Source: https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter42-subchapterA&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uNDk0Ng%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&edition=prelim
Timestamp: 2019-08-20 07:10:30
Document Index: 388675170

Matched Legal Cases: ['§4', '§101', '§4940', '§101', '§1901', '§2', '§520', '§302', '§1301', '§1832', '§1221', '§3', '§1221', '§1221', '§1221', '§1301', '§1832', '§302', '§303', '§520', '§101', '§2', '§101', '§4', '§1301', '§703', '§314', '§2', '§314', '§1301', '§1309', '§4', '§6204', '§302', '§101', '§1901', '§2', '§5', '§107', '§122', '§1812', '§1001', '§1212', '§1212', '§1812', '§2', '§1901', '§1212', '§312', '§2', '§310', '§4944', '§101', '§1906', '§2', '§1212', '§1212', '§1212', '§2', '§4945', '§101', '§1901', '§2', '§302', '§122', '§1001', '§1212', '§221', '§1212', '§1212', '§1212', '§1244', '§2', '§2', '§1901', '§1906', '§302', '§4946', '§101', '§4', '§306', '§1606', '§1101', '§1', '§319', '§1606', '§306', '§4947', '§101', '§1906', '§1530', '§542', '§413', '§301', '§542', '§542', '§4948', '§101', '§1906', '§413']

[USC02] 26 USC Subtitle D, CHAPTER 42, Subchapter A: Private Foundations
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26 USC Subtitle D, CHAPTER 42, Subchapter A: Private Foundations
From Title 26—INTERNAL REVENUE CODESubtitle D—Miscellaneous Excise TaxesCHAPTER 42—PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS
Excise tax based on investment income.
Taxes on failure to distribute income.
Taxes on excess business holdings.
Taxes on investments which jeopardize charitable purpose.
Application of taxes to certain nonexempt trusts.
Application of taxes and denial of exemption with respect to certain foreign organizations.
1978—Pub. L. 95–227, §4(c)(2)(A), Feb. 10, 1978, 92 Stat. 22, added subchapter A heading and designated sections 4940 to 4948 as subchapter A.
1969—Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 498, added analysis of sections.
§4940. Excise tax based on investment income
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 2 percent of the net investment income of such foundation for the taxable year.
(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
(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.
(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.
For purposes of this subsection, the term "exempt operating foundation" means, with respect to any taxable year, any private foundation if—
The term "disqualified individual" means, with respect to any private foundation, an individual who is—
The term "percentage payout" means, with respect to any taxable year, the percentage determined by dividing—
(Added Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 498; amended Pub. L. 94–455, title XIX, §1901(b)(33)(N), Oct. 4, 1976, 90 Stat. 1802; Pub. L. 95–345, §2(a)(4), Aug. 15, 1978, 92 Stat. 481; Pub. L. 95–600, title V, §520(a), Nov. 6, 1978, 92 Stat. 2884; Pub. L. 98–369, div. A, title III, §§302(a), 303(a), July 18, 1984, 98 Stat. 779, 781; Pub. L. 99–514, title XIII, §1301(j)(6), title XVIII, §1832, Oct. 22, 1986, 100 Stat. 2658, 2851; Pub. L. 109–280, title XII, §1221(a)(1), (b), Aug. 17, 2006, 120 Stat. 1089; Pub. L. 110–172, §3(f), Dec. 29, 2007, 121 Stat. 2475.)
2007—Subsec. (c)(4)(A). Pub. L. 110–172 amended text generally. Prior to amendment, text read as follows: "There shall be taken into account only gains and losses from the sale or other disposition of property used for the production of interest, dividends, rents, and royalties, and property used for the production of income included in computing the tax imposed by section 511 (except to the extent gain or loss from the sale or other disposition of such property is taken into account for purposes of such tax)."
2006—Subsec. (c)(2). Pub. L. 109–280, §1221(a)(1), inserted at end "Such term shall also include income from sources similar to those in the preceding sentence." See Codification note above.
Subsec. (c)(4)(A). Pub. L. 109–280, §1221(b)(1), substituted "gross investment income (as defined in paragraph (2))" for "interest, dividends, rents, and royalties". See Codification note above.
