Instructions For Form 5227 (Page 9 of 15) in pdf

The terms “disqualified person” and “foundation

Parts VI-A and VI-B. Statements

manager” are defined on page 2.

Regarding Activities

Line 75b. If you answered “Yes” to any of the questions

in 75a, you should answer “Yes” to 75b unless all of the

Answer every question in these sections. If a line does

acts engaged in were “excepted” acts. Excepted acts are

not apply, enter “N/A.”

described in Regulations sections 53.4941(d)-3 and 4 or

Part VI-A

appear in Notices published in the Internal Revenue

Bulletin, relating to disaster assistance. At the time this

Line 73. A split-interest trust must have a governing

form went to print, there were no notices currently in

instrument that requires the trust to act or refrain from

effect relating to disaster assistance for “excepted” acts

acting so as not to engage in an act of self-dealing under

to self-dealing.

section 4941 or subject it to the excise taxes under

Line 76. Under section 4947(b)(3)(A), a split-interest

section 4943, 4944, or 4945. The trust may satisfy the

trust is not subject to the excess business holdings tax

requirements either by express language in its governing

(section 4943) or tax on investments that jeopardize the

instrument or by the operation of state law which imposes

trust’s charitable purpose (section 4944) if all the income

the above requirements on the trust or treats these

interest (and none of the remainder interest) of the trust

requirements as being contained in the governing

is devoted solely to one or more of the charitable

instrument. If a trust claims it satisfies the requirements

purposes described in section 170(c)(2)(B). In addition,

of section 508(e) by operation of state law, the provisions

all amounts in the trust for which a charitable contribution

of state law must effectively impose the requirements of

deduction was allowed under section 170 (for individual

section 508(e) on the trust.

taxpayers) or similar section for personal holding

If, however, the state law does not apply to a

companies, foreign personal holding companies, estates

governing instrument which contains mandatory

or trusts (including a deduction for estate or gift tax

directions conflicting with any of its requirements and the

purposes), cannot have a total value of more than 60% of

trust has such mandatory directions in its governing

the total FMV of all amounts in the trust.

instrument, then the trust has not satisfied the

Under section 4947(b)(3)(B), a split-interest trust is not

requirements of section 508(e) by the operation of that

subject to the section 4943 or 4944 taxes if a deduction

state law.

was allowed under section 170 (and related provisions

for other entities) for amounts payable under the terms of

Part VI-B

the trust to every remainder beneficiary but not to any

Complete Part VI-B to determine whether the trust has

income beneficiary.

complied with the applicable Chapter 42 rules relating to

Line 77. In general, excess business holdings are the

private foundations and whether the trust, trustee,

amount of stock or other interest in a business enterprise

disqualified persons, or some combination of these, may

that the trust must dispose of to a person other than a

be liable for certain foundation excise taxes. These

disqualified person in order for the trust’s remaining

excise taxes include:

holdings in the enterprise to be permitted holdings.

•

The section 4941 tax on self-dealing between the trust

In general, the combined permitted holdings of a trust

and “disqualified persons,”

and all disqualified persons may not be more than 20% of

•

The section 4943 tax on excess business holdings,

•

the voting power (or beneficial or profits interest, in the

The section 4944 tax on investments that jeopardize

case of a trust or a partnership) in any business

the trust’s charitable purposes, and

•

enterprise.

The section 4945 tax on taxable expenditures.

There were grace periods of 15 or 20 years for certain

The split-interest trust pays these taxes on Form 4720.

excess business holdings that the trust held on May 26,

For a detailed explanation of each of these taxes, see the

1969. These holdings were considered held by

Instructions for Form 4720.

disqualified persons rather than the trust during the grace

period. The 15-year grace period expired on May 25,

The excise taxes on private foundations do not apply

1984. This period applied when a trust and all disqualified

to any amounts:

persons together held 75% or more (but not more than

1. Payable under the terms of the trust to income

95%) interest in a business enterprise. The 20-year grace

beneficiaries, unless a deduction was allowed under

period expired on May 25, 1989. It applied if the

section 170(f)(2)(B), 2055(e)(2)(B), or 2522(c)(2)(B);

combined holdings were more than 95%.

2. In trust for which a charitable contribution deduction

In general, a business enterprise means the active

was not allowed under any provision of the Code, if the

conduct of a trade or business, including any activity that

amounts are segregated (as defined in section

is regularly conducted to produce income from selling

4947(a)(3)) from amounts for which a deduction was

goods or performing services, that is an unrelated trade

allowable; or

or business under section 513.

3. Transferred in trust before May 27, 1969.

The term “business enterprise” does not include:

Line 75. The activities listed on lines 75a(1) through (6)

1. A functionally related business, defined in section

are considered self-dealing under section 4941 unless

4942(j)(4), or

one of the exceptions described in sections

2. A trade or business if at least 95% of its gross

4941(d)(2)(D), (E), (F), or (G) applies. You may also

income is derived from passive sources.

access information about self-dealing at

charities/foundations/index.html and click on the link for

See section 4943(d)(3) for additional items that are

Life Cycle of a Private Foundation.

included in gross income from passive sources.

-9-

Instructions For Form 5227 Page 9

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