Instructions For Form 5227 (Page 9 of 12) in pdf

1. A functionally related business, defined in section

Line 1

4942(j)(4), or

The activities listed on lines 1a(1) –(6) are considered

2. A trade or business if at least 95% of its gross

self-dealing under section 4941 unless one of the

income is derived from passive sources.

exceptions described in Pub. 578 applies.

See section 4943(d)(3) for additional items that are

The terms “disqualified person” and “foundation

included in gross income from passive sources.

manager” are defined on page 1.

Line 3a

Line 1b

A private foundation is not treated as having excess

If you answered “Yes” to any of the questions in 1a, you

business holdings in any enterprise if, together with

should answer “Yes” to 1b unless all of the acts engaged

related foundations, it owns 2% or less of the voting stock

in were “excepted” acts. Excepted acts are described in

and 2% or less in value of all outstanding shares of all

Regulations sections 53.4941(d)-3 and 4 or appear in

classes of stock. A similar exception applies to a

Notices published in the Internal Revenue Bulletin,

beneficial or profits interest in any business enterprise

relating to disaster assistance. At the time this form went

that is a trust or partnership.

to print, there were no notices currently in effect relating

to disaster assistance for “excepted” acts to self-dealing.

Line 4

Line 2

In general, an investment which jeopardizes any of the

charitable purposes of a trust is one in which a

Under section 4947(b)(3)(A), a split-interest trust is not

foundation manager did not exercise ordinary business

subject to the excess business holdings tax (section

care in making the investment to provide for the long-

4943) or tax on investments that jeopardize the trust’s

and short-term financial needs of the trust in carrying out

charitable purpose (section 4944) if all the income

its charitable purposes.

interest (and none of the remainder interest) of the trust

is devoted solely to one or more of the charitable

For more information on investments which jeopardize

purposes described in section 170(c)(2)(B). In addition,

charitable purposes, see Regulations section 53.4944-1.

all amounts in the trust for which a charitable contribution

Line 5

deduction was allowed under section 170 (for individual

taxpayers) or similar Code section for personal holding

Grants by a trust to a public charity are not taxable

companies, foreign personal holding companies, estates

expenditures if the grants are not earmarked for use for

or trusts (including a deduction for estate or gift tax

any of the activities described on lines 5a(1) –(5) and

purposes), cannot have a total value of more than 60% of

there is no oral or written agreement by which the trust

the total FMV of all amounts in the trust.

may cause the public charity to engage in any such

prohibited activity or to select the grant recipient.

Under section 4947(b)(3)(B), a split-interest trust is not

Grants made to exempt operating foundations (as

subject to the section 4943 or 4944 taxes if a deduction

defined in section 4940(d)(2)) are not subject to the

was allowed under section 170 (and related provisions

expenditure responsibility provisions of section 4945. If

for other entities) for amounts payable under the terms of

the trust made grants to such organizations, you do not

the trust to every remainder beneficiary but not to any

have to file Form 4720 for those grants. See the section

income beneficiary.

4945 regulations for more information.

Line 3

Line 5b

In general, excess business holdings are the amount of

If you answered “Yes” to any of the questions in 5a, you

stock or other interest in a business enterprise that the

should answer “Yes” to 5b unless all of the transactions

trust must dispose of to a person other than a disqualified

engaged in were “excepted” transactions. Excepted

person in order for the trust’s remaining holdings in the

transactions are described in Regulations section

enterprise to be permitted holdings.

53.4945 or appear in Notices published in the Internal

In general, the combined permitted holdings of a trust

Revenue Bulletin, relating to disaster assistance. At the

and all disqualified persons may not be more than 20% of

time this form went to print, there were no notices

the voting power (or beneficial or profits interest, in the

currently in effect relating to disaster assistance for

case of a trust or a partnership) in any business

“excepted” transactions to taxable expenditures.

enterprise.

Line 6a

There were grace periods of 15 or 20 years for certain

A “personal benefit contract” is, in general, any life

excess business holdings that the trust held on May 26,

insurance, annuity, or endowment contract that benefits,

1969. These holdings were considered held by

directly or indirectly, a transferor, a transferor’s family

disqualified persons rather than the trust during the grace

member, or a transferor designee that is not an

period. The 15-year grace period expired on May 25,

organization described in section 170(c).

1984. This period applied when a trust and all disqualified

persons together held 75% or more (but not more than

Line 6b

95%) interest in a business enterprise. The 20-year grace

Enter the total of all premiums paid by the split-interest

period expired on May 25, 1989. It applied if the

trust on any personal benefit contract if the payment of

combined holdings were more than 95%.

premiums is in connection with a transfer for which a

In general, a “business enterprise” means the active

deduction is not allowed under section 170(f)(10)(A).

conduct of a trade or business, including any activity that

Also, if there is an understanding or expectation that any

is regularly conducted to produce income from selling

person will directly or indirectly pay any premium on a

goods or performing services, that is an unrelated trade

personal benefit contract for the transferor, include those

or business under section 513.

premium payments in the amount entered on this line.

The term “business enterprise” does not include:

For more information, see the instructions for Form 8870.

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Instructions For Form 5227 Page 9

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