Subsec. (c)(4)(C). Pub. L. 109–280, §1221(b)(2), inserted "or carrybacks" after "carryovers". See Codification note above.
1986—Subsec. (c)(5). Pub. L. 99–514, §1301(j), substituted "(relating to State and local bonds)" for "(relating to interest on certain governmental obligations)".
Subsec. (e)(2). Pub. L. 99–514, §1832, added subpar. (B) and struck out former subpar. (B) and concluding provision which read as follows:
"(B) the average percentage payout for the base period equals or exceeds 5 percent.
In the case of an operating foundation (as defined in section 4942(j)(3)), subparagraph (B) shall be applied by substituting &apos;31/3 percent&apos; for &apos;5 percent&apos;."
1978—Subsec. (a). Pub. L. 95–600 substituted "2 percent" for "4 percent".
1976—Subsec. (c). Pub. L. 94–455 substituted "capital gain net income" for "net capital gain" in par. (1) after "investment income and the", and in par. (4) after "par. (1) in determining".
Amendment by section 1301(j)(6) of Pub. L. 99–514 applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of Pub. L. 99–514, set out as an Effective Date; Transitional Rules note under section 141 of this title.
Amendment by section 1832 of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Pub. L. 98–369, div. A, title III, §302(c)(1), July 18, 1984, 98 Stat. 780, provided that: "The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1984."
Pub. L. 98–369, div. A, title III, §303(b), July 18, 1984, 98 Stat. 782, provided that: "The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1984."
Pub. L. 95–600, title V, §520(b), Nov. 6, 1978, 92 Stat. 2884, provided that: "The amendment made by the first section of this Act [probably meaning section 520(a), which amended this section] shall apply to taxable years beginning after September 30, 1977."
Amendment by Pub. L. 95–345 applicable with respect to amounts received after Dec. 31, 1976, as payments with respect to securities loans (as defined in section 512(a)(5) of this title), and transfers of securities, under agreements described in section 1058 of this title, occurring after such date, see section 2(e) of Pub. L. 95–345, set out as a note under section 509 of this title.
Pub. L. 91–172, title I, §101(k), Dec. 30, 1969, 83 Stat. 533, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided:
"(1) In general.—Except as otherwise provided in this subsection and subsection (l) [set out as a note below] the amendments made by this section [enacting this section and sections 507 to 509, 4941 to 4848, 6056, 6684, and 6685 of this title, amending sections 101, 170, 501, 503, 542, 663, 681, 878, 884, 1443, 2039, 2517, 4057, 4221, 4253, 4294, 5214, 6033, 6034, 6043, 6104, 6161, 6201, 6211 to 6214, 6344, 6501, 6503, 6511, 6512, 6601, 6652, 6653, 6659, 6676, 6677, 6679, 6682, 7207, 7422, and 7454 of this title, repealing section 504 of this title, and enacting provisions set out as notes under this section and section 1 of this title] shall take effect on January 1, 1970.
"(2) Provisions effective for taxable years beginning after december 31, 1969.—The following provisions shall apply to taxable years beginning after December 31, 1969:
"(A) Sections 4940, 4942, 4943, and 4948 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section), and
"(B) The amendments made by subsection (d) [enacting section 6056 of this title, and amending sections 6033 and 6652 of this title] and paragraphs (3), (15), (16), (20), (21), (30), (31), (32), (33), (34), (35), and (61) of subsection (j) [amending sections 501, 542, 878, 884, 6033, 6034, and 6043 of this title and repealing section 504 of this title].
"(3) Sections 508(a), (b), and (c).—Sections 508 (a),(b), and (c) of the Internal Revenue Code of 1986 (as added by this section) shall take effect on October 9, 1969."
Pub. L. 91–172, title I, §101(l), Dec. 30, 1969, 83 Stat. 533, as amended by Pub. L. 93–490, §4(a), Oct. 26, 1974, 88 Stat. 1467; Pub. L. 94–455, title XIII, §§1301(a), 1309(a), Oct. 4, 1976, 90 Stat. 1713, 1729; Pub. L. 95–600, title VII, §703(f), Nov. 6, 1978, 92 Stat. 2940; Pub. L. 98–369, div. A, title III, §314(b)(1), July 18, 1984, 98 Stat. 787; Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) References to internal revenue code provisions.—Except as otherwise expressly provided, references in the following paragraphs of this subsection are to sections of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as amended by this section.
