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benefit transaction, the manager may be liable

in effect on September 13, 1995, and at all

transaction, each is individually liable for the

for the tax on disqualified persons and the tax

times after that date until the time that the

entire tax in connection with the transaction.

on the organization manager. See Abatement

transaction occurs.

But the organization managers liable for the tax

on page 3 for information on abatement,

may prorate the payment among themselves.

However, if a written contract is materially

refund, or relief from this tax.

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

modified, it is treated as a new contract

organization manager.

Tax on disqualified persons. The tax is

entered into as of the date of the material

25% of the excess benefit and is paid by any

modification. A material modification includes

Carry the total amount in column (d) for

disqualified person who improperly benefited

amending the contract to extend its term or to

each organization manager to page 1, Part

from the excess benefit transaction.

increase the compensation payable to a

II-A, column (h).

disqualified person.

Tax on organization managers. If tax is

imposed on a disqualified person for any

Disqualified person. For purposes of this

Privacy Act and Paperwork Reduction Act

excess benefit transaction, then tax is also

section, a disqualified person means:

Notice

imposed on any organization manager who

1. Any person (at any time during the

We ask for the information on this form to carry

knowingly participated in the excess benefit

5-year period ending on the date of the

out the Internal Revenue laws of the United

transaction. The tax is 10% of the excess, not

transaction) in a position to exercise

States. We need it to ensure that you are

to exceed $10,000 for each transaction.

substantial influence over the affairs of the

complying with these laws and to allow us to

Additional tax on the disqualified person. If

organization,

figure and collect the right amount of tax.

the initial tax is imposed on an excess benefit

2. A family member of an individual

Certain individuals who owe tax under Chapter

transaction and the transaction is not corrected

described in 1, or

41 or 42 of the Internal Revenue Code, and

within the taxable period, then any disqualified

3. A 35% controlled entity.

who do not sign the Form 4720 of the

person involved shall be liable for an additional

foundation or organization, must file a separate

Family members. Family members of an

tax equal to 200% of the excess benefit.

Form 4720 showing the tax owed and the

individual (described in 1 above) include a

name of the foundation or organization for

This additional tax is abated (refunded if

disqualified person’s spouse, ancestors,

which they owe tax. Sections 6001 and 6011 of

collected) if the excess benefit transaction is

children, grandchildren, great grandchildren,

the Internal Revenue Code require you to

corrected within the correction period (defined

and brothers and sisters (whether by whole or

provide the requested information if the tax

in Question B under Specific Instructions for

half-blood). It also includes the spouse of the

applies to you. Section 6109 requires you to

Page 1 on page 3).

children, grandchildren, great grandchildren,

provide your social security or other identifying

Taxable period. Taxable period means the

brothers or sisters (whether by whole or

number. Routine uses of this information

period beginning with the date on which the

half-blood).

include disclosing it to the Department of

excess benefit transaction occurs and ending

35% controlled entity. The term 35%

Justice for civil and criminal litigation and to

on the earlier of:

controlled entity means:

other federal agencies, as provided by law. We

1. The date a notice of deficiency was

may disclose the information to cities, states,

1. A corporation in which a person

mailed to the disqualified person for the initial

the District of Columbia, and U.S.

described in 1 or 2 under Disqualified person

tax on the excess benefit transaction or

Commonwealths or possessions to administer

owns more than 35% of the total combined

2. The date on which the initial tax on the

their laws. We may disclose the information to

voting power,

excess benefit transaction for the disqualified

foreign governments pursuant to tax treaties. If

2. A partnership in which such persons

person is assessed.

you do not file this information, you may be

own more than 35% of the profits interest, or

subject to interest, penalties, and/or criminal

3. A trust or estate in which such persons

Excess benefit transaction. An excess

prosecution.

own more than 35% of the beneficial interest.

benefit transaction is any transaction in which:

We may also disclose this information to

1. An excess benefit is provided by the

In determining the holdings of a business

Federal and state agencies to enforce Federal

organization, directly or indirectly to, or for the

enterprise, any stock or other interest owned

nontax criminal laws and to combat terrorism.

use of, any disqualified person or

directly or indirectly shall apply.

2. The amount of any economic benefit

You are not required to provide the

provided to, or for the use of, a disqualified

information requested on a form that is subject

Specific Instructions

person is determined in whole or in part by the

to the Paperwork Reduction Act unless the

revenues of the organization and violates the

form displays a valid OMB control number.

Part I. List each excess benefit transaction in

private inurement prohibition rules (to the

Books or records relating to a form or its

Part I, column (c). Enter the date of the

extent provided in regulations).

instructions must be retained as long as their

transaction in column (b) and the amount of the

contents may become material in the

excess benefit in column (d). Compute the tax

Caution: Until final regulations are issued

administration of any Internal Revenue law.

on the excess benefit for disqualified persons

regarding the special rules for revenue sharing

Generally, tax returns and return information

and enter it in column (e). Compute any tax on

transactions described in 2 above, these

are confidential, as required by section 6103.

the excess benefit for organization managers

transactions will only be subject to section

The time needed to complete and file this

and enter the amount in column (f).

4958 liability under the general rule described

form will vary depending on individual

in 1 above.

For organization managers, the tax is the

circumstances. The estimated average time is:

Excess benefit. Excess benefit means the

lesser of 10% of the excess benefit or $10,000.

Recordkeeping . . . . . . . . . . . .

39 hr., 56 min.

This tax is computed on each transaction.

excess of the economic benefit received from

the applicable organization over the

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

Learning about the law or the

consideration given (including services) by a

disqualified persons who took part in the

form . . . . . . . . . . . . . . . . . . .

16 hr., 31 min.

disqualified person.

excess benefit transactions. If more than one

Preparing the form . . . . . . . . . .

23 hr., 29 min.

disqualified person took part in an excess

However, an economic benefit will not be

Copying, assembling, and

benefit transaction, each is individually liable

treated as compensation for services unless

sending the form to the IRS . . . .

1 hr., 36 min.

for the entire tax on the transaction. But the

the applicable organization clearly indicates its

disqualified persons who are liable for the tax

intent to treat the economic benefit (when paid)

If you have comments concerning the

may prorate the payment among themselves.

as compensation for a disqualified person’s

accuracy of these time estimates or

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

services. See Regulations section 53.4958-4(c)

suggestions for making this form simpler, we

disqualified person.

for more information.

would be happy to hear from you. You can

Carry the total amount in column (d) for

Exception. Generally, section 4958 does

write to the Tax Forms Committee, Western

each disqualified person to page 1, Part II-A,

not apply to any fixed payment made to a

Area Distribution Center, Rancho Cordova, CA

person under an initial contract. See

column (h).

95743-0001. Do not send the tax form to this

Regulations section 53.4958-4(a)(3) for details.

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

address. Instead, see Where To File on

Special rule. The initial and additional taxes of

organization managers who knowingly took

page 2.

part in the excess benefit transactions listed in

this section do not apply if the transaction

Part I. If more than one organization manager

described in 1 under Excess benefit

transaction was pursuant to a written contract

knowingly took part in an excess benefit

-8-

Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes On Charities And Other Persons -Department Of The Treasury - 2002 Page 8

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