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the tax may prorate the payment

holdings do not include program-related

Schedule C—Initial Tax

among themselves. Enter in column (c)

investments (such as investments in

the tax to be paid by each disqualified

small businesses in economically

on Excess Business

person.

depressed areas or in corporations to

assist in neighborhood renovations) as

Holdings (Section 4943)

Carry the total amount in column (d)

defined in section 4944(c) and related

for each self-dealer to page 1, Part II-A,

regulations. Also, business enterprise

General Instructions

column (c).

does not include a trade or business at

Private foundations are generally not

Part III. Enter in column (a) the names

least 95% of the gross income of which

permitted to hold more than a 20%

comes from passive sources. Log on to

of all foundation managers who took

interest in an unrelated business

part in the acts of self-dealing listed in

enterprise. They may be subject to an

irm_07-027-017.html#d0e77.

Part I, and who knew that they were

excise tax on the amount of any excess

acts of self-dealing (except for

Excess business holdings. Excess

holdings. For purposes of section 4943,

foundation managers whose

business holdings is the amount of

donor advised funds and certain

participation was not willful and was

stock or other interest in a business

supporting organizations are

due to reasonable cause).

enterprise that the foundation would

considered private foundations. For

have to dispose of to a person other

If more than one foundation

more information on the applicability of

than a disqualified person in order for

manager took part in the act of

Schedule C to such organizations, see

the foundation’s remaining holdings in

self-dealing, knowing that it was such

General rules on the permitted holdings

the enterprise to be permitted holdings

an act, and participation was willful and

of donor advised funds and certain

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

not due to reasonable cause, each is

supporting organizations in a business

irs.gov/irm/part7/irm_07-027-017.

individually liable for the entire tax in

enterprise on page 9.

html#d0e179

for more information.

connection with the act. But the

Requirement. If you answered “Yes”

Sole proprietorships. In general, a

foundation managers liable for the tax

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

private foundation may not have any

may prorate the payment among

3b; Form 990, Part V, question 8; or

permitted holdings in a business

themselves. Enter in column (c) the tax

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

enterprise that is a sole proprietorship.

to be paid by each foundation manager.

otherwise had excess business

For exceptions, go to

irs.

Carry the total amount in column (d)

holdings, complete a Schedule C for

gov/irm/part7/irm_07-027-017.

for each foundation manager to page 1,

each business enterprise in which the

html#d0e77. For a definition of sole

Part II-A, column (c).

foundation had excess business

proprietorship, see Regulations section

holdings for its tax year beginning in

53.4943-10(e).

2010.

Corporate voting stock. This stock

Schedule B—Initial Tax

Taxes. A private foundation that has

entitles a person to vote for the election

excess holdings in a business

of directors. Treasury stock and stock

on Undistributed Income

enterprise may become liable for an

that is authorized but unissued is not

(Section 4942)

excise tax based on the amount of

voting stock for these purposes. See

holdings. The initial tax is 10% of the

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

Complete Schedule B if you answered

value of the excess holdings and is

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

“Yes” to Form 990-PF, Part VII-B,

imposed on the last day of each tax

For a partnership (including a limited

question 2b.

year that ends during the taxable

partnership) or joint venture, the term

An initial excise tax of 30% is

period. The excess holdings are

“profits interest” should be substituted

determined on the day during the tax

imposed on a private foundation’s

for “voting stock.” For any

undistributed income on the first day of

year when they were the largest.

unincorporated business enterprise that

the second or any succeeding tax year

If the foundation keeps the excess

is not a partnership, joint venture, or

after the tax year in connection with

business holdings after the initial tax

sole proprietorship, the term “beneficial

which income remains undistributed.

has been imposed, it becomes liable for

interest” should be substituted for

an additional tax of 200% of the

“voting stock.” See Regulations section

Use the 2010 Form 4720 to report

remaining excess business holdings

53.4943-3(c).

the initial tax on undistributed income

unless it disposes of them within the

for tax years beginning in 2009 or

Nonvoting stock. Corporate equity

taxable period. However, if the

earlier that remains undistributed at the

interests that do not have voting power

foundation disposes of its excess

end of the foundation’s current tax year

should be classified as nonvoting stock.

business holdings during the correction

beginning in 2010. The initial tax will

Evidences of indebtedness (including

period, the additional tax will not be

not apply to a private foundation’s

convertible indebtedness), warrants,

assessed or, if assessed, will be abated

undistributed income:

and other options or rights to acquire

•

and if collected, will be credited or

For any tax year it is an operating

stock should not be considered equity

refunded. For information on the

foundation (as defined in section

interests. See Regulations section

correction period, go to

irs.

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

53.4943-3(b)(2).

gov/irm/part7/irm_07-027-017.

section 4942(j)(5)), or

For a partnership (including a limited

•

html#d0e680.

To the extent it did not distribute an

partnership) or joint venture, the term

amount solely because of an incorrect

Business enterprise. In general, this

“capital interest” should be substituted

valuation of assets, provided the

means the active conduct of a trade or

for “nonvoting stock.” For any

foundation satisfies the requirements of

business, including any activity

unincorporated business that is not a

section 4942(a)(2), or

regularly conducted to produce income

partnership, joint venture, or sole

•

For any year for which the initial tax

from selling goods or performing

proprietorship, references to nonvoting

was previously assessed or a notice of

services, that is an unrelated trade or

stock do not apply for computation of

deficiency was issued.

business described in section 513.

permitted holdings. See Regulations

section 53.4943-3(c)(4).

Do not complete Schedule B for any

The term “business enterprise” does

year for which any of the above

not include a functionally related

Attribution of business holdings. In

provisions apply to the undistributed

business as defined in section

determining the holdings in a business

income.

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

enterprise of either a private foundation

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Form 4720 Instructions

Instructions For Form 4720 - Instructions For Return Of Certain Excise Taxes - Department Of The Treasury - 2010 Page 7

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