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the second or any succeeding tax year

determined on the day during the tax

For a partnership (including a limited

after the tax year in connection with

year when they were the largest.

partnership) or joint venture, the term

which income remains undistributed.

“profits interest” should be substituted

If the foundation keeps the excess

for “voting stock.” For any

Use the 2007 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 2006 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 2007. 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

undistributed income:

business holdings during the correction

Nonvoting stock. Corporate equity

•

For any tax year it is an operating

period, the additional tax will not be

interests that do not have voting power

foundation (as defined in section

assessed or, if assessed, will be abated

should be classified as nonvoting stock.

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

and if collected, will be credited or

Evidences of indebtedness (including

section 4942(j)(5)), or

refunded. For information on the

convertible indebtedness), warrants,

•

To the extent it did not distribute an

correction period, go to

and other options or rights to acquire

amount solely because of an incorrect

gov/irm/part7/ch12s14.

stock should not be considered equity

valuation of assets, provided the

html#d0e114882.

interests. See Regulations section

foundation satisfies the requirements of

53.4943-3(b)(2).

Business enterprise. In general, this

section 4942(a)(2), or

means the active conduct of a trade or

•

For any year for which the initial tax

For a partnership (including a limited

business, including any activity

was previously assessed or a notice of

partnership) or joint venture, the term

regularly conducted to produce income

deficiency was issued.

“capital interest” should be substituted

from selling goods or performing

for “nonvoting stock.” For any

Do not complete Schedule B for any

services, that is an unrelated trade or

unincorporated business that is not a

year for which any of the above

business described in section 513.

partnership, joint venture, or sole

provisions apply to the undistributed

The term “business enterprise” does

proprietorship, references to nonvoting

income.

not include a functionally related

stock do not apply for computation of

business as defined in section

permitted holdings. See Regulations

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

section 53.4943-3(c)(4).

Schedule C—Initial Tax

holdings do not include program-related

investments (such as investments in

Attribution of business holdings. In

on Excess Business

small businesses in economically

determining the holdings in a business

Holdings (Section 4943)

depressed areas or in corporations to

enterprise of either a private foundation

assist in neighborhood renovations) as

or a disqualified person, any stock or

defined in section 4944(c) and related

General Instructions

other interest owned directly or

regulations. Also, business enterprise

indirectly by or for a corporation,

Private foundations are generally not

does not include a trade or business at

partnership, estate, or trust is

permitted to hold more than a 20%

least 95% of the gross income of which

considered owned proportionately by or

interest in an unrelated business

comes from passive sources. Log on to

for its shareholders, partners, or

enterprise. They may be subject to an

gov/irm/part7/ch12s14.

beneficiaries. In general, this rule does

excise tax on the amount of any excess

html#d0e114882.

not apply to certain income interests or

holdings. For purposes of section 4943,

remainder interests of a private

Excess business holdings. Excess

donor advised funds and certain

foundation in a split-interest trust

business holdings is the amount of

supporting organizations are

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

stock or other interest in a business

considered private foundations. For

Regulations section 53.4943-8.

enterprise that the foundation would

more information on the applicability of

Schedule C to such organizations, see

have to dispose of to a person other

Taxable period. The taxable period

than a disqualified person in order for

General rules on the permitted holdings

begins on the first day the foundation

the foundation’s remaining holdings in

of donor advised funds and certain

has excess business holdings and ends

the enterprise to be permitted holdings

supporting organizations in a business

on the earliest of:

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

enterprise on page 8.

•

The mailing date of a notice of

irs.gov/irm/part7/ch12s14.

Requirement. If you answered “Yes”

deficiency, under section 6212, in

html#d0e114882 for more information.

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

connection with the initial tax on excess

3b; Form 990, Part VI, question 89g; or

Sole proprietorships. In general, a

business holdings related to those

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

private foundation may not have any

holdings,

•

complete a Schedule C for each

permitted holdings in a business

The date the excess is eliminated, or

business enterprise in which the

enterprise that is a sole proprietorship.

•

The date the initial tax on excess

For exceptions, go to

foundation had excess business

business holdings related to those

gov/irm/part7/ch12s14.

holdings for its tax year beginning in

holdings is assessed.

html#d0e114882. For a definition of

2007.

sole proprietorship, see Regulations

When a notice of deficiency is not

Taxes. A private foundation that has

section 53.4943-10(e).

mailed because the restrictions on

excess holdings in a business

assessment and collection are waived

enterprise may become liable for an

Corporate voting stock. This stock

or because the deficiency is paid, the

excise tax based on the amount of

entitles a person to vote for the election

date of filing the waiver or the date of

holdings. The initial tax is 10% of the

of directors. Treasury stock and stock

paying the tax, respectively, will be

value of the excess holdings and is

that is authorized but unissued is not

treated as the end of the taxable

imposed on the last day of each tax

voting stock for these purposes. See

period. See Regulations section

year that ends during the taxable

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

53.4943-9.

period. The excess holdings are

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

-7-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2007 Page 7

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