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business holdings related to those

in the preceding paragraph. See

During the second phase (the

holdings,

sections 4943(c)(2) and 4943(c)(3).

15-year period after the first phase), if

•

The date the excess is eliminated, or

the foundation’s disqualified persons

•

If a private foundation and all

The date the initial tax on excess

hold more than 2% of the enterprise’s

disqualified persons together had

business holdings related to those

voting stock, the foundation will be

holdings in a business enterprise of

holdings is assessed.

liable for tax if the foundation holds

more than 20% of the voting stock on

more than 25% of the voting stock or if

When a notice of deficiency is not

May 26, 1969, substitute that

the foundation and its disqualified

mailed because the restrictions on

percentage for 20% and for 35% (if the

persons together hold more than 50%

assessment and collection are waived

holding is greater than 35%), using the

of the voting stock.

or because the deficiency is paid, the

principles of section 4943(c)(4) that

date of filing the waiver or the date of

apply. However, the percentage

However, during the second phase,

paying the tax, respectively, will be

substituted may not be more than 50%.

if a foundation’s disqualified persons

treated as the end of the taxable

purchase voting stock in a business

period. See Regulations section

The percentage substituted under

enterprise after July 18, 1984, causing

53.4943-9.

the preceding paragraph is (a) subject

the combined holdings of the

to reductions and limitations (see

disqualified persons to exceed 2% of

Exceptions to Tax on Excess

sections 4943(c)(4)(A)(ii) and

the enterprise’s voting stock, the

Business Holdings

4943(c)(4)(D)) and (b) applicable, both

foundation has 5 years to reduce its

in connection with the voting stock and,

2% De minimis rule. A private

holdings in the enterprise to below its

separately, in connection with the value

foundation will not be treated as having

second phase limit before the increase

of all outstanding shares of all classes

excess business holdings in any

will be treated as held by the

of stock (see section 4943(c)(4)(A)(iii)).

enterprise in which it, together with

foundation. See sections 4943(c)(4)(D)

related foundations as described in the

and 4943(c)(6).

Interests held by a private

instructions for Form 990-PF (under the

foundation (other than donor

The first-phase periods may be

definition for “disqualified person” in the

advised funds and supporting

suspended pending the outcome of any

General Instructions) owns not more

organizations) on May 26, 1969. For

judicial proceeding the private

than 2% of the voting stock and not

private foundations, other than donor

foundation brings regarding reform or

more than 2% in value of all

advised funds and supporting

other procedure to excuse it from

outstanding shares of all classes of

organizations considered to be private

compliance with its governing

stock.

foundations for purposes of section

instrument or similar instrument in

Disposition of excess business

4943, that had business holdings on

effect on May 26, 1969. See section

holdings within 90 days. Generally,

May 26, 1969 (or holdings acquired by

4943(c)(4)(C) and Regulations section

when a private foundation acquires

trust or will as described below), that

53.4943-4.

excess business holdings other than as

were more than the current limits

a result of purchase by the foundation

Holdings acquired by trust or will.

permit, there are transitional rules that

(such as an acquisition by a disqualified

Holdings acquired under the terms of a

permit the foundation to dispose of the

person), the foundation will not be

trust that was irrevocable on May 26,

excess over time without being subject

taxed on those excess holdings if it

1969, or under the terms of a will

to the tax on excess business holdings.

disposes of enough of them so that it

executed by that date, are treated as

During the first phase, no excess

no longer has an excess. To avoid the

held by the foundation on May 26,

business holdings tax was imposed on

tax, the disposition must take place

1969, except that the 15- and 10-year

a private foundation for interests held

within 90 days from the date the

periods of the first phase for the

since May 26, 1969, if the foundation

foundation knew, or had reason to

holdings start on the date of distribution

had excess holdings on that date. The

know, of the event that caused it to

under the trust or will instead of on May

first phase is:

have excess business holdings. That

26, 1969. See section 4943(c)(5) and

•

90-day period will be extended to

Regulations section 53.4943-5. See

A 20-year period beginning on May

include the period during which federal

section 4943(d)(1) and Regulations

26, 1969, if on that date the foundation

or state securities laws prevent the

section 53.4943-8 for rules relating to

and all disqualified persons held more

foundation from disposing of those

constructive holdings held in a

than a 95% voting interest in the

excess business holdings. See

corporation, partnership, estate, or trust

enterprise (the 20-year first phase

Regulations section 53.4943-2(a).

for the benefit of the foundation.

expired on May 25, 1989);

•

General rules on the permitted

A 15-year period beginning on May

Gifts or bequests of business

holdings of a private foundation in a

26, 1969, if on that date the foundation

holdings. Except as provided in the

business enterprise. No excess

and all disqualified persons together

exception regarding Holdings acquired

business holdings tax is imposed (a) if

had more than a 75% voting stock

by trust or will (discussed above), there

a private foundation and all disqualified

interest (or more than a 75% profits or

is a special rule for private foundations

persons together hold no more than

beneficial interest of any

that have excess business holdings as

20% of the voting stock of a business

unincorporated business), or more than

a result of a change in holdings after

enterprise or (b) on nonvoting stock, if

a 75% interest in the value of all

May 26,1969. This rule applies if the

all disqualified persons together do not

outstanding shares of all classes of

change is other than by purchase by

own more than 20% of the voting stock

stock (or more than a 75% capital

the foundation or by disqualified

of the business enterprise.

interest of a partnership or joint

persons (such as through gift or

venture) in the enterprise (the 15-year

If the private foundation and all

bequest) and the additional holdings

first phase expired on May 25, 1984);

disqualified persons together do not

result in the foundation having excess

and

own more than 35% of the enterprise’s

business holdings. In that case, the

•

voting stock, and effective control is in

A 10-year period beginning on May

foundation has 5 years to reduce these

one or more persons who are not

26, 1969, in all other cases in which the

holdings or those of its disqualified

disqualified persons in connection with

foundation had excess business

persons to permissible levels to avoid

the foundation, then 35% may be

holdings on May 26, 1969. The 10-year

the tax. See section 4943(c)(6) and

substituted for 20% wherever it appears

first phase expired on May 25, 1979.

Regulations section 53.4943-6.

-8-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2009 Page 8

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