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ancestors, children, grandchildren,

Substantial contributor. In

Schedule J—Taxes on

great grandchildren, and brothers and

general, a substantial contributor

means any person who contributed or

sisters (whether by whole- or

Being a Party to

bequeathed an aggregate of more than

half-blood). It also includes the spouse

$5,000 to the organization, if that

of the children, grandchildren, great

Prohibited Tax Shelter

amount is more than 2% of the total

grandchildren, brothers, or sisters

Transactions (Section

contributions and bequests received by

(whether by whole- or half-blood).

the organization before the end of the

4965)

35% controlled entity. The term

tax year of the organization in which the

35% controlled entity means:

contribution or bequest is received by

•

General Instructions

the organization from such person. A

A corporation in which a person

substantial contributor includes the

described in 1 through 5 under

Requirement.

grantor of a trust.

Disqualified person owns more than

1. Complete Schedule J if you are

35% of the total combined voting

an entity described in section 501(c),

power,

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

•

A partnership in which such persons

States) or an Indian tribal government

Specific Instructions

own more than 35% of the profits

(within the meaning of section

interest, or

Part I. List each excess benefit

7701(a)(40)) and you received

•

transaction in Part I, column (c). Enter

proceeds from or have net income

A trust or estate in which such

attributable to a prohibited tax shelter

the date of the transaction in column (b)

persons own more than 35% of the

transaction (PTST).

and the amount of the excess benefit in

beneficial interest.

2. Complete Schedule J if you are

column (d). Compute the tax on the

In determining the holdings of a

an entity manager of such an entity

excess benefit for disqualified persons

who approved the entity as (or

business enterprise, any stock or other

and enter it in column (e). Compute any

otherwise caused the entity to be) a

tax on the excess benefit for

interest owned directly or indirectly shall

party to a PTST at any time during the

organization managers and enter the

apply.

tax year and who knew (or had reason

amount in column (f).

For donor advised funds,

to know) that the transaction is a PTST.

sponsoring organizations, and

For organization managers, the tax

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

certain supporting organization

is the lesser of 10% of the excess

102, and any future related guidance

transactions occurring after August

benefit or $20,000 ($10,000 for

for details.

17, 2006. The following persons will be

transactions entered in a tax year

considered disqualified persons along

beginning before August 18, 2006).

Managers of tax favored

with certain family members and 35%

This tax is computed on each

TIP

retirement plans, individual

controlled entities associated with them:

transaction.

retirement arrangements, and

savings arrangements described in

•

Donors of donor advised funds,

Part II. Enter in column (a) the names

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

•

Investment advisors of sponsoring

of all disqualified persons who took part

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

organizations; and

223(d) must report and pay tax due

in the excess benefit transactions. If

•

Disqualified persons of a section

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

more than one disqualified person took

509(a)(3) supporting organization for

part in an excess benefit transaction,

Prohibited tax shelter transaction.

the organizations that organization

each is individually liable for the entire

In general, prohibited tax shelter

supports.

tax on the transaction. But the

transaction means any listed

disqualified persons who are liable for

transaction and any prohibited

For certain supporting

the tax may prorate the payment

reportable transaction.

organization transactions occurring

among themselves. Enter in column (c)

Listed transaction. A listed

after July 25, 2006. Substantial

the tax to be paid by each disqualified

transaction includes any transaction

contributors to supporting organizations

person.

that is the same as or substantially

will also be considered disqualified

similar to one of the types of

persons along with their family

Carry the total amount in column (d)

transactions that the IRS has

members and 35% controlled entities.

for each disqualified person to page 1,

determined to be a tax avoidance

Part II-A,column (h).

transaction. These transactions are

Donor advised fund. See the

identified by notice, regulation, or other

Schedule K instructions for a definition

Part III. Enter in column (a) the names

form of published guidance as a listed

of donor advised fund.

of all managers who knowingly took

transaction. For existing guidance see:

•

part in the excess benefit transactions

Investment advisor. Investment

Notice 2004-67, 2004-41 I.R.B. 600

•

listed in Part I. If more than one

Notice 2005-13, 2005-9 I.R.B. 630.

advisor means for any sponsoring

manager knowingly took part in an

For updates to this list go to the IRS

organization, any person compensated

excess benefit transaction, each is

web page at

by such organization (but not an

individually liable for the entire tax in

corporations and click on Abusive Tax

employee of such organization) for

connection with the transaction. But the

Shelters and Transactions. The listed

managing the investment of, or

managers liable for the tax may prorate

transactions in the above notices and

providing investment advice for assets

the payment among themselves. Enter

rulings will also be periodically updated

maintained in donor advised funds

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

in future issues of the Internal Revenue

maintained by such sponsoring

organization manager.

Bulletin.

organization.

Prohibited reportable transaction. A

Sponsoring organization. See the

Carry the total amount in column (d)

prohibited reportable transaction is any

Schedule K instructions for a definition

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

confidential transaction or any

of sponsoring organization.

column (h).

transaction with contractual protection

-13-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2006 Page 13

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