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an act, and participation was willful and

excise tax on the amount of any excess

assist in neighborhood renovations) as

not due to reasonable cause, each is

holdings. For purposes of section 4943,

defined in section 4944(c) and related

individually liable for the entire tax in

donor advised funds and certain

regulations. Also, business enterprise

connection with the act. But the

supporting organizations are

does not include a trade or business at

foundation managers liable for the tax

considered private foundations. For

least 95% of the gross income of which

may prorate the payment among

more information on the applicability of

comes from passive sources. Log on to

themselves. Enter in column (c) the tax

Schedule C to such organizations, see

to be paid by each foundation manager.

General rules on the permitted holdings

irm_07-027-017.html#d0e77.

of donor advised funds and certain

Carry the total amount in column (d)

Excess business holdings. Excess

supporting organizations in a business

for each foundation manager to Part

business holdings is the amount of

enterprise, later.

II-A, column (c).

stock or other interest in a business

Requirement. If you answered “Yes,”

enterprise that the foundation would

to Form 990-PF, Part VII-B, question

have to dispose of to a person other

Schedule B—Initial Tax

3b; Form 990, Part V, question 8; or

than a disqualified person in order for

Form 5227, Part VI-B, question 77b, or

the foundation’s remaining holdings in

on Undistributed Income

otherwise had excess business

the enterprise to be permitted holdings

holdings, complete a Schedule C for

(Section 4942)

(section 4943(c)(1)). Go to

each business enterprise in which the

irs.gov/irm/part7/irm_07-027-017.

Complete Schedule B if you answered

foundation had excess business

html#d0e179

for more information.

“Yes,” to Form 990-PF, Part VII-B,

holdings for its tax year beginning in

Sole proprietorships. In general, a

question 2b.

2011.

private foundation may not have any

An initial excise tax of 30% is

Taxes. A private foundation that has

permitted holdings in a business

imposed on a private foundation’s

excess holdings in a business

enterprise that is a sole proprietorship.

undistributed income on the first day of

enterprise may become liable for an

For exceptions, go to

irs.

the second or any succeeding tax year

excise tax based on the amount of

gov/irm/part7/irm_07-027-017.

after the tax year in connection with

holdings. The initial tax is 10% of the

html#d0e77. For a definition of sole

which income remains undistributed.

value of the excess holdings and is

proprietorship, see Regulations section

Use the 2011 Form 4720 to report

imposed on the last day of each tax

53.4943-10(e).

the initial tax on undistributed income

year that ends during the taxable

Corporate voting stock. This stock

for tax years beginning in 2009 or

period. The excess holdings are

entitles a person to vote for the election

earlier that remains undistributed at the

determined on the day during the tax

of directors. Treasury stock and stock

end of the foundation’s current tax year

year when they were the largest.

that is authorized but unissued is not

beginning in 2011. The initial tax will

If the foundation keeps the excess

voting stock for these purposes. See

not apply to a private foundation’s

business holdings after the initial tax

Regulations sections 53.4943-3(b)(1)(ii)

undistributed income:

has been imposed, it becomes liable for

•

and 53.4943-3(b)(2)(ii).

For any tax year it is an operating

an additional tax of 200% of the

foundation (as defined in section

For a partnership (including a limited

remaining excess business holdings

4942(j)(3) and related regulations or in

partnership) or joint venture, the term

unless it disposes of them within the

section 4942(j)(5)), or

“profits interest” should be substituted

taxable period. However, if the

•

To the extent it did not distribute an

for “voting stock.” For any

foundation disposes of its excess

amount solely because of an incorrect

unincorporated business enterprise that

business holdings during the correction

valuation of assets, provided the

is not a partnership, joint venture, or

period, the additional tax will not be

foundation satisfies the requirements of

sole proprietorship, the term “beneficial

assessed or, if assessed, will be abated

section 4942(a)(2), or

interest” should be substituted for

and if collected, will be credited or

•

For any year for which the initial tax

“voting stock.” See Regulations section

refunded. For information on the

was previously assessed or a notice of

53.4943-3(c).

correction period, go to

irs.

deficiency was issued.

gov/irm/part7/irm_07-027-017.

Nonvoting stock. Corporate equity

Do not complete Schedule B for any

html#d0e680.

interests that do not have voting power

year for which any of the above

should be classified as nonvoting stock.

Business enterprise. In general, this

provisions apply to the undistributed

Evidences of indebtedness (including

means the active conduct of a trade or

income.

convertible indebtedness), warrants,

business, including any activity

and other options or rights to acquire

regularly conducted to produce income

stock should not be considered equity

from selling goods or performing

Schedule C—Initial Tax

interests. See Regulations section

services, that is an unrelated trade or

53.4943-3(b)(2).

on Excess Business

business described in section 513.

The term “business enterprise” does

For a partnership (including a limited

Holdings (Section 4943)

not include a functionally related

partnership) or joint venture, the term

business as defined in section

“capital interest” should be substituted

General Instructions

4942(j)(4). In addition, business

for “nonvoting stock.” For any

Private foundations are generally not

holdings do not include program-related

unincorporated business that is not a

permitted to hold more than a 20%

investments (such as investments in

partnership, joint venture, or sole

interest in an unrelated business

small businesses in economically

proprietorship, references to nonvoting

enterprise. They may be subject to an

depressed areas or in corporations to

stock do not apply for computation of

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Form 4720 Instructions

Instructions For Form 4720 - Return Of Certain Excise Taxes - Department Of The Treasury - 2011 Page 8

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