Instructions For Form 5227 (Page 7 of 8) in pdf

Part VI-A

4941 unless one of the exceptions

interest in a business enterprise. The

described in Pub. 578 applies.

20-year grace period expired on May 25,

1989. It applied if the combined holdings

Line 1

The terms “disqualified person” and

were more than 95%.

“foundation manager” are defined on

A split-interest trust must have a

page 1.

In general, a “business enterprise”

governing instrument that requires the

means the active conduct of a trade or

trust to act or refrain from acting so as not

Line 1b

business, including any activity that is

to engage in an act of self-dealing under

If you answered “Yes” to any of the

regularly conducted to produce income

section 4941 or subject it to the excise

questions in 1a, you should answer “Yes”

from selling goods or performing services,

taxes under section 4943, 4944, or 4945.

to 1b unless all of the acts engaged in

that is an unrelated trade or business

The trust may satisfy the requirements

were “excepted” acts. Excepted acts are

under section 513.

either by express language in its

described in Regulations sections

governing instrument or by the operation

The term “business enterprise” does

53.4941(d)-3 and 4 or appear in Notices

of state law which imposes the above

not include:

published in the Internal Revenue

requirements on the trust or treats these

1. A functionally related business,

Bulletin, relating to disaster assistance. At

requirements as being contained in the

defined in section 4942(j)(4) or

the time this form went to print, there

governing instrument. If a trust claims it

2. A trade or business if at least 95%

were no notices currently in effect relating

satisfies the requirements of section

of its gross income is derived from

to disaster assistance for “excepted” acts

508(e) by operation of state law, the

passive sources.

to self-dealing.

provisions of state law must effectively

See section 4943(d)(3) for additional

impose the requirements of section

Line 2

items that are included in gross income

508(e) on the trust.

Under section 4947(b)(3)(A), a

from passive sources.

split-interest trust is not subject to the

If, however, the state law does not

apply to a governing instrument which

excess business holdings tax (section

Line 3a

4943) or tax on investments that

contains mandatory directions conflicting

A private foundation is not treated as

jeopardize the trust’s charitable purpose

with any of its requirements and the trust

having excess business holdings in any

(section 4944) if all the income interest

has such mandatory directions in its

enterprise if, together with related

(and none of the remainder interest) of

governing instrument, then the trust has

foundations, it owns 2% or less of the

not satisfied the requirements of section

the trust is devoted solely to one or more

voting stock and 2% or less in value of all

of the charitable purposes described in

508(e) by the operation of that state law.

outstanding shares of all classes of stock.

section 170(c)(2)(B). In addition, all

A similar exception applies to a beneficial

Part VI-B

amounts in the trust for which a charitable

or profits interest in any business

contribution deduction was allowed under

enterprise that is a trust or partnership.

Complete Part VI-B to determine whether

section 170 (for individual taxpayers) or

the trust has complied with the applicable

Line 4

similar Code section for personal holding

Chapter 42 rules relating to private

companies, foreign personal holding

In general, an investment which

foundations and whether the trust,

companies, estates or trusts (including a

jeopardizes any of the charitable

trustee, disqualified persons, or some

deduction for estate or gift tax purposes),

purposes of a trust is one in which a

combination of these, may be liable for

cannot have a total value of more than

foundation manager did not exercise

foundation excise taxes. These excise

60% of the total FMV of all amounts in the

ordinary business care in making the

taxes include:

trust.

•

investment to provide for the long- and

The section 4941 tax on self-dealing

Under section 4947(b)(3)(B), a

short-term financial needs of the trust in

between the trust and “disqualified

carrying out its charitable purposes.

split-interest trust is not subject to the

persons.”

•

section 4943 or 4944 taxes if a deduction

The section 4943 tax on excess

For more information on investments

was allowed under section 170 (and

business holdings.

which jeopardize charitable purposes, see

•

related provisions for other entities) for

The section 4944 tax on investments

Regulations section 53.4944-1.

amounts payable under the terms of the

that jeopardize the trust’s charitable

Line 5

trust to every remainder beneficiary but

purposes.

•

not to any income beneficiary.

Grants by a trust to a public charity are

The section 4945 tax on taxable

not taxable expenditures if the grants are

expenditures.

Line 3

not earmarked for use for any of the

The split-interest trust pays these

In general, excess business holdings are

activities described on lines 5a(1) – (5)

taxes on Form 4720. For a detailed

the amount of stock or other interest in a

and there is no oral or written agreement

explanation of each of these taxes, see

business enterprise that the trust must

by which the trust may cause the public

the Instructions for Form 4720.

dispose of to a person other than a

charity to engage in any such prohibited

The excise taxes on private

disqualified person in order for the trust’s

activity or to select the grant recipient.

foundations do not apply to any amounts:

remaining holdings in the enterprise to be

Grants made to exempt operating

permitted holdings.

1. Payable under the terms of the

foundations (as defined in section

trust to income beneficiaries, unless a

In general, the combined permitted

4940(d)(2)) are not subject to the

deduction was allowed under section

holdings of a trust and all disqualified

expenditure responsibility provisions of

170(f)(2)(B), 2055(e)(2)(B), or

persons may not be more than 20% of the

section 4945. If the trust made grants to

2522(c)(2)(B);

voting power (or beneficial or profits

such organizations, you do not have to

2. In trust for which a charitable

interest, in the case of a trust or a

file Form 4720 for those grants. See the

contribution deduction was not allowed

partnership) in any business enterprise.

section 4945 regulations for more

under any provision of the Code, if the

There were grace periods of 15 or 20

information.

amounts are segregated (as defined in

years for certain excess business

section 4947(a)(3)) from amounts for

Line 5b

holdings that the trust held on May 26,

which a deduction was allowable; or

1969. These holdings were considered

If you answered “Yes” to any of the

3. Transferred in trust before May 27,

held by disqualified persons rather than

questions in 5a, you should answer “Yes”

1969.

the trust during the grace period. The

to 5b unless all of the transactions

15-year grace period expired on May 25,

engaged in were “excepted” transactions.

Line 1

1984. This period applied when a trust

Excepted transactions are described in

The activities listed on lines 1a(1) – (6) are

and all disqualified persons together held

Regulations section 53.4945 or appear in

considered self-dealing under section

75% or more (but not more than 95%)

Notices published in the Internal Revenue

-7-

Instructions For Form 5227 Page 7

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