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individual took part in as a foundation

Agreement by a private foundation to make

the first day of the second or any succeeding

manager.

any payment of money or other property to a

tax year after the tax year in connection with

government official (see Pub. 578, Chapter V),

which income remains undistributed.

Column (f). Enter for each person listed in

other than an agreement to employ or make a

column (a) the tax on political expenditures

Use the 2004 Form 4720 to report the initial

grant to that individual for any period after the

from Schedule F, Part II, column (d), that the

tax on undistributed income for tax years

end of government service if that individual will

individual took part in as an organization or

beginning in 2003 or earlier that remains

be ending government service within a 90-day

foundation manager.

undistributed at the end of the foundation’s

period.

current tax year beginning in 2004. The initial

Column (g). Enter for each person listed in

Exceptions to self-dealing. See Pub. 578

tax will not apply to a private foundation’s

column (a) the tax on disqualifying lobbying

for a description of acts that are not considered

undistributed income:

expenditures from Schedule H, Part II, column

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self-dealing.

For any tax year it is an operating foundation

(d), that the individual took part in as an

(as defined in section 4942(j)(3) and related

organization manager.

Initial taxes on self-dealer. An initial tax of

regulations or in section 4942(j)(5)), or

5% of the amount involved is charged for each

Column (h). For each person listed in column

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To the extent it did not distribute an amount

act of self-dealing between a disqualified

(a), enter the sum of:

solely because of an incorrect valuation of

person and a private foundation for each year

1. Taxes that person owes as a

assets, provided the foundation satisfies the

or part of a year in the taxable period. Any

disqualified person, from Schedule I, Part II,

requirements of section 4942(a)(2), or

disqualified person (other than a foundation

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column (d), and

For any year for which the initial tax was

manager acting only as such) who takes part in

2. Tax on excess benefit transactions in

previously assessed or a notice of deficiency

the act of self-dealing must pay the tax.

which the organization manager participated

was issued.

Initial taxes on foundation managers. When

knowing that the transaction was improper,

Do not complete Schedule B for any year

a tax is imposed on a foundation manager for

from Schedule I, Part III, column (d).

an act of self-dealing, the tax will be 2

% of

for which any of the above provisions apply to

the amount involved in the act of self-dealing

the undistributed income.

A person’s liability for tax as a self-dealer,

manager, or disqualified person under sections

for each year or part of a year in the taxable

period. However, the total tax imposed for all

4912, 4941, 4944, 4945, 4955, and 4958 is

years in the taxable period is limited to $10,000

joint and several. Therefore, if more than one

Schedule C—Initial Tax on

person owes tax on an act as a manager,

for each act of self-dealing. The tax is imposed

Excess Business Holdings

on any foundation manager who took part in

self-dealer, or disqualified person, they may

the act knowing that it was self-dealing except

apportion the tax among themselves. However,

when all managers, self-dealers, or disqualified

those foundation managers whose participation

General Instructions

was not willful and was due to reasonable

persons who are liable for tax on a particular

Private foundations are generally not permitted

cause. Any foundation manager who took part

transaction under sections 4912, 4941, 4944,

to hold more than a 20% interest in an

4945, 4955, or 4958 pay less than the total tax

in the act of self-dealing must pay the tax.

unrelated business enterprise. They may be

due on that transaction, then the IRS may

subject to an excise tax on the amount of any

Specific Instructions

charge the amount owed to one or more of

excess holdings.

them regardless of the tax apportionment

Part I. List each act of self-dealing in Part I.

Requirement. If you answered “Yes” to Form

shown on this return.