"(2) Section 4941.—Section 4941 shall not apply to—
"(A) any transaction between a private foundation and a corporation which is a disqualified person (as defined in section 4946), pursuant to the terms of securities of such corporation in existence at the time acquired by the foundation, if such securities were acquired by the foundation before May 27, 1969;
"(B) the sale, exchange, or other disposition of property which is owned by a private foundation on May 26, 1969 (or which is acquired by a private foundation under the terms of a trust which was irrevocable on May 26, 1969, or under the terms of a will executed on or before such date, which are in effect on such date and at all times thereafter), to a disqualified person, if such foundation is required to dispose of such property in order not to be liable for tax under section 4943 (relating to taxes on excess business holdings) applied, in the case of a disposition before January 1, 1977, without taking section 4943(c)(4) into account and it receives in return an amount which equals or exceeds the fair market value of such property at the time of such disposition or at the time a contract for such disposition was previously executed in a transaction which would not constitute a prohibited transaction (within the meaning of section 503(b) or the corresponding provisions of prior law);
"(C) the leasing of property or the lending of money or other extension of credit between a disqualified person and a private foundation pursuant to a binding contract in effect on October 9, 1969 (or pursuant to renewals of such a contract), until taxable years beginning after December 31, 1979, if such leasing or lending (or other extension of credit) remains at least as favorable as an arm's-length transaction with an unrelated party and if the execution of such contract was not at the time of such execution a prohibited transaction (within the meaning of section 503(b) or the corresponding provisions of prior law);
"(D) the use of goods, services, or facilities which are shared by a private foundation and a disqualified person until taxable years beginning after December 31, 1979, if such use is pursuant to an arrangement in effect before October 9, 1969, and such arrangement was not a prohibited transaction (within the meaning of section 503(b) or the corresponding provisions of prior law) at the time it was made and would not be a prohibited transaction if such section continued to apply;
"(E) the use of property in which a private foundation and a disqualified person have a joint or common interest, if the interests of both in such property were acquired before October 9, 1969; and
"(F) the sale, exchange, or other disposition (other than by lease) of property which is owned by a private foundation to a disqualified person if—
"(i) such foundation is leasing substantially all of such property under a lease to which subparagraph (C) applies,
"(ii) the disposition to such disqualified person occurs before January 1, 1978, and
"(iii) such foundation receives in return for the disposition to such disqualified person an amount which equals or exceeds the fair market value of such property at the time of the disposition or at the time (after June 30, 1976) a contract for the disposition was previously executed in a transaction which would not constitute a prohibited transaction (within the meaning of section 503(b) or any corresponding provision of prior law).
"(3) Section 4942.—In the case of organizations organized before May 27, 1969, section 4942 shall—
"(A) for all purposes other than the determination of the minimum investment return under section 4942(j)(3)(B)(ii), for taxable years beginning before January 1, 1972, apply without regard to section 4942(e) (relating to minimum investment return), and for taxable years beginning in 1972, 1973, and 1974, apply with an applicable percentage (as prescribed in section 4942(e)(3)) which does not exceed 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.
"(4) Section 4943.—
"(A) In the case of a private foundation—
"(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 &apos;, but in no event shall the percentage so substituted be more than 50 percent&apos;, 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 &apos;purchase&apos; does not include an exchange which is described in paragraph (2)(B) of this subsection and which is pursuant to a plan for disposition of excess business holdings.
"(5) Section 4945.—Section 4945(d)(4) and (h) shall not apply to a grant which is described in paragraph (3)(C) of this subsection.
"(6) Section 508(e).—Section 508(e) shall not apply to require inclusion in governing instruments of any provisions inconsistent with this subsection.
"(7) Section 509(a).—In the case of any trust created under the terms of a will or a codicil to a will executed on or before March 30, 1924, by which the testator bequeathed all of the outstanding common stock of a corporation in trust, the income of which trust is to be used principally for the benefit of those from time to time employed by the corporation and their families, the trustees of which trust are elected or selected from among the employees of such corporation, and which trust does not own directly any stock in any other corporation, if the trust makes an irrevocable election under this paragraph within one year after the date of the enactment of this Act [Dec. 30, 1969], such trust shall be treated as not being a private foundation for purposes of the Internal Revenue Code of 1986 but shall be treated for purposes of such Code as if it were not exempt from tax under section 501(a) for any taxable year beginning after the date of the enactment of this Act [Dec. 30, 1969] and before the date (if any) on which such trust has complied with the requirements of section 507 for termination of the status of an organization as a private foundation.
