There is hereby imposed on the undistributed income of a private foundation for any taxable year, which has not been distributed before the first day of the second (or any succeeding) taxable year following such taxable year (if such first day falls within the taxable period), a tax equal to 30 percent of the amount of such income remaining undistributed at the beginning of such second (or succeeding) taxable year. The tax imposed by this subsection shall not apply to the undistributed income of a private foundation-
In any case in which an initial tax is imposed under subsection (a) on the undistributed income of a private foundation for any taxable year, if any portion of such income remains undistributed at the close of the taxable period, there is hereby imposed a tax equal to 100 percent of the amount remaining undistributed at such time.
For purposes of this section, the term "undistributed income" means, with respect to any private foundation for any taxable year as of any time, the amount by which-
For purposes of this section, the term "distributable amount" means, with respect to any foundation for any taxable year, an amount equal to-
For purposes of subsection (d), the minimum investment return for any private foundation for any taxable year is 5 percent of the excess of-
For purposes of paragraph (1)(A), the fair market value of securities for which market quotations are readily available shall be determined on a monthly basis. For all other assets, the fair market value shall be determined at such times and in such manner as the Secretary shall by regulations prescribe.
In determining the value of any securities under this paragraph, the fair market value of such securities (determined without regard to any reduction in value) shall not be reduced unless, and only to the extent that, the private foundation establishes that as a result of-
the securities could not be liquidated within a reasonable period of time except at a price less than such fair market value. Any reduction in value allowable under this subparagraph shall not exceed 10 percent of such fair market value.
For purposes of subsection (j), the term "adjusted net income" means the excess (if any) of-
The income modifications referred to in paragraph (1)(A) are as follows:
The deduction modifications referred to in paragraph (1)(B) are as follows:
For purposes of paragraph (2)(B), the basis (for purposes of determining gain) of property held by a private foundation on December 31, 1969, and continuously thereafter to the date of its disposition, shall be deemed to be not less than the fair market value of such property on December 31, 1969.
For purposes of this section, the term "qualifying distribution" means-
Subject to such terms and conditions as may be prescribed by the Secretary, an amount set aside for a specific project which comes within one or more purposes described in section 170(c)(2)(B) may be treated as a qualifying distribution if it meets the requirements of subparagraph (B).
An amount set aside for a specific project shall meet the requirements of this subparagraph if at the time of the set-aside the foundation establishes to the satisfaction of the Secretary that the amount will be paid for the specific project within 5 years, and either-
If, for any taxable year to which clause (ii)(II) of subparagraph (B) applies, the private foundation fails to distribute in cash or its equivalent amounts not less than those required by such clause and-
such distribution in cash or its equivalent shall be treated for the purposes of this subparagraph as made during such year.
If, during the taxable years in the adjustment period for which the organization is a private foundation, the foundation distributes amounts in cash or its equivalent which exceed the amount required to be distributed under clause (ii)(II) of subparagraph (B) (including but not limited to payments with respect to set-asides which were treated as qualifying distributions in prior years), then for purposes of this subsection the distribution required under clause (ii)(II) of subparagraph (B) for the taxable year shall be reduced by an amount equal to such excess.
For purposes of subparagraph (D), with respect to any taxable year of a private foundation, the taxable years in the adjustment period are the taxable years (not exceeding 5) beginning after December 31, 1975, and immediately preceding the taxable year.
In the case of a set-aside which satisfies the requirements of clause (i) of subparagraph (B), for good cause shown, the period for paying the amount set aside may be extended by the Secretary.
For purposes of this section, the term "qualifying distribution" includes a contribution to a section 501(c)(3) organization described in paragraph (1)(A)(i) or (ii) if-
For purposes of this section, the term "qualifying distribution" shall not include any amount paid by a private foundation which is not an operating foundation to-
An organization is described in this subparagraph if the organization meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and is-
An organization is described in this subparagraph if the organization is a functionally integrated type III supporting organization (as defined under section 4943(f)(5)(B)).
Except as provided in paragraph (2), any qualifying distribution made during a taxable year shall be treated as made-
For purposes of this paragraph, distributions shall be taken into account in the order of time in which made.
In the case of any qualifying distribution which (under paragraph (1)) is not treated as made out of the undistributed income of the immediately preceding taxable year, the foundation may elect to treat any portion of such distribution as made out of the undistributed income of a designated prior taxable year or out of corpus. The election shall be made by the foundation at such time and in such manner as the Secretary shall by regulations prescribe.
If, for the taxable years in the adjustment period for which an organization is a private foundation-
then, for purposes of this section (other than subsection (h)), the distributable amount for the taxable year shall be reduced by an amount equal to such excess.
For purposes of paragraph (1), with respect to any taxable year of a private foundation the taxable years in the adjustment period are the taxable years (not exceeding 5) immediately preceding the taxable year.
