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For donor advised funds,

Part II. Enter in column (a) the names

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

sponsoring organizations, and

of all disqualified persons who took part

223(d) must report and pay tax due

certain supporting organization

in the excess benefit transactions. If

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

transactions occurring after August

more than one disqualified person took

Prohibited tax shelter transaction.

17, 2006. The following persons will

part in an excess benefit transaction,

In general, a prohibited tax shelter

be considered disqualified persons

each is individually liable for the entire

transaction means any listed

along with certain family members and

tax on the transaction. But the

transaction (including a subsequently

35% controlled entities associated with

disqualified persons who are liable for

listed transaction) and any prohibited

them:

the tax may prorate the payment

reportable transaction.

among themselves. Enter in column (c)

•

Donors of donor advised funds,

the tax to be paid by each disqualified

Listed transaction. A listed

•

Investment advisors of sponsoring

person.

transaction includes any transaction

organizations, and

that is the same as or substantially

•

Carry the total amount in column (d)

Disqualified persons of a section

similar to one of the types of

for each disqualified person to page 1,

509(a)(3) supporting organization for

transactions that the IRS has

Part II-A, column (h).

the organizations that organization

determined to be a tax avoidance

supports.

Part III. Enter in column (a) the names

transaction. These transactions are

of all managers who knowingly took

For certain supporting

identified by notice, regulation, or other

part in the excess benefit transactions

organization transactions occurring

form of published guidance as a listed

listed in Part I. If more than one

after July 25, 2006. Substantial

transaction. For existing guidance see

manager knowingly took part in an

contributors to supporting organizations

Notice 2009-59, 2009-31 I.R.B. 170.

excess benefit transaction, each is

will also be considered disqualified

individually liable for the entire tax in

For updates to this list go to the IRS

persons along with their family

connection with the transaction. But the

web page at

members and 35% controlled entities.

managers liable for the tax may prorate

corporations

and click on Abusive Tax

Donor advised fund. See the

the payment among themselves. Enter

Shelters and Transactions. The listed

Schedule K instructions for a definition

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

transactions in the above notices and

of donor advised fund.

organization manager.

rulings will also be periodically updated

in future issues of the Internal Revenue

Investment advisor. Investment

Carry the total amount in column (d)

Bulletin.

advisor means for any sponsoring

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

organization, any person compensated

column (h).

Subsequently listed transaction.

by such organization (but not an

A subsequently listed transaction is a

employee of such organization) for

transaction that is identified in

Schedule J—Taxes on

managing the investment of, or

published guidance as a listed

providing investment advice for assets

Being a Party to

transaction after the entity has entered

maintained in donor advised funds

into the transaction and that was not a

maintained by such sponsoring

Prohibited Tax Shelter

confidential transaction or transaction

organization.

with contractual protection at the time

Transactions (Section

Sponsoring organization. See the

the entity entered into the transaction.

4965)

Schedule K instructions for a definition

Prohibited reportable transaction.

of sponsoring organization.

A prohibited reportable transaction is

General Instructions

Substantial contributor. In

any confidential transaction or any

general, a substantial contributor

transaction with contractual protection

Requirement.

means any person who contributed or

that is a reportable transaction. See

1. Complete Schedule J if you are

bequeathed an aggregate of more than

Regulations sections 1.6011-4(b)(3)

an entity described in section 501(c),

$5,000 to the organization, if that

and (4), and the Instructions for Form

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

amount is more than 2% of the total

8886-T, Disclosure by Tax-Exempt

States) or an Indian tribal government

contributions and bequests received by

Entity Regarding Prohibited Tax Shelter

(within the meaning of section

the organization before the end of the

Transaction for more information.

7701(a)(40)) and you received

tax year of the organization in which the

Allocation of net income and

proceeds from or have net income

contribution or bequest is received by

proceeds to a tax year. The net

attributable to a prohibited tax shelter

the organization from such person. A

income and proceeds attributable to a

transaction (PTST).

substantial contributor includes the

prohibited tax shelter transaction must

2. Complete Schedule J if you are

grantor of a trust.

be allocated to a particular tax year in a

an entity manager of such an entity

manner consistent with the entity’s

who approved the entity as (or

established method of accounting for

otherwise caused the entity to be) a

Specific Instructions

federal income tax purposes. If an

party to a PTST at any time during the

entity has not established a method of

Part I. List each excess benefit

tax year and who knew (or had reason

accounting for federal income tax

transaction in Part I, column (c). Enter

to know) that the transaction is a PTST.

purposes, the entity must use the cash

the date of the transaction in column (b)

receipts and disbursements method to

See the following guidance and any

and the amount of the excess benefit in

future guidance for details.

determine the amount and timing of net

column (d). Compute the tax on the

•

Notice 2006-65, 2006-31 I.R.B. 102

income and proceeds attributable to a

excess benefit for disqualified persons

•

prohibited tax shelter transaction.

Notice 2007-18, 2007-9 I.R.B. 608

and enter it in column (e). Compute any

•

T.D. 9334, 2007-34 I.R.B. 382

tax on the excess benefit for

If an entity has an established

•

T.D. 9492, 2010-33 IRB 242

organization managers and enter the

method of accounting other than the

amount in column (f).

Managers of tax favored

cash method, the entity may use the

For organization managers, the tax

retirement plans, individual

cash method to determine the amount

TIP

is the lesser of 10% of the excess

retirement arrangements, and

of the net income and proceeds

benefit or $20,000. This tax is

savings arrangements described in

attributable to a prohibited tax shelter

computed on each transaction.

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

transaction.

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Form 4720 Instructions

Instructions For Form 4720 - Instructions For Return Of Certain Excise Taxes - Department Of The Treasury - 2010 Page 13

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