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7. Readjustments, Distributions, or

statement showing effective control by a third

investment of the foundation, the tax will be 5%

Changes in Relative Value of Different

party.

of the investment for each year or part of a

Classes of Stock. See Regulations section

year in the taxable period, up to $5,000 for any

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

53.4943-4(d)(10) for special rules whereby

one investment. It is imposed on all foundation

etc., in the business enterprise that the

increases in the percentage of value of

managers who took part in the act, knowing

foundation is required to dispose of so the

holdings in a corporation that result solely from

that it was such an act, except for foundation

foundation’s holdings in the enterprise are

changes in the relative values of different

managers whose participation was not willful

permitted. See section 4943 and related

classes of stock will not result in excess

and was due to reasonable cause. Any

regulations.

business holdings.

foundation manager who took part in making

A private foundation using the section

the investment must pay the tax.

See Regulations section 53.4943-6(d) for

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

rules on treatment of increases in holdings due

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

Specific Instructions

to readjustments, distributions, or redemptions.

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

Part I. Complete this part for all taxable

any voting stock included in column (a).

See Regulations section 53.4943-7 for

investments.

A private foundation using the section

special rules for readjustments involving

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

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

grandfathered holdings.

foundation managers who took part in making

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

Exceptions From Self-Dealing Taxes on

the investments listed in Part I. See Initial

foundation holds nonvoting stock and all

Certain Dispositions of Excess Business

Taxes on Foundation Managers above.

disqualified persons together own more than

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

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

If more than one foundation manager is

Reform Act of 1969 provides for a limited

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

listed in column (a), each is individually liable

exception from self-dealing taxes for private

enter in column (c) the value of all nonvoting

for the entire amount of tax in connection with

foundations that dispose of certain excess

stock the foundation holds.

the investment. However, the foundation

business holdings to disqualified persons, as

managers who are liable for the tax may

Line 4. Enter the value of excess holdings

long as the sales price equals or is more than

prorate payment among themselves. Enter in

disposed of under the 90-day rule in

fair market value.

column (c) the tax each foundation manager

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

The excess business holdings involved are

will pay.

conditions preclude imposition of tax on excess

interests that are subject to the section 4941

business holdings, include the value of the

Carry the total amount in column (d) for

transitional rules for May 26, 1969, holdings.

nontaxable amount on this line and attach an

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

These interests would also be subject to the

explanation.

column (d).

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

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

Taxable Expenditures

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

Charitable Purpose

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

General Instructions

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

General Instructions

Requirement. Complete Schedule E if you

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

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

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

Requirement. Complete Schedule D if you

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

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

Complete Schedule C for that day during

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

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

the tax year when the foundation’s excess

for expenditures that are subject to tax.

question 4a or b. Report each investment

holdings in the enterprise were largest.

Note: Also, see Schedule F, Initial Taxes on

separately. Paying tax and filing a Form 4720

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

Political Expenditures.

are required for each year or part of a year in

voting stock the foundation holds in the

the taxable period that applies to the

Taxable Expenditures. With certain

business enterprise.

investments that jeopardize the foundation’s

exceptions, this means any amount a private

If the foundation is using the rules or

charitable purpose. Generally, the taxable

foundation pays or incurs:

principles for determining present holdings

period begins with the date of the investment

1. To carry on propaganda or otherwise

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

and ends with the date corrective action is

influence any legislation through —

column (b) the percentage of value the

completed, a notice of deficiency is mailed, or

a. An attempt to influence general public

foundation holds in all outstanding shares of all

the initial tax is assessed, whichever comes

opinion or any segment of it and

classes of stock.

first. Therefore, in addition to investments

b. Communication with any member or

made in 2002, include all investments subject

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

employee of a legislative body, or with any

to tax that were made before 2002 if those

stock treated as held by disqualified persons:

other government official or employee who

investments were not removed from jeopardy

may take part in formulating legislation;

1. Under section 4943(c)(6) or Regulations

before 2002 and the initial tax was not

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

2. To influence the outcome of any specific

assessed before 2002.

public election, or to conduct, directly or

2. During the first phase if the first phase is

Taxable Investments. An investment to be

indirectly, any voter registration drive;

still in effect (see Regulations sections

taxed on this schedule is an investment by a

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

3. As a grant to an individual for travel,

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

an exception to taxable expenditures that

investment; that is, one whose primary purpose

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

responsibility described in section 4945(h).

etc.). A significant purpose of such an

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

expenditures given above.

4944(c) and Regulations section 53.4944-3.

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

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

10% of each taxable expenditure is imposed

5% of the amount invested for each year or

applicable, of permitted holdings the foundation

part of a year in the taxable period.

on the foundation.

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

foundation determines the permitted holdings

Initial Taxes on Foundation Managers.

Initial Tax on Foundation Managers. When

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

When a tax is imposed on a jeopardy

a tax is imposed on a taxable expenditure of

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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 - 2002 Page 6

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