Looking for a Form 4720 Templates? Download it for free!

Exceptions to Tax on Excess

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

foundation has 5 years to reduce its

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

holdings in the enterprise to below its

Business Holdings

in connection with the voting stock and,

second phase limit before the increase

2% De minimis rule. A private

separately, in connection with the value

will be treated as held by the

foundation will not be treated as having

of all outstanding shares of all classes

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

excess business holdings in any

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

and 4943(c)(6).

enterprise in which it, together with

Interests held by a private

The first-phase periods may be

related foundations as described in the

foundation (other than donor

suspended pending the outcome of any

instructions for Form 990-PF (under the

advised funds and supporting

judicial proceeding the private

definition for “disqualified person” in the

organizations) on May 26, 1969. For

foundation brings regarding reform or

General Instructions) owns not more

private foundations, other than donor

other procedure to excuse it from

than 2% of the voting stock and not

advised funds and supporting

compliance with its governing

more than 2% in value of all

organizations considered to be private

instrument or similar instrument in

outstanding shares of all classes of

foundations for purposes of section

effect on May 26, 1969. See section

stock.

4943, that had business holdings on

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

Disposition of excess business

May 26, 1969 (or holdings acquired by

53.4943-4.

holdings within 90 days. Generally,

trust or will as described below), that

Holdings acquired by trust or will.

when a private foundation acquires

were more than the current limits

Holdings acquired under the terms of a

excess business holdings other than as

permit, there are transitional rules that

trust that was irrevocable on May 26,

a result of purchase by the foundation

permit the foundation to dispose of the

1969, or under the terms of a will

(such as an acquisition by a disqualified

excess over time without being subject

executed by that date, are treated as

person), the foundation will not be

to the tax on excess business holdings.

held by the foundation on May 26,

taxed on those excess holdings if it

During the first phase, no excess

1969, except that the 15- and 10-year

disposes of enough of them so that it

business holdings tax was imposed on

periods of the first phase for the

no longer has an excess. To avoid the

a private foundation for interests held

holdings start on the date of distribution

tax, the disposition must take place

since May 26, 1969, if the foundation

under the trust or will instead of on May

within 90 days from the date the

had excess holdings on that date. The

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

foundation knew, or had reason to

first phase is:

Regulations section 53.4943-5. See

know, of the event that caused it to

•

section 4943(d)(1) and Regulations

A 20-year period beginning on May

have excess business holdings. That

section 53.4943-8 for rules relating to

26, 1969, if on that date the foundation

90-day period will be extended to

constructive holdings held in a

and all disqualified persons held more

include the period during which federal

corporation, partnership, estate, or trust

than a 95% voting interest in the

or state securities laws prevent the

for the benefit of the foundation.

enterprise (the 20-year first phase

foundation from disposing of those

expired on May 25, 1989);

Gifts or bequests of business

excess business holdings. See

•

A 15-year period beginning on May

holdings. Except as provided in the

Regulations section 53.4943-2(a).

26, 1969, if on that date the foundation

exception regarding Holdings acquired

General rules on the permitted

and all disqualified persons together

by trust or will (discussed above), there

holdings of a private foundation in a

had more than a 75% voting stock

is a special rule for private foundations

business enterprise. No excess

interest (or more than a 75% profits or

that have excess business holdings as

business holdings tax is imposed (a) if

beneficial interest of any

a result of a change in holdings after

a private foundation and all disqualified

unincorporated business), or more than

May 26,1969. This rule applies if the

persons together hold no more than

a 75% interest in the value of all

change is other than by purchase by

20% of the voting stock of a business

outstanding shares of all classes of

the foundation or by disqualified

enterprise or (b) on nonvoting stock, if

stock (or more than a 75% capital

persons (such as through gift or

all disqualified persons together do not

interest of a partnership or joint

bequest) and the additional holdings

own more than 20% of the voting stock

venture) in the enterprise (the 15-year

result in the foundation having excess

of the business enterprise.

first phase expired on May 25, 1984);

business holdings. In that case, the

If the private foundation and all

and

foundation has 5 years to reduce these

•

disqualified persons together do not

A 10-year period beginning on May

holdings or those of its disqualified

own more than 35% of the enterprise’s

26, 1969, in all other cases in which the

persons to permissible levels to avoid

voting stock, and effective control is in

foundation had excess business

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

one or more persons who are not

holdings on May 26, 1969. The 10-year

Regulations section 53.4943-6.

disqualified persons in connection with

first phase expired on May 25, 1979.

A private foundation that received an

the foundation, then 35% may be

During the second phase (the

unusually large gift or bequest of

substituted for 20% wherever it appears

15-year period after the first phase), if

business holdings after 1969, and that

in the preceding paragraph. See

the foundation’s disqualified persons

has made a diligent effort to dispose of

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

hold more than 2% of the enterprise’s

excess business holdings, may apply

If a private foundation and all

voting stock, the foundation will be

for an additional 5-year period to

disqualified persons together had

liable for tax if the foundation holds

reduce its holdings to permissible levels

holdings in a business enterprise of

more than 25% of the voting stock or if

if certain conditions are met. See

more than 20% of the voting stock on

the foundation and its disqualified

section 4943(c)(7).

May 26, 1969, substitute that

persons together hold more than 50%

General rules on the permitted

percentage for 20% and for 35% (if the

of the voting stock.

holdings of donor advised funds and

holding is greater than 35%), using the

However, during the second phase,

certain supporting organizations in a

principles of section 4943(c)(4) that

if a foundation’s disqualified persons

business enterprise. Rules similar to

apply. However, the percentage

purchase voting stock in a business

those described above for interests

substituted may not be more than 50%.

enterprise after July 18, 1984, causing

held by private foundations on May 26,

The percentage substituted under

the combined holdings of the

1969, will be applied to determine if

the preceding paragraph is (a) subject

disqualified persons to exceed 2% of

donor advised funds or certain

to reductions and limitations (see

the enterprise’s voting stock, the

supporting organizations with interests

-8-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2007 Page 8

Related Articles

Related forms

Related Categories