Instructions For Form 4720 (2015) (Page 8 of 19) in pdf

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

Instructions for Form 4720 (2015)

Instructions For Form 4720 (2015) Page 8

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