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

Part VI-A and B—

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

There were grace periods of 15 or 20

which a deduction was allowable; or

years for certain excess business

Statements Regarding

3. Transferred in trust before May 27,

holdings that the trust held on May 26,

1969.

1969. These holdings were considered

Activities

held by disqualified persons rather than

Answer every question in these sections.

the trust during the grace period. The

Line 1

If a line does not apply, enter “N/A.”

15-year grace period expired on May 25,

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

1984. This period applied when a trust

considered self-dealing under section

Part VI-A

and all disqualified persons together held

4941 unless one of the exceptions

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

described in Pub. 578 applies.

Line 1

interest in a business enterprise. The

20-year grace period expired on May 25,

The terms “disqualified person” and

A split-interest trust must have a

1989. It applied if the combined holdings

“foundation manager” are defined on

governing instrument that requires the

were more than 95%.

page 1.

trust to act or refrain from acting so as not

to engage in an act of self-dealing under

In general, a “business enterprise”

Line 1b

section 4941 or subject it to the excise

means the active conduct of a trade or

If you answered “Yes” to any of the

taxes under section 4943, 4944, or 4945.

business, including any activity that is

questions in 1a, you should answer “Yes”

The trust may satisfy the requirements

regularly conducted to produce income

to 1b unless all of the acts engaged in

either by express language in its

from selling goods or performing services,

were “excepted” acts. Excepted acts are

governing instrument or by the operation

that is an unrelated trade or business

described in Regulations sections

of state law which imposes the above

under section 513.

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

requirements on the trust or treats these

The term “business enterprise” does

published in the Internal Revenue

requirements as being contained in the

not include:

Bulletin, relating to disaster assistance. At

governing instrument. If a trust claims it

the time this form went to print, there

1. A functionally related business,

satisfies the requirements of section

defined in section 4942(j)(4) or

were no notices currently in effect relating

508(e) by operation of state law, the

to disaster assistance for “excepted” acts

2. A trade or business if at least 95%

provisions of state law must effectively

to self-dealing.

of its gross income is derived from

impose the requirements of section

passive sources.

508(e) on the trust.

Line 2

See section 4943(d)(3) for additional

If, however, the state law does not

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

items that are included in gross income

apply to a governing instrument which

split-interest trust is not subject to the

from passive sources.

contains mandatory directions conflicting

excess business holdings tax (section

with any of its requirements and the trust

4943) or tax on investments that

Line 3a

has such mandatory directions in its

jeopardize the trust’s charitable purpose

A private foundation is not treated as

governing instrument, then the trust has

(section 4944) if all the income interest

having excess business holdings in any

not satisfied the requirements of section

(and none of the remainder interest) of

enterprise if, together with related

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

the trust is devoted solely to one or more

foundations, it owns 2% or less of the

of the charitable purposes described in

voting stock and 2% or less in value of all

Part VI-B

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

outstanding shares of all classes of stock.

amounts in the trust for which a charitable

Complete Part VI-B to determine whether

A similar exception applies to a beneficial

contribution deduction was allowed under

the trust has complied with the applicable

or profits interest in any business

section 170 (for individual taxpayers) or

Chapter 42 rules relating to private

enterprise that is a trust or partnership.

similar Code section for personal holding

foundations and whether the trust,

Line 4

companies, foreign personal holding

trustee, disqualified persons, or some

companies, estates or trusts (including a

combination of these, may be liable for

In general, an investment which

deduction for estate or gift tax purposes),

foundation excise taxes. These excise

jeopardizes any of the charitable

cannot have a total value of more than

taxes include:

purposes of a trust is one in which a

•

60% of the total FMV of all amounts in the

The section 4941 tax on self-dealing

foundation manager did not exercise

trust.

ordinary business care in making the

between the trust and “disqualified

persons.”

investment to provide for the long- and

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

•

The section 4943 tax on excess

short-term financial needs of the trust in

split-interest trust is not subject to the

business holdings.

carrying out its charitable purposes.

section 4943 or 4944 taxes if a deduction

•

The section 4944 tax on investments

was allowed under section 170 (and

For more information on investments

that jeopardize the trust’s charitable

related provisions for other entities) for

which jeopardize charitable purposes, see

purposes.

amounts payable under the terms of the

Regulations section 53.4944-1.

•

The section 4945 tax on taxable

trust to every remainder beneficiary but

expenditures.

Line 5

not to any income beneficiary.

The split-interest trust pays these

Grants by a trust to a public charity are

Line 3

taxes on Form 4720. For a detailed

not taxable expenditures if the grants are

explanation of each of these taxes, see

In general, excess business holdings are

not earmarked for use for any of the

the Instructions for Form 4720.

the amount of stock or other interest in a

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

business enterprise that the trust must

and there is no oral or written agreement

The excise taxes on private

dispose of to a person other than a

by which the trust may cause the public

foundations do not apply to any amounts:

disqualified person in order for the trust’s

charity to engage in any such prohibited

1. Payable under the terms of the

remaining holdings in the enterprise to be

activity or to select the grant recipient.

trust to income beneficiaries, unless a

permitted holdings.

deduction was allowed under section

Grants made to exempt operating

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

In general, the combined permitted

foundations (as defined in section

2522(c)(2)(B);

holdings of a trust and all disqualified

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

2. In trust for which a charitable

persons may not be more than 20% of the

expenditure responsibility provisions of

contribution deduction was not allowed

voting power (or beneficial or profits

section 4945. If the trust made grants to

under any provision of the Code, if the

interest, in the case of a trust or a

such organizations, you do not have to

amounts are segregated (as defined in

partnership) in any business enterprise.

file Form 4720 for those grants. See the

-7-

Instructions For Form 5227 Page 7

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