. 
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