Instructions For Form 5227 - Split-Interest Trust Information Return

Part VI—Statements

has not satisfied the requirements of

95%) interest in a business enterprise.

section 508(e) by the operation of that

The 20-year grace period expired on

Regarding Activities

state law.

May 25, 1989. It applied if the combined

Answer every question in this section. If

holdings were more than 95%.

Line 2

a line does not apply, enter “N/A.”

In general, a “business enterprise”

The activities listed on lines 2a(1)

Complete Part VI to determine

means the active conduct of a trade or

through (6) are considered self-dealing

whether the trust has complied with the

business, including any activity that is

under section 4941 unless one of the

applicable chapter 42 rules relating to

regularly conducted to produce income

exceptions described in Chapter VIII of

private foundations and whether the

from selling goods or performing

Pub. 578 applies.

trust, trustee, disqualified persons, or

services, that is an unrelated trade or

some combination of these, may be

business under section 513.

The terms “disqualified person” and

liable for foundation excise taxes. These

“foundation manager” are defined on

The term “business enterprise” does

excise taxes include:

page 1.

not include:

The section 4941 tax on self-dealing

1. A functionally related business,

Line 3a

between the trust and “disqualified

defined in section 4942(j)(4); or

Under section 4947(b)(3)(A), a

persons.”

2. A trade or business if at least 95%

split-interest trust is not subject to the

The section 4943 tax on excess

of its gross income is derived from

excess business holdings tax (section

business holdings.

passive sources.

4943) or tax on investments that

The section 4944 tax on investments

See section 4943(d)(3) for additional

jeopardize the trust’s charitable purpose

that jeopardize the trust’s charitable

items that are included in gross income

(section 4944) if all the income interest

purposes.

from passive sources.

(and none of the remainder interest) of

The section 4945 tax on taxable

the trust is devoted solely to one or

Line 4a

expenditures.

more of the charitable purposes

A private foundation is not treated as

The split-interest trust pays these

described in section 170(c)(2)(B). In

having excess business holdings in any

taxes on Form 4720. For a detailed

addition, all amounts in the trust for

enterprise if, together with related

explanation of each of these taxes, see

which a charitable contribution

foundations, it owns 2% or less of the

the instructions for Form 4720.

deduction was allowed under section

voting stock and 2% or less in value of

170 (for individual taxpayers) or similar

The excise taxes on private

all outstanding shares of all classes of

Code section for personal holding

foundations do not apply to any

stock. A similar exception applies to a

companies, foreign personal holding

amounts:

beneficial or profits interest in any

companies, estates or trusts (including a

1. Payable under the terms of the

business enterprise that is a trust or

deduction for estate or gift tax

trust to income beneficiaries, unless a

partnership.

purposes), cannot have a total value of

deduction was allowed under sections

more than 60% of the total FMV of all

170(f)(2)(B), 2055(e)(2)(B), or

Line 5

amounts in the trust.

2522(c)(2)(B);

In general, an investment which

Line 3b

2. In trust for which a charitable

jeopardizes any of the charitable

contribution deduction was not allowed

purposes of a trust is one in which a

Under section 4947(b)(3)(B), a

under any provision of the Code, if the

foundation manager did not exercise

split-interest trust is not subject to the

amounts are segregated (as defined in

ordinary business care in making the

section 4943 or 4944 taxes if a

section 4947(a)(3)) from amounts for

investment to provide for the long- and

deduction was allowed under section

which a deduction was allowable; or

short-term financial needs of the trust in

170 (and related provisions for other

3. Transferred in trust before May 27,

carrying out its charitable purposes.

entities) for amounts payable under the

1969.

terms of the trust to every remainder

For more information on investments

beneficiary but not to any income

which jeopardize charitable purposes,

Line 1

beneficiary.

see Regulations section 53.4944-1.

A split-interest trust must have a

Line 4

Line 6

governing instrument that requires the

trust to act or refrain from acting so as

In general, excess business holdings are

Grants by a trust to a public charity are

not to engage in an act of self-dealing

the amount of stock or other interest in

not taxable expenditures if the grants

under section 4941 or subject it to the

a business enterprise that the trust must

are not earmarked for use for any of the

excise taxes under section 4943, 4944,

dispose of to a person other than a

activities described on lines 6a(1)

or 4945. The trust may satisfy the

disqualified person in order for the

through 6a(5) and there is no oral or

requirements either by express language

trust’s remaining holdings in the

written agreement by which the trust

in its governing instrument or by the

enterprise to be permitted holdings.

may cause the public charity to engage

operation of state law which imposes

in any such prohibited activity or to

In general, the combined permitted

the above requirements on the trust or

select the recipient to which the grant is

holdings of a trust and all disqualified

treats these requirements as being

given.

persons may not be more than 20% of

contained in the governing instrument. If

the voting power (or beneficial or profits

Grants made to exempt operating

a trust claims it satisfies the

interest, in the case of a trust or a

foundations (as defined in section

requirements of section 508(e) by

partnership) in any business enterprise.

4940(d)(2)) are not subject to the

operation of state law, the provisions of

expenditure responsibility provisions of

There were grace periods of 15 or 20

state law must effectively impose the

section 4945. If the trust made grants to

years for certain excess business

requirements of section 508(e) on the

such organizations, you do not have to

holdings that the trust held on May 26,

trust.

file Form 4720 for those grants. See the

1969. These holdings were considered

If, however, the state law does not

section 4945 regulations for more

held by disqualified persons rather than

apply to a governing instrument which

information.

the trust during the grace period. The

contains mandatory directions conflicting

15-year grace period expired on May 25,

with any of its requirements and the

1984. This period applied when a trust

trust has such mandatory directions in

and all disqualified persons together

its governing instrument, then the trust

held 75% or more (but not more than

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Instructions For Form 5227 - Split-Interest Trust Information Return - 1994 Page 6

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