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or a disqualified person, any stock or

General rules on the permitted

had more than a 75% voting stock

holdings of a private foundation in a

other interest owned directly or

interest (or more than a 75% profits or

indirectly by or for a corporation,

business enterprise. No excess

beneficial interest of any

partnership, estate, or trust is

business holdings tax is imposed (a) if

unincorporated business), or more than

considered owned proportionately by or

a private foundation and all disqualified

a 75% interest in the value of all

for its shareholders, partners, or

persons together hold no more than

outstanding shares of all classes of

beneficiaries. In general, this rule does

20% of the voting stock of a business

stock (or more than a 75% capital

not apply to certain income interests or

enterprise or (b) on nonvoting stock, if

interest of a partnership or joint

remainder interests of a private

all disqualified persons together do not

venture) in the enterprise (the 15-year

foundation in a split-interest trust

own more than 20% of the voting stock

first phase expired on May 25, 1984);

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

of the business enterprise.

and

•

Regulations section 53.4943-8.

A 10-year period beginning on May

If the private foundation and all

26, 1969, in all other cases in which the

disqualified persons together do not

Taxable period. The taxable period

foundation had excess business

own more than 35% of the enterprise’s

begins on the first day the foundation

holdings on May 26, 1969. The 10-year

voting stock, and effective control is in

has excess business holdings and ends

first phase expired on May 25, 1979.

one or more persons who are not

on the earliest of:

disqualified persons in connection with

During the second phase (the

•

The mailing date of a notice of

the foundation, then 35% may be

15-year period after the first phase), if

deficiency, under section 6212, in

substituted for 20% wherever it appears

the foundation’s disqualified persons

connection with the initial tax on excess

in the preceding paragraph. See

hold more than 2% of the enterprise’s

business holdings related to those

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

voting stock, the foundation will be

holdings,

liable for tax if the foundation holds

•

If a private foundation and all

The date the excess is eliminated, or

more than 25% of the voting stock or if

disqualified persons together had

•

The date the initial tax on excess

the foundation and its disqualified

holdings in a business enterprise of

business holdings related to those

persons together hold more than 50%

more than 20% of the voting stock on

holdings is assessed.

of the voting stock.

May 26, 1969, substitute that

percentage for 20% and for 35% (if the

When a notice of deficiency is not

However, during the second phase,

holding is greater than 35%), using the

mailed because the restrictions on

if a foundation’s disqualified persons

principles of section 4943(c)(4) that

assessment and collection are waived

purchase voting stock in a business

apply. However, the percentage

or because the deficiency is paid, the

enterprise after July 18, 1984, causing

substituted may not be more than 50%.

date of filing the waiver or the date of

the combined holdings of the

paying the tax, respectively, will be

disqualified persons to exceed 2% of

The percentage substituted under

treated as the end of the taxable

the enterprise’s voting stock, the

the preceding paragraph is (a) subject

period. See Regulations section

foundation has 5 years to reduce its

to reductions and limitations (see

53.4943-9.

holdings in the enterprise to below its

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

second phase limit before the increase

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

Exceptions to Tax on Excess

will be treated as held by the

in connection with the voting stock and,

Business Holdings

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

separately, in connection with the value

and 4943(c)(6).

of all outstanding shares of all classes

2% De minimis rule. A private

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

The first-phase periods may be

foundation will not be treated as having

Interests held by a private

suspended pending the outcome of any

excess business holdings in any

foundation (other than donor

judicial proceeding the private

enterprise in which it, together with

foundation brings regarding reform or

advised funds and supporting

related foundations as described in the

organizations) on May 26, 1969. For

other procedure to excuse it from

instructions for Form 990-PF (under the

compliance with its governing

private foundations, other than donor

definition for “disqualified person” in the

instrument or similar instrument in

General Instructions) owns not more

advised funds and supporting

effect on May 26, 1969. See section

organizations considered to be private

than 2% of the voting stock and not

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

more than 2% in value of all

foundations for purposes of section

4943, that had business holdings on

53.4943-4.

outstanding shares of all classes of

stock.

May 26, 1969 (or holdings acquired by

Holdings acquired by trust or will.

trust or will as described below), that

Holdings acquired under the terms of a

Disposition of excess business

were more than the current limits

trust that was irrevocable on May 26,

holdings within 90 days. Generally,

permit, there are transitional rules that

1969, or under the terms of a will

when a private foundation acquires

permit the foundation to dispose of the

executed by that date, are treated as

excess business holdings other than as

excess over time without being subject

held by the foundation on May 26,

a result of purchase by the foundation

to the tax on excess business holdings.

1969, except that the 15- and 10-year

(such as an acquisition by a disqualified

periods of the first phase for the

During the first phase, no excess

person), the foundation will not be

business holdings tax was imposed on

holdings start on the date of distribution

taxed on those excess holdings if it

under the trust or will instead of on May

a private foundation for interests held

disposes of enough of them so that it

since May 26, 1969, if the foundation

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

no longer has an excess. To avoid the

had excess holdings on that date. The

Regulations section 53.4943-5. See

tax, the disposition must take place

first phase is:

section 4943(d)(1) and Regulations

within 90 days from the date the

section 53.4943-8 for rules relating to

•

foundation knew, or had reason to

A 20-year period beginning on May

constructive holdings held in a

know, of the event that caused it to

26, 1969, if on that date the foundation

corporation, partnership, estate, or trust

have excess business holdings. That

and all disqualified persons held more

for the benefit of the foundation.

90-day period will be extended to

than a 95% voting interest in the

include the period during which federal

enterprise (the 20-year first phase

Gifts or bequests of business

holdings. Except as provided in the

or state securities laws prevent the

expired on May 25, 1989);

•

foundation from disposing of those

A 15-year period beginning on May

exception regarding Holdings acquired

excess business holdings. See

26, 1969, if on that date the foundation

by trust or will (discussed above), there

Regulations section 53.4943-2(a).

and all disqualified persons together

is a special rule for private foundations

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Form 4720 Instructions

Instructions For Form 4720 - Instructions For Return Of Certain Excise Taxes - Department Of The Treasury - 2010 Page 8

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