26 U.S.C. § 4943
There is hereby imposed on the excess business holdings of any private foundation in a business enterprise during any taxable year which ends during the taxable period a tax equal to 10 percent of the value of such holdings.
The tax imposed by paragraph (1)-
In any case in which an initial tax is imposed under subsection (a) with respect to the holdings of a private foundation in any business enterprise, if, at the close of the taxable period with respect to such holdings, the foundation still has excess business holdings in such enterprise, there is hereby imposed a tax equal to 200 percent of such excess business holdings.
For purposes of this section-
The term "excess business holdings" means, with respect to the holdings of any private foundation in any business enterprise, the amount of stock or other interest in the enterprise which the foundation would have to dispose of to a person other than a disqualified person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings.
The permitted holdings of any private foundation in an incorporated business enterprise are-
In any case in which all disqualified persons together do not own more than 20 percent of the voting stock of an incorporated business enterprise, nonvoting stock held by the private foundation shall also be treated as permitted holdings.
If-
then subparagraph (A) shall be applied by substituting 35 percent for 20 percent.
A private foundation shall not be treated as having excess business holdings in any corporation in which it (together with all other private foundations which are described in section 4946(a)(1)(H)) owns not more than 2 percent of the voting stock and not more than 2 percent in value of all outstanding shares of all classes of stock.
The permitted holdings of a private foundation in any business enterprise which is not incorporated shall be determined under regulations prescribed by the Secretary. Such regulations shall be consistent in principle with paragraphs (2) and (4), except that-
Paragraph (4) (other than subparagraph (B)(i)) shall apply to any interest in a business enterprise which a private foundation acquires under the terms of a trust which was irrevocable on May 26, 1969, or under the terms of a will executed on or before such date, which are in effect on such date and at all times thereafter, as if such interest were held on May 26, 1969, except that the 15-year and 10-year periods prescribed in clauses (ii) and (iii) of paragraph (4)(B) shall commence with respect to such interest on the date of distribution under the trust or will in lieu of May 26, 1969.
Except as provided in paragraph (5), if, after May 26, 1969, there is a change in the holdings in a business enterprise (other than by purchase by the private foundation or by a disqualified person) which causes the private foundation to have-
In any case where an acquisition by a disqualified person would result in a substitution under clause (i) or (ii) of subparagraph (D) of paragraph (4), the preceding sentence shall be applied with respect to such acquisition as if it did not contain the phrase "or by a disqualified person" in the material preceding subparagraph (A).
The Secretary may extend for an additional 5-year period the period under paragraph (6) for disposing of excess business holdings in the case of an unusually large gift or bequest of diverse business holdings or holdings with complex corporate structures if-
For purposes of this section-
In computing the holdings of a private foundation, or a disqualified person (as defined in section 4946) with respect thereto, in any business enterprise, any stock or other interest owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. The preceding sentence shall not apply with respect to an income or remainder interest of a private foundation in a trust described in section 4947(a)(2), but only if, in the case of property transferred in trust after May 26, 1969, such foundation holds only an income interest or only a remainder interest in such trust.
The term "taxable period" means, with respect to any excess business holdings of a private foundation in a business enterprise, the period beginning on the first day on which there are excess holdings and ending on the earlier of-
The term "business enterprise" does not include-
For purposes of subparagraph (B), gross income from passive sources includes the items excluded by section 512(b)(1), (2), (3), and (5), and income from the sale of goods (including charges or costs passed on at cost to purchasers of such goods or income received in settlement of a dispute concerning or in lieu of the exercise of the right to sell such goods) if the seller does not manufacture, produce, physically receive or deliver, negotiate sales of, or maintain inventories in such goods.
The term "disqualified person" (as defined in section 4946(a)) does not include a plan described in section 4975(e)(7) with respect to the holdings of a private foundation described in paragraphs (4) and (5) of subsection (c).
For purposes of this section, a donor advised fund (as defined in section 4966(d)(2)) shall be treated as a private foundation.
