Instructions For Form 990 And Form 990-Ez - 2003 Page 13
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46Revenue Sharing Transactions
and use contemporaneous persuasive
responsibilities to the organization. For
comparability data when they provide the
example, a director who votes against giving
Proposed intermediate sanction regulations
benefits.
an excess benefit would ordinarily not be
were issued in 1998. The proposed regulations
subject to this tax.
had special provisions covering ‘‘any
Organizations that do not establish a
A person participates in a transaction
transaction in which the amount of any
presumption of reasonableness. An
organization may still comply with section 4958
knowingly if the person has actual knowledge
economic benefit provided to or for the use of a
of sufficient facts so that, based solely upon
disqualified person is determined in whole or in
even if it did not establish a presumption of
such facts, the transaction would be an excess
part by the revenues of one or more activities
reasonableness. In some cases, an
organization may find it impossible or
benefit transaction. Knowing does not mean
of the organization. . .’’ — so-called
having reason to know. The organization
‘‘revenue-sharing transactions.’’ Rather than
impracticable to fully implement each step of
manager ordinarily will not be considered
setting forth additional rules on
the rebuttable presumption process described
above. In such cases, the organization should
knowing if, after full disclosure of the factual
revenue-sharing transactions, the final
situation to an appropriate professional, the
regulations reserve this section. Consequently,
try to implement as many steps as possible, in
organization manager relied on the
until the Service issues new regulations for this
whole or in part, in order to substantiate the
professional’s reasoned written opinion on
reserved section on revenue-sharing
reasonableness of benefits as timely and as
matters within the professional’s expertise or if
transactions, these transactions will be
well as possible. If an organization does not
the manager relied on the fact that the
satisfy the requirements of the rebuttable
evaluated under the general rules (i.e., the fair
requirements for the rebuttable presumption of
market value standards) that apply to all
presumption of reasonableness, a facts and
reasonableness have been satisfied.
contractual arrangements between applicable
circumstances approach will be followed, using
Participation by an organization manager is
established rules for determining
tax-exempt organizations and their disqualified
willful if it is voluntary, conscious, and
persons.
reasonableness of compensation and benefit
intentional. An organization manager’s
deductions in a manner similar to the
Revocation of Exemption and Section
participation is due to reasonable cause if the
established procedures for section 162
4958
manager has exercised responsibility on behalf
business expenses.
of the organization with ordinary business care
Section 4958 does not affect the substantive
Section 4958 Taxes
and prudence.
standards for tax exemption under section
501(c)(3) or section 501(c)(4), including the
Tax on disqualified persons. An excise tax
Correcting an Excess Benefit
requirements that the organization be
equal to 25% of the excess benefit is imposed
Transaction
organized and operated exclusively for exempt
on each excess benefit transaction between an
A disqualified person corrects an excess
purposes, and that no part of its net earnings
applicable tax-exempt organization and a
benefit transaction by undoing the excess
inure to the benefit of any private shareholder
disqualified person. The disqualified person
benefit to the extent possible, and by taking
or individual. The legislative history indicates
who benefited from the transaction is liable for
any additional measures necessary to place
that in most instances, the imposition of this
the tax. If the 25% tax is imposed and the
the organization in a financial position not
intermediate sanction will be in lieu of
excess benefit transaction is not corrected
worse than that in which it would be if the
revocation. IRS has indicated that the following
within the taxable period, an additional excise
disqualified person were dealing under the
four factors will be considered in determining
tax equal to 200% of the excess benefit is
highest fiduciary standards. The organization is
whether to revoke an applicable tax-exempt
imposed.
not required to rescind the underlying
organization’s exemption status where an
If a disqualified person makes a payment of
agreement; however, the parties may need to
excess benefit transaction has occurred:
less than the full correction amount, the 200%
•
modify an ongoing contract with respect to
Whether the organization has been involved
tax is imposed only on the unpaid portion of the
future payments.
