Instructions For Form 4720 (2015) (Page 13 of 19) in pdf

Applicable organization. In

payment is considered the excess

Excess benefit transaction. An

general, an applicable organization is

benefit.

excess benefit transaction is any

any section 501(c)(3) (except a private

transaction in which:

However, an economic benefit will

foundation), 501(c)(4), or 501(c)(29)

not be treated as compensation for

1. An excess benefit is provided by

organization.

services unless the applicable

the organization, directly or indirectly to,

Also, an applicable organization

organization clearly indicates its intent

or for the use of, any disqualified

includes any organization that was a

to treat the economic benefit (when

person, or

section 501(c)(3) (except a private

paid) as compensation for a disqualified

2. The amount of any economic

foundation), 501(c)(4), or 501(c)(29)

person's services. See Regulations

benefit provided to, or for the use of, a

organization at any time during a

section 53.4958-4(c) for more

disqualified person is determined in

five-year period ending on the date of

information.

whole or in part by the revenues of the

an excess benefit transaction (the

organization and violates the private

Exception. Generally, section 4958

lookback period).

inurement prohibition rules (to the extent

does not apply to any fixed payment

Initial taxes. Excise taxes are imposed

provided in regulations).

made to a person under an initial

under section 4958 on each excess

contract. See Regulations section

Until final regulations are

benefit transaction. If a manager

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

issued regarding the special

receives an excess benefit from an

Special rule. The initial and additional

rules for revenue sharing

excess benefit transaction, the manager

CAUTION

taxes of this section do not apply if the

transactions described in 2 above,

may be liable for the tax on disqualified

transaction described in 1 under Excess

these transactions will only be subject to

persons and the tax on the organization

benefit transaction was pursuant to a

section 4958 liability under the general

manager. See Abatement, earlier, for

written contract in effect on September

rule described in 1 above.

information on abatement, refund, or

13, 1995, and at all times after that date

relief from this tax.

until the time that the transaction

Supporting organization

Tax on disqualified persons. The

occurs.

transactions occurring after July 25,

tax is 25% of the excess benefit and is

2006. For any supporting organization,

However, if a written contract is

paid by any disqualified person who

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

materially modified, it is treated as a

improperly benefited from the excess

grant, loan, compensation, or other

new contract entered into as of the date

benefit transaction.

similar payment provided to a

of the material modification. A material

substantial contributor (defined later),

modification includes amending the

Tax on organization managers. If

family member, or 35% controlled entity

contract to extend its term or to increase

tax is imposed on a disqualified person

will be considered an excess benefit

the compensation payable to a

for any excess benefit transaction, then

transaction. The amount of the excess

disqualified person.

tax is also imposed on any manager

benefit is the amount of such grant,

who knowingly participated in the

Disqualified person. For purposes of

loan, compensation, or other similar

excess benefit transaction. The tax is

this Schedule I, a disqualified person

payment. Also, any loan provided to a

10% of the excess, not to exceed

means:

disqualified person that is not an

$20,000 for each transaction.

organization described in section 509(a)

1. Any person (at any time during

Additional tax on the disqualified

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

the 5-year period ending on the date of

person. If the initial tax is imposed on

organization of the supporting

the transaction) in a position to exercise

an excess benefit transaction and the

organization exempt under section

substantial influence over the affairs of

transaction is not corrected within the

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

the organization,

taxable period, then any disqualified

last sentence of section 509(a) is

2. A family member of an individual

person involved shall be liable for an

considered an excess benefit

described in 1 above, and

additional tax equal to 200% of the

transaction.

3. A 35% controlled entity of a

excess benefit.

Donor advised fund transactions

person described in 1 or 2 above.

This additional tax is abated

occurring after August 17, 2006. Any

Family members. Family members

(refunded if collected) if the excess

grant, loan, compensation, or other

of a disqualified person described in 1

benefit transaction is corrected within

similar payment from any donor advised

above include a disqualified person's

the correction period (defined in

fund to a donor, donor advisor, family

spouse, ancestors, children,

Question B, under Specific Instructions

member, or 35% controlled entity is an

grandchildren, great grandchildren, and

for Page 1, earlier).

excess benefit transaction. The amount

brothers and sisters (whether by whole-

of the excess benefit is the amount of

Taxable period. Taxable period

or half-blood). It also includes the

such grant, loan, compensation, or

means the period beginning with the

spouse of the children, grandchildren,

other similar payment.

date on which the excess benefit

great grandchildren, brothers, or sisters

transaction occurs and ending on the

Excess benefit. Excess benefit

(whether by whole- or half-blood).

earlier of:

means the excess of the economic

35% controlled entity. The term

1. The date a notice of deficiency

benefit received from the applicable

35% controlled entity means:

was mailed to the disqualified person for

organization over the consideration

A corporation in which a disqualified

the initial tax on the excess benefit

given (including services) by a

person described in 1 or 2 above owns

transaction, or

disqualified person, except in the

more than 35% of the total combined

immediately preceding special rules

2. The date on which the initial tax

voting power,

where the entire amount of the grant,

on the excess benefit transaction for the

loan, compensation, or other similar

disqualified person is assessed.

Instructions for Form 4720 (2015)

Instructions For Form 4720 (2015) Page 13

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