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themselves. Enter in column (c) the tax

Requirement. If you answered “Yes”

irs.gov/irm/part7/irm_07-027-017.

to be paid by each foundation manager.

to Form 990-PF, Part VII-B, question

html#d0e179 for more information.

3b; Form 990, Part V, question 8; or

Sole proprietorships. In general, a

Carry the total amount in column (d)

Form 5227, Part VI-B, question 77b, or

private foundation may not have any

for each foundation manager to page 1,

otherwise had excess business

permitted holdings in a business

Part II-A, column (c).

holdings, complete a Schedule C for

enterprise that is a sole proprietorship.

each business enterprise in which the

For exceptions, go to

foundation had excess business

gov/irm/part7/irm_07-027-017.

Schedule B—Initial Tax

holdings for its tax year beginning in

html#d0e77. For a definition of sole

2009.

on Undistributed Income

proprietorship, see Regulations section

53.4943-10(e).

Taxes. A private foundation that has

(Section 4942)

excess holdings in a business

Corporate voting stock. This stock

enterprise may become liable for an

Complete Schedule B if you answered

entitles a person to vote for the election

excise tax based on the amount of

“Yes” to Form 990-PF, Part VII-B,

of directors. Treasury stock and stock

holdings. The initial tax is 10% of the

question 2b.

that is authorized but unissued is not

value of the excess holdings and is

voting stock for these purposes. See

An initial excise tax of 30% is

imposed on the last day of each tax

Regulations sections 53.4943-3(b)(1)(ii)

imposed on a private foundation’s

year that ends during the taxable

and 53.4943-3(b)(2)(ii).

undistributed income on the first day of

period. The excess holdings are

For a partnership (including a limited

the second or any succeeding tax year

determined on the day during the tax

partnership) or joint venture, the term

after the tax year in connection with

year when they were the largest.

“profits interest” should be substituted

which income remains undistributed.

If the foundation keeps the excess

for “voting stock.” For any

Use the 2009 Form 4720 to report

business holdings after the initial tax

unincorporated business enterprise that

the initial tax on undistributed income

has been imposed, it becomes liable for

is not a partnership, joint venture, or

for tax years beginning in 2008 or

an additional tax of 200% of the

sole proprietorship, the term “beneficial

earlier that remains undistributed at the

remaining excess business holdings

interest” should be substituted for

end of the foundation’s current tax year

unless it disposes of them within the

“voting stock.” See Regulations section

beginning in 2009. The initial tax will

taxable period. However, if the

53.4943-3(c).

not apply to a private foundation’s

foundation disposes of its excess

Nonvoting stock. Corporate equity

undistributed income:

business holdings during the correction

•

interests that do not have voting power

For any tax year it is an operating

period, the additional tax will not be

should be classified as nonvoting stock.

foundation (as defined in section

assessed or, if assessed, will be abated

Evidences of indebtedness (including

4942(j)(3) and related regulations or in

and if collected, will be credited or

convertible indebtedness), warrants,

section 4942(j)(5)), or

refunded. For information on the

•

and other options or rights to acquire

To the extent it did not distribute an

correction period, go to

stock should not be considered equity

amount solely because of an incorrect

gov/irm/part7/ch12s14.

interests. See Regulations section

valuation of assets, provided the

html#d0e114882.

53.4943-3(b)(2).

foundation satisfies the requirements of

Business enterprise. In general, this

section 4942(a)(2), or

For a partnership (including a limited

•

means the active conduct of a trade or

For any year for which the initial tax

partnership) or joint venture, the term

business, including any activity

was previously assessed or a notice of

“capital interest” should be substituted

regularly conducted to produce income

deficiency was issued.

for “nonvoting stock.” For any

from selling goods or performing

unincorporated business that is not a

Do not complete Schedule B for any

services, that is an unrelated trade or

partnership, joint venture, or sole

year for which any of the above

business described in section 513.

proprietorship, references to nonvoting

provisions apply to the undistributed

stock do not apply for computation of

The term “business enterprise” does

income.

permitted holdings. See Regulations

not include a functionally related

section 53.4943-3(c)(4).

business as defined in section

4942(j)(4). In addition, business

Attribution of business holdings. In

Schedule C—Initial Tax

holdings do not include program-related

determining the holdings in a business

investments (such as investments in

on Excess Business

enterprise of either a private foundation

small businesses in economically

or a disqualified person, any stock or

Holdings (Section 4943)

depressed areas or in corporations to

other interest owned directly or

assist in neighborhood renovations) as

indirectly by or for a corporation,

defined in section 4944(c) and related

General Instructions

partnership, estate, or trust is

regulations. Also, business enterprise

considered owned proportionately by or

Private foundations are generally not

does not include a trade or business at

for its shareholders, partners, or

permitted to hold more than a 20%

least 95% of the gross income of which

beneficiaries. In general, this rule does

interest in an unrelated business

comes from passive sources. Log on to

not apply to certain income interests or

enterprise. They may be subject to an

gov/irm/part7/

remainder interests of a private

excise tax on the amount of any excess

irm_07-027-017.html#d0e77.

foundation in a split-interest trust

holdings. For purposes of section 4943,

described in section 4947(a)(2). See

donor advised funds and certain

Excess business holdings. Excess

Regulations section 53.4943-8.

supporting organizations are

business holdings is the amount of

considered private foundations. For

stock or other interest in a business

Taxable period. The taxable period

more information on the applicability of

enterprise that the foundation would

begins on the first day the foundation

Schedule C to such organizations, see

have to dispose of to a person other

has excess business holdings and ends

General rules on the permitted holdings

than a disqualified person in order for

on the earliest of:

•

of donor advised funds and certain

the foundation’s remaining holdings in

The mailing date of a notice of

supporting organizations in a business

the enterprise to be permitted holdings

deficiency, under section 6212, in

enterprise on page 9.

(section 4943(c)(1)). Go to

connection with the initial tax on excess

-7-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2009 Page 7

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