For purposes of this section-
The term "taxable period" means, with respect to the undistributed income for any taxable year, the period beginning with the first day of the taxable year and ending on the earlier of-
The term "allowable distribution period" means, with respect to any private foundation, the period beginning with the first day of the first taxable year following the taxable year in which the incorrect valuation (described in subsection (a)(2)) occurred and ending 90 days after the date of mailing of a notice of deficiency (with respect to the tax imposed by subsection (a)) under section 6212 extended by-
For purposes of this section, the term "operating foundation" means any organization-
Notwithstanding the provisions of subparagraph (A), if the qualifying distributions (within the meaning of paragraph (1) or (2) of subsection (g)) of an organization for the taxable year exceed the minimum investment return for the taxable year, clause (ii) of subparagraph (A) shall not apply unless substantially all of such qualifying distributions are made directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated.
The term "functionally related business" means-
For purposes of this section (but no other provisions of this title), the term "operating foundation" includes any organization which, on May 26, 1969, and at all times thereafter before the close of the taxable year, operated and maintained as its principal functional purpose facilities for the long-term care, comfort, maintenance, or education of permanently and totally disabled persons, elderly persons, needy widows, or children but only if such organization meets the requirements of paragraph (3)(B)(ii).
26 U.S.C. § 4942
EDITORIAL NOTES
CODIFICATIONSections 1212(b) and 1244(a) of Pub. L. 109-280, which directed the amendment of section 4942 without specifying the act to be amended, were executed to this section, which is section 4942 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below.
AMENDMENTS2014-Subsec. (g)(2)(A). Pub. L. 113-295, §221(a) (105)(A), substituted "Subject" for "For all taxable years beginning on or after January 1, 1975, subject".Subsec. (i)(2). Pub. L. 113-295, §221(a) (105)(B), struck out "beginning after December 31, 1969, and" after "(not exceeding 5)". 2007-Subsec. (i)(1)(A). Pub. L. 110-172 substituted "section 170(b)(1)(F)(ii)" for "section 170(b)(1)(E)(ii)". 2006-Subsec. (a). Pub. L. 109-280, §1212(b), substituted "30 percent" for "15 percent" in introductory provisions. See Codification note above.Subsec. (g)(4). Pub. L. 109-280, §1244(a), amended heading and text of par. (4) generally, substituting provisions relating to limitation on distributions by nonoperating private foundations to supporting organizations for provisions relating to limitation on administrative expenses allocable to making of contributions, gifts, and grants. See Codification note above. 1986-Subsec. (f)(2)(A). Pub. L. 99-514 substituted "(relating to State and local bonds)" for "(relating to interest on certain governmental obligations)".1984-Subsec. (a)(2)(B). Pub. L. 98-369, §314(a)(1), substituted "subsection (j)(2)" for "subsection (j)(4)".Subsec. (d)(1). Pub. L. 98-369, §304(b), substituted "the sum of the minimum investment return plus the amounts described in subsection (f)(2)(C), reduced by" for "the minimum investment return reduced by".Subsec. (f)(1). Pub. L. 98-369, §314(a)(2), substituted "subsection (j)" for "subsection (d)".Subsec. (g)(1)(A). Pub. L. 98-369, §304(a)(2), substituted "including that portion of reasonable and necessary administrative expenses" for "including administrative expenses".Subsec. (g)(2)(C)(ii). Pub. L. 98-369, §305(b)(4), substituted "section 4963(e)" for "section 4962(e)".Subsec. (g)(4). Pub. L. 98-369, §304(a)(1), added par. (4).1983-Subsec. (j)(3)(A)(i). Pub. L. 97-448 substituted "or" for "and" at the end. 1981-Subsec. (d)(1). Pub. L. 97-34, §823(a)(1), struck out "or the adjusted net income (whichever is higher)" after "return".Subsec. (j)(3). Pub. L. 97-34, §823(a)(2), (3), inserted in subpar. (A) "the lesser of" after "substantially all of", designated existing provisions as cl. (i), added cl. (ii), and inserted provision respecting applicability of subpar. (A)(ii). 1980-Subsec. (b). Pub. L. 96-596, §2(a)(1)(C), substituted "taxable period" for "correction period".Subsec. (g)(2)(C)(ii). Pub. L. 96-596, §2(a)(4)(A), substituted "the correction period (as defined in section 4962(e))" for "the initial correction period provided in subsection (j)(2)".Subsec. (j)(1). Pub. L. 96-596, §2(a)(2)(B), substituted provision ending the taxable period on the earlier of the date of mailing of a notice of deficiency with respect to the tax imposed by subsec. (a) of this section under section 6212 of this title or the date on which the tax imposed by subsec. (a) of this section is assessed for provision ending the taxable period on the date of mailing the notice of deficiency with respect to a tax imposed by subsec. (a) of this section under section 6212 of this title.Subsec. (j)(2). Pub. L. 96-596, §2(a)(3)(B)(i), (iii), redesignated par. (4) as (2) and struck out former par. (2), which defined correction period, with respect to any private foundation for any taxable year, as the period beginning with