Enter in column (d) the number designation

990-PF, Part VII-B, question 3b, or Form 5227,

from Form 990-PF, Part VII-B, question 1a, or

Part VI-B, question 3b, complete a Schedule C

Form 5227, Part VI-B, question 1a, that applies

for each business enterprise in which the

Schedule A—Initial Taxes on

to the act. For example, “1a(1)” or “1a(4).”

foundation had excess business holdings for its

Part II. Enter in column (a) the names of all

Self-Dealing

tax year beginning in 2004.

disqualified persons who took part in the acts

Taxes. A private foundation that has excess

of self-dealing listed in Part I. If more than one

General Instructions

holdings in a business enterprise may become

disqualified person took part in an act of

liable for an excise tax based on the amount of

self-dealing, each is individually liable for the

Requirement. All organizations that answered

holdings. The initial tax is 5% of the value of

entire tax in connection with the act. But the

“Yes” to question 1b or 1c in Part VII-B of Form

the excess holdings and is imposed on the last

disqualified persons who are liable for the tax

990-PF, or “Yes” to question 1b or 1c in Part

day of each tax year that ends during the

may prorate the payment among themselves.

VI-B of Form 5227, must complete Schedule A.

taxable period. The excess holdings are

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

Complete Parts I, II, and III of Schedule A only

determined on the day during the tax year

disqualified person.

in connection with acts that are subject to the

when they were the largest.

tax on self-dealing.

Carry the total amount in column (d) for

If the foundation keeps the excess business

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

Paying the tax and filing a Form 4720 is

holdings after the initial tax has been imposed,

column (c).

required for each year or part of a year in the

it becomes liable for an additional tax of 200%

taxable period that applies to the act of

Part III. Enter in column (a) the names of all

of the remaining excess business holdings

self-dealing. Generally, the taxable period

foundation managers who took part in the acts

unless it disposes of them within the taxable

begins with the date on which the self-dealing

of self-dealing listed in Part I, and who knew

period. However, if the foundation disposes of

occurs and ends on the earliest of:

that they were acts of self-dealing (except for

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its excess business holdings during the

The date a notice of deficiency is mailed

foundation managers whose participation was

correction period, the additional tax will not be

under section 6212, in connection with the

not willful and was due to reasonable cause).

assessed or, if assessed, will be abated and if

initial tax imposed on the self-dealer,

If more than one foundation manager took

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collected, will be credited or refunded. See

The date the initial tax on the self-dealer is

part in the act of self-dealing, knowing that it

Pub. 578 for information on the correction

assessed, or

was such an act, and participation was willful

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period.

The date correction of the act of self-dealing

and not due to reasonable cause, each is

Business enterprise. In general, this means

is completed.

individually liable for the entire tax in

the active conduct of a trade or business,

Self-dealing. Self-dealing includes any direct

connection with the act. But the foundation

including any activity regularly conducted to

or indirect:

managers liable for the tax may prorate the

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produce income from selling goods or

Sale, exchange, or leasing of property

payment among themselves. Enter in column

performing services, that is an unrelated trade

between a private foundation and a disqualified

or business described in section 513.

person (see definitions in Form 990-PF

manager.

instructions),

The term “business enterprise” does not

Carry the total amount in column (d) for

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Lending of money or other extension of

include a functionally related business as

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

credit between a private foundation and a

defined in section 4942(j)(4). In addition,

column (c).

disqualified person,

business holdings do not include

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Furnishing of goods, services, or facilities

program-related investments (such as

between a private foundation and a disqualified

investments in small businesses in

Schedule B—Initial Tax on

person,

economically depressed areas or in

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Payment of compensation (or payment or

corporations to assist in neighborhood

Undistributed Income

reimbursement of expenses) by a private

renovations) as defined in section 4944(c) and

Complete Schedule B if you answered “Yes” to

foundation to a disqualified person,

related regulations. Also, business enterprise

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Form 990-PF, Part VII-B, question 2b.

Transfer to, or use by or for the benefit of, a

does not include a trade or business at least

disqualified person of the income or assets of a

An initial excise tax of 15% is imposed on a

95% of the gross income of which comes from

private foundation, and

private foundation’s undistributed income on

passive sources. See Pub. 578.

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Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons - Department Of The Treasury - 2004 Page 4

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