In applying this section to any donor advised fund (as so defined), the term "disqualified person" means, with respect to the donor advised fund, any person who is-
For purposes of this subsection, rules similar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to donor advised funds (as so defined), except that-
For purposes of this section, an organization which is described in paragraph (3) shall be treated as a private foundation.
The Secretary may exempt the excess business holdings of any organization from the application of this subsection if the Secretary determines that such holdings are consistent with the purpose or function constituting the basis for its exemption under section 501.
An organization is described in this paragraph if such organization is-
In applying this section to any organization described in paragraph (3), the term "disqualified person" means, with respect to the organization-
A person is described in this subparagraph if such person is-
which is a substantial contributor (as so defined) to the organization.
For purposes of this subsection-
The term "type III supporting organization" means an organization which meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and which is operated in connection with one or more organizations described in paragraph (1) or (2) of section 509(a).
The term "functionally integrated type III supporting organization" means a type III supporting organization which is not required under regulations established by the Secretary to make payments to supported organizations (as defined under section 509(f)(3)) due to the activities of the organization related to performing the functions of, or carrying out the purposes of, such supported organizations.
For purposes of this subsection, the term "excess business holdings" shall not include any holdings of a type III supporting organization in any business enterprise if, as of November 18, 2005, the holdings were held (and at all times thereafter, are held) for the benefit of the community pursuant to the direction of a State attorney general or a State official with jurisdiction over such organization.
For purposes of this subsection, rules similar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to organizations described in section 509(a)(3), except that-
Subsection (a) shall not apply with respect to the holdings of a private foundation in any business enterprise which meets the requirements of paragraphs (2), (3), and (4) for the taxable year.
The requirements of this paragraph are met if-
The requirements of this paragraph are met if the business enterprise, not later than 120 days after the close of the taxable year, distributes an amount equal to its net operating income for such taxable year to the private foundation.
For purposes of this paragraph, the net operating income of any business enterprise for any taxable year is an amount equal to the gross income of the business enterprise for the taxable year, reduced by the sum of-
The requirements of this paragraph are met if, at all times during the taxable year-
This subsection shall not apply to-
26 U.S.C. § 4943
EDITORIAL NOTES
REFERENCES IN TEXTThe date of enactment of this subsection, referred to in subsecs. (e)(3)(A) and (f)(7)(A), probably means the date of enactment of subsecs. (e) and (f) which were enacted by Pub. L. 109-280, which was approved Aug. 17, 2006.
CODIFICATIONSections 1212(c), 1233(a), and 1243(a) of Pub. L. 109-280, which directed the amendment of section 4943 without specifying the act to be amended, were executed to this section, which is section 4943 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below.
AMENDMENTS2018-Subsec. (g). Pub. L. 115-123 added subsec. (g).2014-Subsecs. (e)(3)(B), (f)(7)(B). Pub. L. 113-295 substituted "January 1, 1971" for "January 1, 1970". 2006-Subsec. (a)(1). Pub. L. 109-280, §1212(c), substituted "10 percent" for "5 percent". See Codification note above.Subsec. (e). Pub. L. 109-280, §1233(a), added subsec. (e). See Codification note above.Subsec. (f). Pub. L. 109-280, §1243(a), added subsec. (f). See Codification note above.1984-Subsec. (c)(4)(A)(ii). Pub. L. 98-369, §308(a), substituted "For purposes of the preceding sentence, any decrease in percentage holdings attributable to issuances of stock (or to issuances of stock coupled with redemptions of stock) shall be disregarded so long as (I) the net percentage decrease disregarded under this sentence does not exceed 2 percent, and (II) the number of shares held by the foundation is not affected by any such issuance or redemption" for "For purposes of this clause, any decrease in percentage holdings attributable to issuances of stock (or to issuances of stock coupled with redemptions of stock) shall be determined only as of the close of each taxable year of the private foundation unless the aggregate of the percentage decreases attributable to the issuances