"(8) Certain redemptions.—For purposes of applying section 302(b)(1) to the determination of the amount of gross investment income under sections 4940 and 4948(a), any distribution made to a private foundation in redemption of stock held by such private foundation in a business enterprise shall be treated as not essentially equivalent to a dividend, if such redemption is described in paragraph (2)(B) of this subsection."
[Pub. L. 98–369, div. A, title III, §314(b)(2), July 18, 1984, 98 Stat. 787, provided that: "The amendment made by paragraph (1) [amending section 101(4)(A)(iii) of Pub. L. 91–172, set out above] shall apply as if included in section 101(l)(4) of the Tax Reform Act of 1969 [Pub. L. 91–172]."]
[Pub. L. 94–455, title XIII, §1301(b), Oct. 4, 1976, 90 Stat. 1713, provided that: "The amendments made by subsection (a) [enacting subpar. (F) of section 101(2) of Pub. L. 91–172, set out above] shall apply to dispositions after the date of the enactment of this Act [Oct. 4, 1976] in taxable years ending after such date."]
[Pub. L. 94–455, title XIII, §1309(b), Oct. 4, 1976, 90 Stat. 1729, provided that: "The amendment made by this section [amending section 101(2)(B) of Pub. L. 91–172, set out above] shall apply to dispositions made after the date of enactment of this Act [Oct. 4, 1976]."]
[Pub. L. 93–490, §4(b), Oct. 26, 1974, 88 Stat. 1467, provided that: "The amendment made by this section [enacting subpar. (F) of section 101(3) of Pub. L. 91–172, set out above] shall apply to taxable years beginning after December 31, 1971."]
Pub. L. 100–647, title VI, §6204, Nov. 10, 1988, 102 Stat. 3730, provided that: "For purposes of section 302(c)(3) of the Deficit Reduction Act of 1984 [Pub. L. 98–369, set out below], a private foundation which constituted an operating foundation (as defined in section 4942(j)(3) of the Internal Revenue Code of 1986) for its last taxable year ending before January 1, 1983, shall be treated as constituting an operating foundation as of January 1, 1983."
Pub. L. 98–369, div. A, title III, §302(c)(3), July 18, 1984, 98 Stat. 781, provided that: "A foundation which was an operating foundation (as defined in section 4942(j)(3) of the Internal Revenue Code of 1954) as of January 1, 1983, shall be treated as meeting the requirements of section 4940(d)(2)(B) of such Code (as added by subsection (a))."
For purposes of this section, the term "self-dealing" means any direct or indirect—
(G) in the case of a government official (as defined in section 4946(c)), paragraph (1) shall in addition not apply to—
(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—
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—
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—
(Added Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 499; amended Pub. L. 94–455, title XIX, §§1901(b)(8)(H), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96–596, §2(a)(1)(A), (B), (2)(A), (3)(A), Dec. 24, 1980, 94 Stat. 3469, 3471; Pub. L. 96–608, §5, Dec. 28, 1980, 94 Stat. 3553; Pub. L. 99–234, title I, §107(c), Jan. 2, 1986, 99 Stat. 1759; Pub. L. 99–514, title I, §122(a)(2)(A), title XVIII, §1812(b)(1), Oct. 22, 1986, 100 Stat. 2110, 2833; Pub. L. 100–647, title I, §1001(d)(1)(A), Nov. 10, 1988, 102 Stat. 3350; Pub. L. 109–280, title XII, §1212(a)(1), (2), Aug. 17, 2006, 120 Stat. 1074.)
2006—Subsec. (a)(1). Pub. L. 109–280, §1212(a)(1)(A), substituted "10 percent" for "5 percent". See Codification note above.
1988—Subsec. (d)(2)(G)(ii). Pub. L. 100–647 amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: "scholarships and fellowship grants which are subject to the provisions of section 117(a) and are to be used for study at an educational organization described in section 170(b)(1)(A)(ii),".
