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Readjustments, distributions, or changes in

Line 3. Enter the value of any stock, interest,

the taxable period, up to $5,000 for any one

relative value of different classes of stock.

etc., in the business enterprise that the

investment. It is imposed on all foundation

See Regulations section 53.4943-4(d)(10) for

foundation is required to dispose of so the

managers who took part in the act, knowing

special rules whereby increases in the

foundation’s holdings in the enterprise are

that it was such an act, except for foundation

percentage of value of holdings in a

permitted. See section 4943 and related

managers whose participation was not willful

corporation that result solely from changes in

regulations.

and was due to reasonable cause. Any

the relative values of different classes of stock

foundation manager who took part in making

A private foundation using the section

will not result in excess business holdings.

the investment must pay the tax.

4943(c)(4) rules has excess holdings if line 1 is

more than line 2 in either column (a) or column

See Regulations section 53.4943-6(d) for

Specific Instructions

(b). Do not include in column (b) the value of

rules on treatment of increases in holdings due

Part I. Complete this part for all taxable

to readjustments, distributions, or redemptions.

any voting stock included in column (a).

investments.

A private foundation using the section

See Regulations section 53.4943-7 for

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

4943(c)(2) rules has excess holdings if line 1 is

special rules for readjustments involving

foundation managers who took part in making

more than line 2 in column (a) or if the private

grandfathered holdings.

the investments listed in Part I. See Initial taxes

foundation holds nonvoting stock and all

Exceptions from self-dealing taxes on

on foundation managers above.

disqualified persons together own more than

certain dispositions of excess business

20% (or 35%, if applicable) of the enterprise’s

If more than one foundation manager is

holdings. Section 101(I)(2)(B) of the Tax

voting stock, interest, etc. In the latter case,

listed in column (a), each is individually liable

Reform Act of 1969 provides for a limited

enter in column (c) the value of all nonvoting

for the entire amount of tax in connection with

exception from self-dealing taxes for private

stock the foundation holds.

the investment. However, the foundation

foundations that dispose of certain excess

managers who are liable for the tax may

Line 4. Enter the value of excess holdings

business holdings to disqualified persons, as

prorate payment among themselves. Enter in

disposed of under the 90-day rule in

long as the sales price equals or is more than

column (c) the tax each foundation manager

Regulations section 53.4943-2(a)(1)(ii). If other

fair market value.

will pay.

conditions preclude imposition of tax on excess

The excess business holdings involved are

business holdings, include the value of the

Carry the total amount in column (d) for

interests that are subject to the section 4941

nontaxable amount on this line and attach an

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

transitional rules for May 26, 1969, holdings.

explanation.

column (d).

These interests would also be subject to the

excess business holdings tax if they were not

reduced by the required amount.

Schedule D—Initial Taxes on

Schedule E—Initial Taxes on

Specific Instructions

Investments That Jeopardize

Taxable Expenditures

Complete columns (a) and (b) of Schedule C if

Charitable Purpose

sections 4943(c)(4), 4943(c)(3) (using the

General Instructions

principles of 4943(c)(4)), or 4943(c)(5) apply.

General Instructions

Requirement. Complete Schedule E if you

Complete column (a) and column (c) (if

answered “Yes” to Form 990-PF, Part VII-B,

applicable) if sections 4943(c)(2) or 4943(c)(3)

Requirement. Complete Schedule D if you

question 5b, or Form 5227, Part VI-B, question

(using the principles of 4943(c)(2)) apply.

answered “Yes” to Form 990-PF, Part VII-B,

5b. Complete Parts I and II of Schedule E only

question 4a or b, or Form 5227, Part VI-B,

Complete Schedule C for that day during

for expenditures that are subject to tax.

question 4a or b. Report each investment

the tax year when the foundation’s excess

Note. Also, see Schedule F, Initial Taxes on

separately. Paying tax and filing a Form 4720

holdings in the enterprise were largest.

