Instructions For Form 990-Pf - Return Of Private Foundation Or Section 4947(A)(1) Nonexempt Charitable Trust Treated As A Private Foundation - Return Of Private Foundation Or Section 4947(A)(1) Nonexempt Charitable Trust Treated As A Private Foundation - Page 18
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31Property held for investment
The completed Form 990-PF in
modified 1% tax on net investment
purposes. Property is treated as held for
Package 990-PF, Returns for Private
income.) However, they must first
investment purposes if the property is of a
Foundations or Section 4947(a)(1)
compute the tax under section 4940(a) as
type that generally produces interest,
Nonexempt Charitable Trusts Treated as
if that tax applied to them.
dividends, rents, or royalties, even if the
Private Foundations, contains an example
Foreign organizations. Under section
foundation disposes of the property as
of a sale of investment property in which
4948, exempt foreign private foundations
soon as it receives it.
the gain was computed using the donor’s
are subject to a 4% tax on their gross
basis under the rules of section 1015(a).
Charitable use property. Do not include
investment income derived from U.S.
any gain or loss from disposing of
sources.
Part V—Qualification
property used for the foundation’s
Taxable foreign private foundations
charitable purposes in the computation of
Under Section 4940(e) for
that filed Form 1040NR, U.S. Nonresident
tax on net investment income. If the
Reduced Tax on Net
Alien Income Tax Return, or Form
foundation uses property for its charitable
1120-F, U.S. Income Tax Return of a
purposes, but also incidentally derives
Investment Income
Foreign Corporation, enter
income from the property that is subject to
“N/A” in Part VI.
This part is used by domestic private
the net investment income tax, any gain
foundations (exempt and taxable) to
or loss from the sale or other disposition
Estimated tax. Domestic exempt and
determine whether they qualify for the
of the property is not subject to the tax.
taxable private foundations and section
reduced 1% tax under section 4940(e) on
4947(a)(1) nonexempt charitable trusts
However, if the foundation uses
net investment income rather than the 2%
may have to make estimated tax
property both for charitable purposes and
tax on net investment income under
payments for the excise tax based on
(other than incidentally) for investment
section 4940(a).
investment income. See General
purposes, include in the computation of
Do not complete Part V if this is the
Instruction O for more information.
tax on net investment income the part of
organization’s first year. A private
the gain or loss from the sale or
Tax Computation
foundation cannot qualify under section
disposition of the property that is allocable
4940(e) for its first year of existence, nor
to the investment use of the property.
Line 1a only applies to domestic
can a former public charity qualify for the
!
Program-related investments. Do
exempt operating foundations that
first year it is treated as a private
not include gains or losses from the sale
are described in section
foundation.
CAUTION
or exchange of program-related
4940(d)(2) and that have a ruling letter
A separate computation must be made
investments as defined in the instructions
from the IRS establishing exempt
for each year in which the foundation
for Part IX-B.
operating foundation status. If your
wants to qualify for the reduced tax.
organization does not have this letter,
Losses. If the disposition of investment
Line 1, column (b). Enter the amount of
skip line 1a.
property results in a loss, that loss may
adjusted qualifying distributions made for
be subtracted from capital gains realized
Line 1a. A domestic exempt private
each year shown. The amounts in column
from the disposition of property during the
foundation that qualifies as an exempt
(b) are taken from Part XII, line 6 of the
same tax year but only to the extent of the
operating foundation under section
Form 990-PF for 2000 – 2004.
gains. If losses are more than gains, the
4940(d)(2) is not liable for any tax on net
Line 1, column (c). Enter the net value
excess may not be subtracted from gross
investment income on this return.
of noncharitable-use assets for each year.
investment income, nor may the losses
The amounts in column (c) are taken from
If your organization qualifies, check the
be carried back or forward to other tax
Part X, line 5, for 2000 – 2004.
box and enter the date of the ruling letter
years.
on line 1a and enter “N/A” on line 1.
Part VI—Excise Tax Based
Basis. The basis for determining gain
Leave the rest of Part Vl blank. For the
from the sale or other disposition of
first year, the organization must attach a
on Investment Income
property is the larger of:
copy of the ruling letter establishing
(Section 4940(a), 4940(b),
exempt operating foundation status. As
1. The fair market value of the
long as the organization retains this
property on December 31, 1969, plus or
4940(e), or 4948)
status, write the date of the ruling letter in
minus all adjustments after December 31,
the space on line 1a. If the organization
1969, and before the date of disposition, if
General Rules
no longer qualifies under section
the foundation held the property on that
Domestic exempt private foundations.
4940(d)(2), leave the date line blank and
date and continuously after that date until
compute the section 4940 tax in the
disposition, or
These foundations are subject to a 2%
normal manner.
tax on net investment income under
2. The basis of the property on the
section 4940(a). However, certain exempt
date of disposition under normal basis
Qualification. To qualify as an
operating foundations described in
rules (actual basis). See Code sections
exempt operating foundation for a tax
section 4940(d)(2) may not owe any tax,
1011 – 1021.
year, an organization must meet the
and certain private foundations that meet
following requirements of section
The rules that generally apply to
the requirements of section 4940(e) may
4940(d)(2).
property dispositions reported in this part
qualify for a reduced tax of 1% (see the
•
It is an operating foundation described
are:
Part V instructions).
in section 4942(j)(3).
•
•
Section 1011, Adjusted basis for
Exception. The section 4940 tax does
It has been publicly supported for at
determining gain or loss;
not apply to an organization making an
least 10 tax years or was a private
•
Section 1012, Basis of property — cost;
election under section 41(e)(6). Enter
operating foundation on January 1, 1983,
•
Section 1014, Basis of property
“N/A” in Part VI.
or for its last tax year ending before
acquired from a decedent;
Domestic taxable private foundations
January 1, 1983.
•
•
Section 1015, Basis of property
and section 4947(a)(1) nonexempt
Its governing body, at all times during
acquired by gifts and transfers in trust;
charitable trusts. These organizations
the tax year, consists of individuals less
and
are subject to a modified 2% tax on net
than 25% of whom are disqualified
•
Section 1016, Adjustments to basis.
investment income under section 4940(b).
individuals, and is broadly representative
To figure a loss, basis on the date of
(See Part V and its instructions to find out
of the general public, and
•
disposition is determined under normal
if they meet the requirements of section
It has no officer who was a disqualified
basis rules.
4940(e) that allows them to use a
individual at any time during the tax year.
-18-
Form 990-PF Instructions
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