1986—Subsec. (d)(2)(B). Pub. L. 99–514, §1812(b)(1), inserted "(determined without regard to section 7872)" after "without interest or other charge".
1980—Subsec. (b)(1). Pub. L. 96–596, §2(a)(1)(A), substituted "taxable period" for "correction period".
1976—Subsec. (d)(2)(G)(ii). Pub. L. 94–455, §1901(b)(8)(H), substituted "educational organization described in section 170(b)(1)(A)(ii)" for "educational institution described in section 151(e)(4)" after "study at an".
Pub. L. 109–280, title XII, §1212(f), Aug. 17, 2006, 120 Stat. 1075, provided that: "The amendments made by this section [amending this section and sections 4942 to 4945 and 4958 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 17, 2006]."
Pub. L. 98–369, div. A, title III, §312, July 18, 1984, 98 Stat. 786, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) General Rule.—Section 4941 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to taxes on self-dealing) shall not apply to the purchase during 1978 of stock from a private foundation (and to any note issued in connection with such purchase) if—
"(b) Statute of Limitations.—If credit or refund of any overpayment of tax resulting from subsection (a) is prevented at any time before the close of the 1-year period beginning on the date of the enactment of this Act [July 18, 1984] by the operation of any law or rule of law, refund or credit of such overpayment may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period."
(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,
Subsec. (c)(6). Pub. L. 98–369, §310(a), inserted following subpar. (B) "In any case where an acquisition by a disqualified person would result in a substitution under clause (i) or (ii) of subparagraph (D) of paragraph (4), the preceding sentence shall be applied with respect to such acquisition as if it did not contain the phrase &apos;or by a disqualified person&apos; in the material preceding subparagraph (A)."
§4944. Taxes on investments which jeopardize charitable purpose
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.
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—
(Added Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 511; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96–596, §2(a)(1)(E), (2)(D), (3)(D), Dec. 24, 1980, 94 Stat. 3469–3471; Pub. L. 109–280, title XII, §1212(d), Aug. 17, 2006, 120 Stat. 1074.)
2006—Subsec. (a). Pub. L. 109–280, §1212(d)(1), substituted "10 percent" for "5 percent" in pars. (1) and (2). See Codification note above.
Subsec. (d)(2). Pub. L. 109–280, §1212(d)(2), substituted "$10,000," for "$5,000," and "$20,000." for "$10,000." See Codification note above.
1980—Subsec. (b)(1). Pub. L. 96–596, §2(a)(1)(E), substituted "taxable period" for "correction period".
1976—Subsec. (e)(3)(B). Pub. L. 94–455 struck out "or his delegate" after "Secretary".
§4945. Taxes on taxable expenditures
For purposes of this section, the term "taxable expenditure" means any amount paid or incurred by a private foundation—
(4) as a grant to an organization unless—
(A) such organization—
For purposes of subsection (d)(1), the term "taxable expenditure" means any amount paid or incurred by a private foundation for—
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.
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.
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.
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.
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
(Added Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 512; amended Pub. L. 94–455, title XIX, §§1901(b)(8)(H), 1906(b)(13(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96–596, §2(a)(1)(F), (2)(E), Dec. 24, 1980, 94 Stat. 3469, 3470; Pub. L. 98–369, div. A, title III, §302(b), July 18, 1984, 98 Stat. 780; Pub. L. 99–514, title I, §122(a)(2)(B), Oct. 22, 1986, 100 Stat. 2110; Pub. L. 100–647, title I, §1001(d)(1)(B), Nov. 10, 1988, 102 Stat. 3350; Pub. L. 109–280, title XII, §§1212(e), 1244(b), Aug. 17, 2006, 120 Stat. 1074, 1107; Pub. L. 113–295, div. A, title II, §221(a)(106), Dec. 19, 2014, 128 Stat. 4053.)
Sections 1212(e) and 1244(b) of Pub. L. 109–280, which directed the amendment of section 4945 without specifying the act to be amended, were executed to this section, which is section 4945 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below.
2014—Subsec. (f). Pub. L. 113–295 struck out "(excluding therefrom any preceding taxable year which begins before January 1, 1970)" after "taxable years of such organization" in concluding provisions.
