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inurement prohibition rules (to the

Special rule. The initial and additional

35% controlled entities associated with

extent provided in regulations).

taxes of this section do not apply if the

them:

transaction described in 1 under

•

Donors of donor advised funds,

Excess benefit transaction was

•

Until final regulations are issued

Investment advisors of sponsoring

pursuant to a written contract in effect

regarding the special rules for

organizations, and

on September 13, 1995, and at all

•

revenue sharing transactions

Disqualified persons of a section

CAUTION

times after that date until the time that

described in 2 above, these

509(a)(3) supporting organization for

the transaction occurs.

transactions will only be subject to

the organizations that organization

section 4958 liability under the general

supports.

However, if a written contract is

rule described in 1 above.

materially modified, it is treated as a

For certain supporting

Supporting organization

new contract entered into as of the date

organization transactions occurring

transactions occurring after July 25,

of the material modification. A material

after July 25, 2006. Substantial

2006. For any supporting organization,

modification includes amending the

contributors to supporting organizations

as defined in section 509(a)(3), any

contract to extend its term or to

will also be considered disqualified

grant, loan, compensation, or other

increase the compensation payable to a

persons along with their family

similar payment provided to a

disqualified person.

members and 35% controlled entities.

substantial contributor (defined later),

Donor advised fund. See the

Disqualified person. For purposes of

family member, or 35% controlled entity

Schedule K instructions for a definition

this Schedule I, a disqualified person

will be considered an excess benefit

of donor advised fund.

means:

transaction. The amount of the excess

Investment advisor. Investment

1. Any person (at any time during

benefit is the amount of such grant,

the 5-year period ending on the date of

advisor means for any sponsoring

loan, compensation, or other similar

organization, any person compensated

the transaction) in a position to exercise

payment. Also, any loan provided to a

substantial influence over the affairs of

by such organization (but not an

disqualified person that is not an

employee of such organization) for

the organization,

organization described in section

2. A family member of an individual

managing the investment of, or

509(a)(1), (2), or (4) or a supported

providing investment advice for assets

described in 1 above, and

organization of the supporting

maintained in donor advised funds

3. A 35% controlled entity of a

organization exempt under section

person described in 1 or 2 above.

maintained by such sponsoring

501(c)(4), (5), (6) and described in the

organization.

last sentence of section 509(a) is

Family members. Family members

considered an excess benefit

Sponsoring organization. See the

of a disqualified person described in 1

transaction.

Schedule K instructions for a definition

above include a disqualified person’s

of sponsoring organization.

Donor advised fund transactions

spouse, ancestors, children,

occurring after August 17, 2006.

Substantial contributor. In

grandchildren, great grandchildren, and

Any grant, loan, compensation, or other

general, a substantial contributor

brothers and sisters (whether by whole-

similar payment from any donor

means any person who contributed or

or half-blood). It also includes the

advised fund to a donor, donor advisor,

bequeathed an aggregate of more than

spouse of the children, grandchildren,

family member, or 35% controlled entity

$5,000 to the organization, if that

great grandchildren, brothers, or sisters

is an excess benefit transaction. The

amount is more than 2% of the total

(whether by whole- or half-blood).

amount of the excess benefit is the

contributions and bequests received by

amount of such grant, loan,

35% controlled entity. The term

the organization before the end of the

compensation, or other similar

35% controlled entity means:

tax year of the organization in which the

•

payment.

A corporation in which a disqualified

contribution or bequest is received by

person described in 1 or 2 above owns

the organization from such person. A

Excess benefit. Excess benefit

more than 35% of the total combined

substantial contributor includes the

means the excess of the economic

voting power,

grantor of a trust.

benefit received from the applicable

•

A partnership in which such persons

organization over the consideration

own more than 35% of the profits

given (including services) by a

Specific Instructions

interest, or

disqualified person.

•

A trust or estate in which such

Part I. List each excess benefit

However, an economic benefit will

persons own more than 35% of the

not be treated as compensation for

transaction in Part I, column (c). Enter

beneficial interest.

services unless the applicable

the date of the transaction in column (b)

In determining the holdings of a

and the amount of the excess benefit in

organization clearly indicates its intent

business enterprise, any stock or other

to treat the economic benefit (when

column (d). Compute the tax on the

interest owned directly or indirectly shall

excess benefit for disqualified persons

paid) as compensation for a disqualified

apply.

person’s services. See Regulations

and enter it in column (e). Compute any

tax on the excess benefit for

section 53.4958-4(c) for more

For donor advised funds,

information.

organization managers and enter the

sponsoring organizations, and

amount in column (f).

Exception. Generally, section 4958

certain supporting organization

transactions occurring after August

does not apply to any fixed payment

For organization managers, the tax

made to a person under an initial

17, 2006. The following persons will

is the lesser of 10% of the excess

contract. See Regulations section

be considered disqualified persons

benefit or $20,000. This tax is

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

along with certain family members and

computed on each transaction.

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Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes - Department Of The Treasury - 2011 Page 14

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