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In determining the holdings of a

For organization managers, the tax

Managers of tax favored

business enterprise, any stock or other

is the lesser of 10% of the excess

TIP

retirement plans, individual

interest owned directly or indirectly shall

benefit or $20,000. This tax is

retirement arrangements, and

apply.

computed on each transaction.

savings arrangements described in

sections 401(a), 403(a), 403(b), 529,

For donor advised funds,

Part II. Enter in column (a) the names

457(b), 408(a), 220(d), 408(b), 530, or

sponsoring organizations, and

of all disqualified persons who took part

223(d) must report and pay tax due

in the excess benefit transactions. If

certain supporting organization

under 4965(a)(2) on Form 5330.

more than one disqualified person took

transactions occurring after August

part in an excess benefit transaction,

17, 2006. The following persons will

Prohibited tax shelter transaction.

each is individually liable for the entire

be considered disqualified persons

In general, a prohibited tax shelter

tax on the transaction. But the

along with certain family members and

transaction means any listed

35% controlled entities associated with

disqualified persons who are liable for

transaction (including a subsequently

them:

the tax may prorate the payment

listed transaction) and any prohibited

•

among themselves. Enter in column (c)

reportable transaction.

Donors of donor advised funds,

•

the tax to be paid by each disqualified

Investment advisors of sponsoring

Listed transaction. A listed

person.

organizations; and

transaction includes any transaction

•

Carry the total amount in column (d)

Disqualified persons of a section

that is the same as or substantially

for each disqualified person to page 1,

509(a)(3) supporting organization for

similar to one of the types of

Part II-A, column (h).

the organizations that organization

transactions that the IRS has

supports.

determined to be a tax avoidance

Part III. Enter in column (a) the names

transaction. These transactions are

of all managers who knowingly took

For certain supporting

identified by notice, regulation, or other

part in the excess benefit transactions

organization transactions occurring

form of published guidance as a listed

listed in Part I. If more than one

after July 25, 2006. Substantial

transaction. For existing guidance see

manager knowingly took part in an

contributors to supporting organizations

excess benefit transaction, each is

Notice 2009-59, 2009-31 I.R.B. 170.

will also be considered disqualified

individually liable for the entire tax in

persons along with their family

For updates to this list go to the IRS

connection with the transaction. But the

members and 35% controlled entities.

web page at

managers liable for the tax may prorate

Donor advised fund. See the

corporations and click on Abusive Tax

the payment among themselves. Enter

Shelters and Transactions. The listed

Schedule K instructions for a definition

in column (c) the tax to be paid by each

transactions in the above notices and

of donor advised fund.

organization manager.

rulings will also be periodically updated

Investment advisor. Investment

Carry the total amount in column (d)

in future issues of the Internal Revenue

advisor means for any sponsoring

for each manager to page 1, Part II-A,

Bulletin.

organization, any person compensated

column (h).

by such organization (but not an

Subsequently listed transaction

employee of such organization) for

A subsequently listed transaction is a

managing the investment of, or

transaction that is identified in

Schedule J—Taxes on

providing investment advice for assets

published guidance as a listed

maintained in donor advised funds

transaction after the entity has entered

Being a Party to

maintained by such sponsoring

into the transaction and that was not a

Prohibited Tax Shelter

organization.

confidential transaction or transaction

with contractual protection at the time

Sponsoring organization. See the

Transactions (Section

the entity entered into the transaction.

Schedule K instructions for a definition

4965)

of sponsoring organization.

Prohibited reportable transaction.

A prohibited reportable transaction is

Substantial contributor. In

General Instructions

any confidential transaction or any

general, a substantial contributor

transaction with contractual protection

means any person who contributed or

Requirement.

that is a reportable transaction. See

bequeathed an aggregate of more than

1. Complete Schedule J if you are

Regulations sections 1.6011-4(b)(3)

$5,000 to the organization, if that

an entity described in section 501(c),

and (4), and the Instructions for Form

amount is more than 2% of the total

501(d), or 170(c) (other than the United

8886-T, Disclosure by Tax-Exempt

contributions and bequests received by

States) or an Indian tribal government

Entity Regarding Prohibited Tax Shelter

the organization before the end of the

(within the meaning of section

Transaction for more information.

tax year of the organization in which the

7701(a)(40)) and you received

contribution or bequest is received by

Allocation of net income and

proceeds from or have net income

the organization from such person. A

proceeds to a tax year. The net

attributable to a prohibited tax shelter

substantial contributor includes the

income and proceeds attributable to a

transaction (PTST).

grantor of a trust.

prohibited tax shelter transaction must

2. Complete Schedule J if you are

be allocated to a particular tax year in a

an entity manager of such an entity

manner consistent with the entity’s

who approved the entity as (or

Specific Instructions

established method of accounting for

otherwise caused the entity to be) a

federal income tax purposes. If an

Part I. List each excess benefit

party to a PTST at any time during the

entity has not established a method of

transaction in Part I, column (c). Enter

tax year and who knew (or had reason

accounting for federal income tax

the date of the transaction in column (b)

to know) that the transaction is a PTST.

purposes, the entity must use the cash

and the amount of the excess benefit in

receipts and disbursements method to

column (d). Compute the tax on the

See the following guidance and any

determine the amount and timing of net

excess benefit for disqualified persons

future guidance for details.

•

income and proceeds attributable to a

and enter it in column (e). Compute any

Notice 2006-65, 2006-31 I.R.B. 102

•

prohibited tax shelter transaction.

tax on the excess benefit for

Notice 2007-18, 2007-9 I.R.B. 608

•

organization managers and enter the

T.D. 9334, 2007-34 I.R.B. 382

If an entity has an established

•

amount in column (f).

T.D. 9335, 2007-34 I.R.B. 380

method of accounting other than the

-13-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2009 Page 13

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