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

index.html and click on the link for Life Cycle of a Private

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

Foundation.

income is derived from passive sources.

The terms “disqualified person” and “foundation

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

manager” are defined on page 1.

included in gross income from passive sources.

Line 1b

Line 3a

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

A private foundation is not treated as having excess

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

business holdings in any enterprise if, together with

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

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

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

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

Notices published in the Internal Revenue Bulletin,

classes of stock. A similar exception applies to a

relating to disaster assistance. At the time this form went

beneficial or profits interest in any business enterprise

to print, there were no notices currently in effect relating

that is a trust or partnership.

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

Line 4

Line 2

In general, an investment which jeopardizes any of the

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

charitable purposes of a trust is one in which a

subject to the excess business holdings tax (section

foundation manager did not exercise ordinary business

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

care in making the investment to provide for the long-

charitable purpose (section 4944) if all the income

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

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

its charitable purposes.

is devoted solely to one or more of the charitable

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

For more information on investments which jeopardize

all amounts in the trust for which a charitable contribution

charitable purposes, see Regulations section 53.4944-1.

deduction was allowed under section 170 (for individual

taxpayers) or similar section for personal holding

Line 5

companies, foreign personal holding companies, estates

Grants by a trust to a public charity are not taxable

or trusts (including a deduction for estate or gift tax

expenditures if the grants are not earmarked for use for

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

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

the total FMV of all amounts in the trust.

and there is no oral or written agreement by which the

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

trust may cause the public charity to engage in any such

subject to the section 4943 or 4944 taxes if a deduction

prohibited activity or to select the grant recipient.

was allowed under section 170 (and related provisions

Grants made to exempt operating foundations (as

for other entities) for amounts payable under the terms of

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

the trust to every remainder beneficiary but not to any

expenditure responsibility provisions of section 4945. If

income beneficiary.

the trust made grants to such organizations, you do not

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

Line 3

4945 regulations for more information.

In general, excess business holdings are the amount of

stock or other interest in a business enterprise that the

Line 5b

trust must dispose of to a person other than a disqualified

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

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

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

enterprise to be permitted holdings.

engaged in were “excepted” transactions. Excepted

In general, the combined permitted holdings of a trust

transactions are described in Regulations section

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

53.4945 or appear in Notices published in the Internal

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

Revenue Bulletin, relating to disaster assistance. At the

case of a trust or a partnership) in any business

time this form went to print, there were no notices

enterprise.

currently in effect relating to disaster assistance for

“excepted” transactions to taxable expenditures.

There were grace periods of 15 or 20 years for certain

excess business holdings that the trust held on May 26,

Line 6a

1969. These holdings were considered held by

A personal benefit contract is, in general, any life

disqualified persons rather than the trust during the grace

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

insurance, annuity, or endowment contract that benefits,

1984. This period applied when a trust and all disqualified

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

member, or a transferor designee that is not an

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

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

organization described in section 170(c).

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

Line 6b

combined holdings were more than 95%.

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

In general, a business enterprise means the active

trust on any personal benefit contract if the payment of

conduct of a trade or business, including any activity that

premiums is in connection with a transfer for which a

is regularly conducted to produce income from selling

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

goods or performing services, that is an unrelated trade

Also, if there is an understanding or expectation that any

or business under section 513.

person will directly or indirectly pay any premium on a

The term “business enterprise” does not include:

personal benefit contract for the transferor, include those

1. A functionally related business, defined in section

premium payments in the amount entered on this line.

4942(j)(4), or

For more information, see the Instructions for Form 8870.

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Instructions For Form 5227 Page 9

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