2006—Subsec. (a)(1). Pub. L. 109–280, §1212(e)(1)(A), substituted "20 percent" for "10 percent". See Codification note above.
Subsec. (a)(2). Pub. L. 109–280, §1212(e)(1)(B), substituted "5 percent" for "2½ percent". See Codification note above.
Subsec. (c)(2). Pub. L. 109–280, §1212(e)(2), substituted "$10,000," for "$5,000," and "$20,000." for "$10,000." See Codification note above.
Subsec. (d)(4)(A). Pub. L. 109–280, §1244(b), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: "such organization is described in paragraph (1), (2), or (3) of section 509(a) or is an exempt operating foundation (as defined in section 4940(d)(2)), or". See Codification note above.
1988—Subsec. (g)(1). Pub. L. 100–647 amended par. (1) generally. Prior to amendment, par. (1) read as follows: "the grant constitutes a scholarship or fellowship grant which is subject to the provisions of section 117(a) and is to be used for study at an educational organization described in section 170(b)(1)(A)(ii),".
1986—Subsec. (g)(2). Pub. L. 99–514 inserted "(without regard to paragraph (3) thereof)" after "section 74(b)".
1984—Subsec. (d)(4). Pub. L. 98–369, in amending par. (4) generally, divided existing provisions into subpars. (A) and (B) and inserted reference in subpar. (A) to exempt foundations (as defined in section 4940(d)(2)).
1980—Subsec. (b)(1). Pub. L. 96–596, §2(a)(1)(F), substituted "taxable period" for "correction period".
Subsec. (i)(2). Pub. L. 96–596, §2(a)(2)(E), substituted provision defining taxable period as the period beginning with the date on which the taxable expenditure occurs and ending on the earlier of the date of mailing a notice of deficiency with respect to the tax imposed by subsec. (a)(1) of this section under section 6212 of this title or the date on which the tax imposed by subsec. (a)(1) of this section is assessed for provision defining correction period as the period beginning with the date on which the taxable expenditure occurs and ending 90 days after the date of mailing of a notice of deficiency with respect to the tax imposed by subsec. (b)(1) of this section under section 6212 of this title, extended by any period in which the deficiency cannot be assessed under section 6213(a) of this title and any other period which the Secretary determines to be reasonable and necessary, except that such determination not be made with respect to any taxable expenditure within the meaning of pars. (1), (2), (3), or (4) of subsec. (d) of this section because of any action by an appropriate State officer.
1976—Subsec. (g). Pub. L. 94–455, §§1901(b)(8)(H), 1906(b)(13)(A), struck out in provisions preceding par. (1) "or his delegate" after "Secretary" and substituted in par. (1) "educational organization described in section 170(b)(1)(A)(ii)" for "educational institution described in section 151(e)(4)".
Subsecs. (h), (i). Pub. L. 94–455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary" wherever appearing.
Amendment by section 1212(e) of Pub. L. 109–280 applicable to taxable years beginning after Aug. 17, 2006, see section 1212(f) of Pub. L. 109–280, set out as a note under section 4941 of this title.
Amendment by section 1244(b) of Pub. L. 109–280 applicable to distributions and expenditures after Aug. 17, 2006, see section 1244(c) of Pub. L. 109–280, set out as a note under section 4942 of this title.
Pub. L. 98–369, div. A, title III, §302(c)(2), July 18, 1984, 98 Stat. 781, provided that: "The amendment made by subsection (b) [amending this section] shall apply to grants made after December 31, 1984, in taxable years ending after such date."
Applicability of subsecs. (d)(4) and (h) of this section to grants to private foundations described in section 101(l)(C)(3) of Pub. L. 91–172, see section 101(l)(5) of Pub. L. 91–172, set out as a note under section 4940 of this title.
§4946. Definitions and special rules
For purposes of this subchapter, the term "disqualified person" means, with respect to a private foundation, a person who is—
(C) an owner of more than 20 percent of—
(H) only for purposes of section 4943, a private foundation—
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).