of stock (or such issuances and redemptions) during such taxable year equals or exceeds 1 percent".Subsec. (c)(4)(B)(i). Pub. L. 98-369, §309(a), substituted "the private foundation and all disqualified persons have" for "the private foundation has".Subsec. (c)(6). Pub. L. 98-369, §310(a), inserted following subpar. (B) "In any case where an acquisition by a disqualified person would result in a substitution under clause (i) or (ii) of subparagraph (D) of paragraph (4), the preceding sentence shall be applied with respect to such acquisition as if it did not contain the phrase 'or by a disqualified person' in the material preceding subparagraph (A)."Subsec. (c)(7). Pub. L. 98-369, §307(a), added par. (7).Subsec. (d)(4). Pub. L. 98-369, §314(c)(1), added par. (4).1980-Subsec. (b). Pub. L. 96-596, §2(a)(1)(D), substituted "taxable period" for "correction period".Subsec. (d)(2). Pub. L. 96-596, §2(a)(2)(C), 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 in respect to such holdings or the date on which the tax imposed by subsec. (a) of this section in respect to such holdings 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 in respect to such holdings.Subsec. (d)(3), (4). Pub. L. 96-596, §2(a)(3)(C), (4)(B), redesignated par. (4) as (3), and in subpar. (A) of par. (3) as so redesignated, substituted "section 4942(j)(4)" for "section 4942(j)(5)", and struck out par. (3), which defined correction period, with respect to excess business holdings of a private foundation in a business enterprise, as the period ending 90 days after the date of mailing of 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 orderly disposition of such excess business holdings. 1976-Subsecs. (c), (d). Pub. L. 94-455 struck out "or his delegate" after "Secretary" wherever appearing.
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2018 AMENDMENT Pub. L. 115-123, div. D, title II, §41110(b), Feb. 9, 2018, 132 Stat. 160, provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017."
EFFECTIVE DATE OF 2006 AMENDMENT Amendment by section 1212(c) 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, §1233(b), Aug. 17, 2006, 120 Stat. 1100, provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 17, 2006]." Pub. L. 109-280, §1243(b), Aug. 17, 2006, 120 Stat. 1107, provided that: "The amendment made by this section [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 17, 2006]."
EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98-369, div. A, title III, §307(b), July 18, 1984, 98 Stat. 785, as amended by Pub. L. 99-514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:"(1) IN GENERAL.-The amendment made by subsection (a) [amending this section] shall apply to business holdings with respect to which the 5-year period described in section 4943(c)(6) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] ends on or after November 1, 1983."(2) TRANSITIONAL RULE.-Any plan submitted to the Secretary of the Treasury or his delegate on or before the 60th day after the date of the enactment of this Act [July 18, 1984] shall be treated as submitted before the close of the initial 5-year period referred to in section 4943(c)(7)(B) of the Internal Revenue Code of 1986 (as added by subsection (a))."Pub. L. 98-369, div. A, title III, §308(b), July 18, 1984, 98 Stat. 785, provided that: "The amendment made by subsection (a) [amending this section] shall apply to increases and decreases occurring after the date of the enactment of this Act [July 18, 1984]."Pub. L. 98-369, div. A, title III, §309(b), July 18, 1984, 98 Stat. 785, provided that: "The amendment made by subsection (a) [amending this section] shall take effect as if included in the amendment made by section 101(b) of the Tax Reform Act of 1969 [section 101(b) of Pub. L. 91-172 which enacted this section]."Pub. L. 98-369, div. A, title III, §310(b), July 18, 1984, 98 Stat. 786, provided that: "The amendment made by subsection (a) [amending this section] shall apply to acquisitions after the date of the enactment of this Act [July 18, 1984]."Pub. L. 98-369, div. A, title III, §314(c)(2), July 18, 1984, 98 Stat. 788, provided that: "The amendment made by paragraph (1) [amending this section] shall apply with respect to taxable years beginning after the date of the enactment of this Act [July 18, 1984]."
EFFECTIVE DATE OF 1980 AMENDMENTFor 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.
SAVINGS PROVISION Applicability of section to private foundations, see section 101(l)(4) of Pub. L. 91-172, set out as a note under section 4940 of this title.
- Attorney General
- The term "Attorney General" means the Attorney General of the United States.
- 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 of the Treasury
- The term "Secretary of the Treasury" means the Secretary of the Treasury, personally, and shall not include any delegate of his.
- 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.