General rules on the permitted holdings
beneficiaries. In general, this rule does
Excess business holdings. Excess
of donor advised funds and certain
not apply to certain income interests or
business holdings is the amount of
supporting organizations in a business
remainder interests of a private
stock or other interest in a business
enterprise,later.
foundation in a split-interest trust
enterprise that the foundation would
described in section 4947(a)(2). See
have to dispose of to a person other
Requirement. If you answered “Yes,”
Regulations section 53.4943-8.
than a disqualified person in order for
to Form 990-PF, Part VII-B, question 3b;
the foundation's remaining holdings in
Form 990, Part V, question 8; or Form
Taxable period. The taxable period
the enterprise to be permitted holdings
5227, Part VI-B, question 77b, or
begins on the first day the foundation
(section 4943(c)(1)). Go to
otherwise had excess business
has excess business holdings and ends
irm/part7/irm_07-027-017.html#d0e179
holdings, complete a Schedule C for
on the earliest of:
for more information.
each business enterprise in which the
The mailing date of a notice of
foundation had excess business
deficiency, under section 6212, in
Sole proprietorships. In general, a
holdings for its tax year beginning in
connection with the initial tax on excess
private foundation may not have any
2015.
business holdings related to those
permitted holdings in a business
holdings,
enterprise that is a sole proprietorship.
Taxes. A private foundation that has
The date the excess is eliminated, or
For exceptions, go to
irm/
excess holdings in a business
The date the initial tax on excess
part7/irm_07-027-017.html#d0e77. For
enterprise may become liable for an
business holdings related to those
a definition of sole proprietorship, see
excise tax based on the amount of
holdings is assessed.
Regulations section 53.4943-10(e).
holdings. The initial tax is 10% of the
value of the excess holdings and is
When a notice of deficiency is not
Corporate voting stock. This stock
mailed because the restrictions on
imposed on the last day of each tax year
entitles a person to vote for the election
assessment and collection are waived
that ends during the taxable period. The
of directors. Treasury stock and stock
or because the deficiency is paid, the
excess holdings are determined on the
that is authorized but unissued is not
date of filing the waiver or the date of
day during the tax year when they were
voting stock for these purposes. See
paying the tax, respectively, will be
the largest.
Regulations sections 53.4943-3(b)(1)(ii)
treated as the end of the taxable period.
If the foundation keeps the excess
and 53.4943-3(b)(2)(ii).
See Regulations section 53.4943-9.
business holdings after the initial tax
For a partnership (including a limited
has been imposed, it becomes liable for
partnership) or joint venture, the term
Exceptions to Tax on Excess
an additional tax of 200% of the
“profits interest” should be substituted
remaining excess business holdings
Business Holdings
for “voting stock.” For any
unless it disposes of them within the
unincorporated business enterprise that
2% de minimis rule. A private
taxable period. However, if the
is not a partnership, joint venture, or
foundation will not be treated as having
foundation disposes of its excess
sole proprietorship, the term “beneficial
excess business holdings in any
business holdings during the correction
interest” should be substituted for
enterprise in which it, together with
period, the additional tax will not be
“voting stock.” See Regulations section
related foundations as described in the
assessed or, if assessed, will be abated
53.4943-3(c).
instructions for Form 990-PF (under the
and if collected, will be credited or
Nonvoting stock. Corporate equity
definition for “disqualified person” in the
refunded. For information on the
interests that do not have voting power
General Instructions), owns not more
correction period, go to
should be classified as nonvoting stock.
than 2% of the voting stock and not
irm/part7/irm_07-027-017.html#d0e680.
Evidences of indebtedness (including
more than 2% in value of all outstanding
Business enterprise. In general, this
convertible indebtedness), warrants,
shares of all classes of stock.
means the active conduct of a trade or
and other options or rights to acquire
Disposition of excess business hold
business, including any activity regularly
stock should not be considered equity
ings within 90 days. Generally, when
conducted to produce income from
interests. See Regulations section
a private foundation acquires excess
selling goods or performing services,
53.4943-3(b)(2).
business holdings other than as a result
that is an unrelated trade or business
For a partnership (including a limited
of purchase by the foundation (such as
described in section 513.
partnership) or joint venture, the term
an acquisition by a disqualified person),
The term “business enterprise” does
“capital interest” should be substituted
the foundation will not be taxed on those
not include a functionally related
for “nonvoting stock.” For any
excess holdings if it disposes of enough
business as defined in section 4942(j)
unincorporated business that is not a
of them so that it no longer has an
(4). In addition, business holdings do
partnership, joint venture, or sole
excess. To avoid the tax, the disposition
not include program-related
proprietorship, references to nonvoting
must take place within 90 days from the
investments (such as investments in
stock do not apply for computation of
date the foundation knew, or had reason
small businesses in economically
permitted holdings. See Regulations
to know, of the event that caused it to
depressed areas or in corporations to
section 53.4943-3(c)(4).
have excess business holdings. That
assist in neighborhood renovations) as
90-day period will be extended to
Attribution of business holdings. In
defined in section 4944(c) and related
include the period during which federal
determining the holdings in a business
regulations. Also, business enterprise
or state securities laws prevent the
enterprise of either a private foundation
does not include a trade or business at
foundation from disposing of those
or a disqualified person, any stock or
least 95% of the gross income of which
excess business holdings. See
other interest owned directly or
comes from passive sources. For more
Regulations section 53.4943-2(a).
indirectly by or for a corporation,
information, go to
irm/
partnership, estate, or trust is
part7/irm_07-027-017.html#d0e77.
General rules on the permitted hold
considered owned proportionately by or
ings of a private foundation in a
for its shareholders, partners, or
8
Instructions for Form 4720 (2015)