(1) an elective public office in the executive or legislative branch of the Government of the United States,
(2) an office in the executive or judicial branch of the Government of the United States, appointment to which was made by the President,
(3) a position in the executive, legislative, or judicial branch of the Government of the United States—
(A) which is listed in schedule C of rule VI of the Civil Service Rules, or
(B) the compensation for which is equal to or greater than the lowest rate of basic pay for the Senior Executive Service under section 5382 of title 5, United States Code,
(4) a position under the House of Representatives or the Senate of the United States held by an individual receiving gross compensation at an annual rate of $15,000 or more,
(5) an elective or appointive public office in the executive, legislative, or judicial branch of the government of a State, possession of the United States, or political subdivision or other area of any of the foregoing, or of the District of Columbia, held by an individual receiving gross compensation at an annual rate of $20,000 or more,
(6) a position as personal or executive assistant or secretary to any of the foregoing, or
(Added Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 515; amended Pub. L. 95–227, §4(c)(2)(B), Feb. 10, 1978, 92 Stat. 22; Pub. L. 98–369, div. A, title III, §306(a), July 18, 1984, 98 Stat. 784; Pub. L. 99–514, title XVI, §1606(a), Oct. 22, 1986, 100 Stat. 2771; Pub. L. 105–206, title I, §1101(c)(1), July 22, 1998, 112 Stat. 696; Pub. L. 106–554, §1(a)(7) [title III, §319(16)], Dec. 21, 2000, 114 Stat. 2763, 2763A-647.)
2000—Subsec. (c)(3)(B). Pub. L. 106–554 substituted "the lowest rate of basic pay for the Senior Executive Service under section 5382" for "the lowest rate of compensation prescribed for GS–16 of the General Schedule under section 5332".
1998—Subsec. (c)(7). Pub. L. 105–206 added par. (7).
1986—Subsec. (c)(5). Pub. L. 99–514 substituted "$20,000" for "$15,000".
1984—Subsec. (d). Pub. L. 98–369 amended subsec. (d) generally, substituting references to children, grandchildren, and great grandchildren for references to lineal descendants in two places.
1978—Subsecs. (a)(1), (b). Pub. L. 95–227 substituted "subchapter" for "chapter".
Pub. L. 99–514, title XVI, §1606(b), Oct. 22, 1986, 100 Stat. 2771, provided that: "The amendment made by this section [amending this section] shall apply to compensation received after December 31, 1985."
Pub. L. 98–369, div. A, title III, §306(c), July 18, 1984, 98 Stat. 784, provided that: "The amendments made by this subsection [probably should be "section", amending this section and section 6104 of this title] shall take effect on January 1, 1985."
§4947. Application of taxes to certain nonexempt 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
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.
(Added Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 517; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105–34, title XV, §1530(c)(9), Aug. 5, 1997, 111 Stat. 1079; Pub. L. 107–16, title V, §542(e)(4), June 7, 2001, 115 Stat. 85; Pub. L. 108–357, title IV, §413(c)(30), Oct. 22, 2004, 118 Stat. 1509; Pub. L. 111–312, title III, §301(a), Dec. 17, 2010, 124 Stat. 3300.)
2010—Subsec. (a)(2)(A). Pub. L. 111–312 amended subsec. (a)(2)(A) to read as if amendment by Pub. L. 107–16, §542(e)(4), had never been enacted. See 2001 Amendment note below.
2004—Subsecs. (a)(1), (2), (b)(3). Pub. L. 108–357 struck out "556(b)(2)," after "545(b)(2)," wherever appearing.
2001—Subsec. (a)(2)(A). Pub. L. 107–16, §542(e)(4), inserted "642(c)," after "170(f)(2)(B),".
Amendment by Pub. L. 107–16 applicable to deductions for taxable years beginning after Dec. 31, 2009, see section 542(f)(3) of Pub. L. 107–16, set out as a note under section 121 of this title.
§4948. Application of taxes and denial of exemption with respect to 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.
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
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.
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.
(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).
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 Pub. L. 91–172, title I, §101(b), Dec. 30, 1969, 83 Stat. 518; amended Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 108–357, title IV, §413(c)(30), Oct. 22, 2004, 118 Stat. 1509.)
2004—Subsec. (c)(4). Pub. L. 108–357 struck out "556(b)(2)," after "545(b)(2)," in introductory provisions.
1976—Subsec. (c). Pub. L. 94–455 struck out "or his delegate" after "Secretary" wherever appearing.