Political Expenditures.

are required for each year or part of a year in

Line 1. Enter in column (a) the percentage of

the taxable period that applies to the

Taxable expenditures. With certain

voting stock the foundation holds in the

investments that jeopardize the foundation’s

exceptions, this means any amount a private

business enterprise.

charitable purpose. Generally, the taxable

foundation pays or incurs:

If the foundation is using the rules or

period begins with the date of the investment

1. To carry on propaganda or otherwise

principles for determining present holdings

and ends with the date corrective action is

influence any legislation through:

under section 4943(c)(4)(A) or (D), enter in

completed, a notice of deficiency is mailed, or

a. An attempt to influence general public

column (b) the percentage of value the

the initial tax is assessed, whichever comes

opinion or any segment of it, and

foundation holds in all outstanding shares of all

first. Therefore, in addition to investments

b. Communication with any member or

classes of stock.

made in 2004, include all investments subject

employee of a legislative body, or with any

to tax that were made before 2004 if those

Do not include in either column (a) or (b)

other government official or employee who

investments were not removed from jeopardy

stock treated as held by disqualified persons:

may take part in formulating legislation;

•

before 2004 and the initial tax was not

Under section 4943(c)(6) or Regulations

2. To influence the outcome of any specific

assessed before 2004.

sections 53.4943-6 and 53.4943-10(d), or

public election, or to conduct, directly or

•

During the first phase if the first phase is still

Taxable investments. An investment to be

indirectly, any voter registration drive;

in effect (see Regulations sections

taxed on this schedule is an investment by a

3. As a grant to an individual for travel,

53.4943-4(a), (b), and (c)).

private foundation that jeopardizes the carrying

study, or other purposes;

out of its exempt purposes (i.e., if it is

Line 2. If the foundation is using the rules or

4. As a grant to an organization not

determined that the foundation managers, in

principles for determining present holdings

described in section 509(a)(1), (2), or (3) or

making the investment, did not exercise

under section 4943(c)(4), refer to that section

that is not an exempt operating foundation (as

ordinary business care and prudence, under

and Regulations section 53.4943-4(d) to

defined in section 4940(d)(2)); or

prevailing facts and circumstances, in providing

determine which entries to record in columns

5. For any purpose other than religious,

for the long- and short-term financial needs of

(a) and (b). Enter in column (a) the excess of

charitable, scientific, literary, educational, or

the foundation to carry out its exempt

the substituted combined voting level over the

public purposes, or the prevention of cruelty to

purposes). See Regulations section

disqualified person voting level. Enter in

children or animals.

53.4944-1(a)(2). An investment is not taxed on

column (b) the excess of the substituted

this schedule if it is a program-related

Exceptions. Section 4945(d)(4)(B) provides

combined value level over the disqualified

investment; that is, one whose primary purpose

an exception to taxable expenditures that

person value level.

is one or more of those described in section

applies to certain grants to organizations when

If the foundation is using the rules or

170(c)(2)(B) (religious, charitable, educational,

the granting foundation exercises expenditure

principles for determining permitted holdings

etc.). A significant purpose of such an

responsibility described in section 4945(h).

under section 4943(c)(2), refer to that section

investment cannot be the production of income

Pub. 578 has additional information on special

to determine which entries to record in column

or the appreciation of property. See section

rules and exceptions to the definition of taxable

(a). Enter in column (a) the percentage, using

4944(c) and Regulations section 53.4944-3.

expenditures given above.

the general rule (section 4943(c)(2)(A)) or the

Initial taxes on foundation. The initial tax is

Initial tax on foundation. An initial tax of 10%

35% rule (see section 4943(c)(2)(B)), if

5% of the amount invested for each year or

of each taxable expenditure is imposed on the

applicable, of permitted holdings the foundation

part of a year in the taxable period.

foundation.

may have in the enterprise’s voting stock. If the

foundation determines the permitted holdings

Initial taxes on foundation managers. When

Initial tax on foundation managers. When a

under section 4943(c)(2)(B), attach a

a tax is imposed on a jeopardy investment of

tax is imposed on a taxable expenditure of the

statement showing effective control by a third

the foundation, the tax will be 5% of the

foundation, a tax of 2

% of the expenditure

party.

investment for each year or part of a year in

will be imposed on any foundation manager

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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 6

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