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Column (f). Enter for each person listed in

to a government official (see Pub. 578, Chapter

tax year after the tax year in connection with

column (a) the tax on political expenditures

V), other than an agreement to employ or

which income remains undistributed.

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

make a grant to that individual for any period

Use the 2002 Form 4720 to report the initial

individual took part in as an organization or

after the end of government service if that

tax on undistributed income for tax years

foundation manager.

individual will be ending government service

beginning in 2001 or earlier that remains

within a 90-day period.

undistributed at the end of the foundation’s

Column (g). Enter for each person listed in

column (a) the tax on disqualifying lobbying

current tax year beginning in 2002. The initial

Exceptions to Self-Dealing. See Pub. 578 for

tax will not apply to a private foundation’s

expenditures from Schedule H, Part II, column

a description of acts that are not considered

undistributed income:

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

self-dealing.

organization manager.

1. For any tax year it is an operating

Initial Taxes on Self-Dealer. An initial tax of

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

Column (h). For each person listed in column

5% of the amount involved is charged for each

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

(a), enter the sum of:

act of self-dealing between a disqualified

2. To the extent it did not distribute an

person and a private foundation for each year

1. Taxes that person owes as a

amount solely because of an incorrect

or part of a year in the taxable period. Any

disqualified person, from Schedule I, Part II,

valuation of assets, provided the foundation

disqualified person (other than a foundation

column (d), and

satisfies the requirements of section

manager acting only as such) who takes part in

2. Tax on excess benefit transactions in

4942(a)(2), or

the act of self-dealing must pay the tax.

which the organization manager participated

3. For any year for which the initial tax was

knowing that the transaction was improper,

Initial Taxes on Foundation Managers.

previously assessed or a notice of deficiency

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

When a tax is imposed on a foundation

was issued.

manager for an act of self-dealing, the tax will

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

Do not complete Schedule B for any year

be 2

% of the amount involved in the act of

manager, or disqualified person under sections

for which any of the above provisions apply to

self-dealing for each year or part of a year in

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

the undistributed income.

the taxable period. However, the total tax

joint and several. Therefore, if more than one

imposed for all years in the taxable period is

person owes tax on an act as a manager,

limited to $10,000 for each act of self-dealing.

self-dealer, or disqualified person, they may

Schedule C—Initial Tax on

The tax is imposed on any foundation manager

apportion the tax among themselves. However,

who took part in the act knowing that it was

when all managers, self-dealers, or disqualified

Excess Business Holdings

self-dealing except those foundation managers

persons who are liable for tax on a particular

whose participation was not willful and was due

transaction under sections 4912, 4941, 4944,

General Instructions

to reasonable cause. Any foundation manager

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

who took part in the act of self-dealing must

Private foundations are generally not permitted

due on that transaction, then the IRS may

pay the tax.

to hold more than a 20% interest in an

charge the amount owed to one or more of

unrelated business enterprise. They may be

them regardless of the tax apportionment

Specific Instructions

subject to an excise tax on the amount of any

shown on this return.

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

excess holdings.

Enter in column (d) the number designation

Requirement. If you answered “Yes” to Form

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

Schedule A—Initial Taxes on

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

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

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

Self-Dealing

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

for each business enterprise in which the

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

foundation had excess business holdings for its

General Instructions

disqualified persons who took part in the acts

tax year beginning in 2002.

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

Taxes. A private foundation that has excess

Requirement. All organizations that answered

disqualified person took part in an act of

holdings in a business enterprise may become

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

self-dealing, each is individually liable for the

liable for an excise tax based on the amount of

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

entire tax in connection with the act. But the

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

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

disqualified persons who are liable for the tax

the excess holdings and is imposed on the last

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

may prorate the payment among themselves.

day of each tax year that ends during the

in connection with acts that are subject to the

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

taxable period. The excess holdings are

tax on self-dealing.

disqualified person.

determined on the day during the tax year

Paying the tax and filing a Form 4720 is

Carry the total amount in column (d) for

when they were the largest.

required for each year or part of a year in the

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

If the foundation keeps the excess business

taxable period that applies to the act of

column (c).

holdings after the initial tax has been imposed,

self-dealing. Generally, the taxable period

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

it becomes liable for an additional tax of 200%

begins with the date on which the self-dealing

foundation managers who took part in the acts

of the remaining excess business holdings

occurs and ends on the earliest of:

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

unless it disposes of them within the taxable

1. The date a notice of deficiency is mailed

that they were acts of self-dealing (except for

period. However, if the foundation disposes of

under section 6212, in connection with the

foundation managers whose participation was

its excess business holdings during the

initial tax imposed on the self-dealer,

not willful and was due to reasonable cause).

correction period, the additional tax will not be

2. The date the initial tax on the self-dealer

If more than one foundation manager took

assessed or, if assessed, will be abated and if

is assessed, or

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

collected, will be credited or refunded. See

3. The date correction of the act of

was such an act, and participation was willful

Pub. 578 for information on the correction

self-dealing is completed.

and not due to reasonable cause, each is

period.

individually liable for the entire tax in

Business Enterprise. In general, this means

Self-dealing means any direct or indirect:

connection with the act. But the foundation

the active conduct of a trade or business,

1. Sale, exchange, or leasing of property

managers liable for the tax may prorate the

including any activity regularly conducted to

between a private foundation and a disqualified

payment among themselves. Enter in column

produce income from selling goods or

person (see definitions in Form 990-PF

performing services, that is an unrelated trade

instructions),

manager.

or business described in section 513.

2. Lending of money or other extension of

Carry the total amount in column (d) for

credit between a private foundation and a

The term “business enterprise” does not

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

disqualified person,

include a functionally related business as

column (c).

3. Furnishing of goods, services, or

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

facilities between a private foundation and a

business holdings do not include

disqualified person,

program-related investments (such as

Schedule B—Initial Tax on

4. Payment of compensation (or payment

investments in small businesses in

or reimbursement of expenses) by a private

economically depressed areas or in

Undistributed Income

foundation to a disqualified person,

corporations to assist in neighborhood

Complete Schedule B if you answered “Yes” to

5. Transfer to, or use by or for the benefit

renovations) as defined in section 4944(c) and

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

of, a disqualified person of the income or

related regulations. Also, business enterprise

assets of a private foundation, and

An initial excise tax of 15% is imposed on a

does not include a trade or business at least

6. Agreement by a private foundation to

private foundation’s undistributed income on

95% of the gross income of which comes from

make any payment of money or other property

the first day of the second or any succeeding

passive sources. See Pub. 578.

-4-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons -Department Of The Treasury - 2002 Page 4

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