in repeated excess benefit transactions;
•
correction amount. If more than one
The size and scope of the excess benefit
A disqualified person corrects an excess
disqualified person received an excess benefit
transaction;
benefit by making a payment in cash or cash
•
from an excess benefit transaction, all such
Whether, after concluding that it has been
equivalents equal to the correction amount to
disqualified persons are jointly and severally
party to an excess benefit transaction, the
the applicable tax-exempt organization. The
liable for the taxes.
organization has implemented safeguards to
correction amount equals the excess benefit
To avoid the imposition of the 200% tax, a
prevent future recurrences; and
plus the interest on the excess benefit; the
•
disqualified person must correct the excess
Whether there was compliance with other
interest rate may be no lower than the
benefit transaction during the taxable period.
applicable laws.
applicable Federal rate. There is an anti-abuse
The taxable period begins on the date the
rule to prevent the disqualified person from
transaction occurs and ends on the earlier of
effectively transferring property other than cash
Q. Erroneous Backup Withholding
the date the statutory notice of deficiency is
or cash equivalents.
issued or the section 4958 taxes are assessed.
Recipients of dividend or interest payments
Property. With the agreement of the
This 200% tax may be abated if the excess
generally must certify their correct taxpayer
applicable tax-exempt organization, a
benefit transaction subsequently is corrected
identification number to the bank or other payer
disqualified person may make a payment by
during a 90-day correction period.
on Form W-9. If the payer does not get this
returning the specific property previously
information, it must withhold part of the
Tax on organization managers. An excise
transferred in the excess benefit transaction.
payments as “backup withholding.” If the
tax equal to 10% of the excess benefit may be
The return of the property is considered a
organization was subject to erroneous backup
imposed on the participation of an organization
payment of cash (or cash equivalent) equal to
withholding because the payer did not realize it
manager in an excess benefit transaction
the lesser of:
•
was an exempt organization and not subject to
between an applicable tax-exempt organization
The fair market value of the property on the
this withholding, it can claim credit on Form
and a disqualified person. This tax, which may
date the property is returned to the
990-T for the amount withheld. See the
not exceed $10,000 with respect to any single
organization, or
•
Instructions for Form 990-T. Claims for refund
transaction, is only imposed if the 25% tax is
The fair market value of the property on the
must be filed within 3 years after the date the
imposed on the disqualified person, the
date the excess benefit transaction occurred.
original return was due; 3 years after the date
organization manager knowingly participated in
Insufficient payment. If the payment
the organization filed it; or 2 years after the
the transaction, and the manager’s
resulting from the return of the property is less
date the tax was paid, whichever is later.
participation was willful and not due to
than the correction amount, the disqualified
reasonable cause. There is also joint and
person must make an additional cash payment
several liability for this tax. An organization
to the organization equal to the difference.
R. Group Return
manager may be liable for both the tax on
Excess payment. If the payment resulting
If a parent organization wants to file a group
disqualified persons and on organization
from the return of the property exceeds the
return for two or more of its subsidiaries, it
managers in appropriate circumstances.
correction amount described above, the
must use Form 990. The parent organization
An organization manager is any officer,
organization may make a cash payment to the
cannot use a Form 990-EZ for the group
director, or trustee of an applicable tax-exempt
disqualified person equal to the difference.
return.
organization, or any individual having powers
Churches and Section 4958
A central, parent, or “like” organization can
or responsibilities similar to officers, directors,
file a group return on Form 990 for two or more
or trustees of the organization, regardless of
The regulations make it clear that the IRS will
local organizations that are:
title. An organization manager is not
apply the procedures of section 7611 when
considered to have participated in an excess
initiating and conducting any inquiry or
1. Affiliated with the central organization at
benefit transaction where the manager has
examination into whether an excess benefit
the time its annual accounting period ends,
opposed the transaction in a manner
transaction has occurred between a church
2. Subject to the central organization’s
consistent with the fulfillment of the manager’s
and a disqualified person.
general supervision or control,
-13-
General Instructions for Form 990 and Form 990-EZ
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