the first day of the taxable year and ending 90 days after the date of mailing a notice of deficiency with respect to the tax imposed by subsec. (b) of this section under section 6212 of this title, extended by any period in which a deficiency cannot be assessed under section 6213(a) of this title and any other period which the Secretary determines is reasonable and necessary to permit a distribution of undistributed income.Subsec. (j)(3)(B)(i). Pub. L. 96-596, §2(a)(3)(B)(ii), substituted "paragraph (4)" for "paragraph (5)".Subsec. (j)(4) to (6). Pub. L. 96-596, §2(a)(3)(B)(iii), (iv), redesignated pars. (5) and (6) as (4) and (5), respectively.1978-Subsec. (j)(6). Pub. L. 95-600 added par. (6).1976-Subsec. (a)(2)(C). Pub. L. 94-455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".Subsec. (e). Pub. L. 94-455, §1303(a), among other changes, substituted provisions establishing a fixed percentage rate to be used in computing the minimum investment return for any private foundation for provisions establishing a variable applicable percentage rate of 7 percent in 1970 and an applicable rate to be determined by the Secretary after 1970, for use in computing the minimum investment return for any private foundation and inserted provisions relating to reduction in value for blockage or similar factors.Subsec. (f)(2)(D). Pub. L. 94-455, §1310(a), added subpar. (D).Subsec. (g)(2). Pub. L. 94-455, §1302(a), among other changes, inserted reference to all taxable years beginning on or after Jan. 1, 1975, requirement that the project will not be completed before the end of the taxable year of the foundation in which the set-aside is made, and subpars. (C) to (E).Subsecs. (h)(2), (j)(2)(B). Pub. L. 94-455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113-295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113-295, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2006 AMENDMENTAmendment by section 1212(b) of Pub. L. 109-280 applicable to taxable years beginning after Aug. 17, 2006, see section 1212(f) of Pub. L. 109-280, set out as a note under section 4941 of this title. Pub. L. 109-280, §1244(c), Aug. 17, 2006, 120 Stat. 1108, provided that: "The amendments made by this section [amending this section and section 4945 of this title] shall apply to distributions and expenditures after the date of the enactment of this Act [Aug. 17, 2006]."
EFFECTIVE DATE OF 1986 AMENDMENTAmendment by Pub. L. 99-514 applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective Date; Transitional Rules note under section 141 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTPub. L. 98-369, div. A, title III, §304(c), July 18, 1984, 98 Stat. 783, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 1984."Amendment by section 305(b)(4) of Pub. L. 98-369 applicable to taxable events occurring after Dec. 31, 1984, see section 305(c) of Pub. L. 98-369, set out as an Effective Date note under section 4962 of this title.Pub. L. 98-369, div. A, title III, §314(a)(4), July 18, 1984, 98 Stat. 787, provided that: "The amendments made by this subsection [amending this section and section 6501 of this title] shall take effect on the date of the enactment of this Act [July 18, 1984].".
EFFECTIVE DATE OF 1983 AMENDMENT Amendment by Pub. L. 97-448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such amendment relates, see section 109 of Pub. L. 97-448, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT Pub. L. 97-34, title VIII, §823(b), Aug. 13, 1981, 95 Stat. 352, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 1981."
EFFECTIVE DATE OF 1980 AMENDMENT For effective date of amendment by Pub. L. 96-596 with respect to any first tier tax and to any second tier tax, see section 2(d) of Pub. L. 96-596, set out as an Effective Date note under section 4961 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95-600, title V, §522(b), Nov. 6, 1978, 92 Stat. 2885, provided that: "The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1969."
EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94-455, title XIII, §1302(c), Oct. 4, 1976, 90 Stat. 1715, provided that: "The amendments made by this section [amending this section and section 6501 of this title] shall apply to taxable years beginning after December 31, 1974."Pub. L. 94-455, title XIII, §1303(b), Oct. 4, 1976, 90 Stat. 1715, provided that: "The amendment made by this section [amending this section] applies to taxable years beginning after December 31, 1975."Pub. L. 94-455, title XIII, §1310(b), Oct. 4, 1976, 90 Stat. 1729, provided that: "The amendments made by this section [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [Oct. 4, 1976]."
SAVINGS PROVISION Applicability of section to organizations organized before May 27, 1969, see section 101(l)(3) of Pub. L. 91-172, set out as a note under section 4940 of this title.
- Internal Revenue Code of 1986
- The term "Internal Revenue Code of 1986" means this title, and the term "Internal Revenue Code of 1939" means the Internal Revenue Code enacted February 10, 1939, as amended.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- State
- The term "State" shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- trade or business
- The term "trade or business" includes the performance of the functions of a public office.