Instructions For Form 4720 - 2016 (Page 14 of 19) in pdf

Exception. Generally, section 4958

following persons will be considered

or $20,000. This tax is computed on

doesn't apply to any fixed payment

disqualified persons along with certain

each transaction.

made to a person under an initial

family members and 35% controlled

Part II. Enter in column (a) the names

contract. See Regulations section

entities associated with them:

of all disqualified persons who took part

53.4958-4(a)(3) for details.

in the excess benefit transactions. If

Donors of donor advised funds,

Special rule. The initial and additional

more than one disqualified person took

Investment advisors of sponsoring

taxes of this section don't apply if the

part in an excess benefit transaction,

organizations, and

transaction described in 1 under Excess

each is individually liable for the entire

Disqualified persons of a section

benefit transaction was pursuant to a

tax on the transaction. But the

509(a)(3) supporting organization for

written contract in effect on September

disqualified persons who are liable for

the organizations that organization

13, 1995, and at all times after that date

the tax may prorate the payment among

supports.

until the time that the transaction

themselves. Enter in column (c) the tax

occurs.

to be paid by each disqualified person.

For certain supporting

However, if a written contract is

Carry the total amount in column (d)

organization transactions occurring

materially modified, it is treated as a

for each disqualified person to Part II-A,

after July 25, 2006. Substantial

new contract entered into as of the date

column (h).

contributors to supporting organizations

of the material modification. A material

will also be considered disqualified

Part III. Enter in column (a) the names

modification includes amending the

persons along with their family members

of all managers who knowingly took part

contract to extend its term or to increase

and 35% controlled entities.

in the excess benefit transactions listed

the compensation payable to a

in Part I. If more than one manager

Donor advised fund. See the

disqualified person.

knowingly took part in an excess benefit

Schedule K instructions for a definition

Disqualified person. For purposes of

transaction, each is individually liable for

of donor advised fund.

this Schedule I, a disqualified person

the entire tax in connection with the

Investment advisor. Investment

means:

transaction. But the managers liable for

advisor means for any sponsoring

the tax may prorate the payment among

1. Any person (at any time during

organization, any person compensated

themselves. Enter in column (c) the tax

the 5-year period ending on the date of

by such organization (but not an

to be paid by each organization

the transaction) in a position to exercise

employee of such organization) for

manager.

substantial influence over the affairs of

managing the investment of, or

the organization,

Carry the total amount in column (d)

providing investment advice for assets

for each manager to Part II-A, column

2. A family member of an individual

maintained in donor advised funds

(h).

described in 1 above, and

maintained by such sponsoring

organization.

3. A 35% controlled entity of a

Schedule J—Taxes on

person described in 1 or 2 above.

Sponsoring organization. See the

Being a Party to Prohibited

Schedule K instructions for a definition

Family members. Family members

Tax Shelter Transactions

of sponsoring organization.

of a disqualified person described in 1

above include a disqualified person's

(Section 4965)

Substantial contributor. In

spouse, ancestors, children,

general, a substantial contributor means

grandchildren, great grandchildren, and

General Instructions

any person who contributed or

brothers and sisters (whether by whole-

bequeathed an aggregate of more than

Requirement.

or half-blood). It also includes the

$5,000 to the organization, if that

spouse of the children, grandchildren,

1. Complete Schedule J if you are

amount is more than 2% of the total

great grandchildren, brothers, or sisters

an entity described in section 501(c),

contributions and bequests received by

(whether by whole- or half-blood).

501(d), or 170(c) (other than the United

the organization before the end of the

States) or an Indian tribal government

tax year of the organization in which the

35% controlled entity. The term

(within the meaning of section 7701(a)

contribution or bequest is received by

35% controlled entity means:

(40)) and you received proceeds from or

the organization from such person. A

A corporation in which a disqualified

have net income attributable to a

substantial contributor includes the

person described in 1 or 2 above owns

prohibited tax shelter transaction

grantor of a trust.

more than 35% of the total combined

(PTST).

voting power,

Specific Instructions

2. Complete Schedule J if you are

A partnership in which such persons

an entity manager of such an entity who

own more than 35% of the profits

Part I. List each excess benefit

approved the entity as (or otherwise

interest, or

transaction in Part I, column (c). Enter

caused the entity to be) a party to a

A trust or estate in which such

the date of the transaction in column (b)

PTST at any time during the tax year

persons own more than 35% of the

and the amount of the excess benefit in

and who knew (or had reason to know)

beneficial interest.

column (d). Compute the tax on the

that the transaction is a PTST.

excess benefit for disqualified persons

In determining the holdings of a

and enter it in column (e). Compute any

business enterprise, any stock or other

See the following guidance and any

tax on the excess benefit for

interest owned directly or indirectly shall

future guidance for details.

organization managers and enter the

apply.

Notice 2006-65, 2006-31 I.R.B. 102;

amount in column (f).

Notice 2007-18, 2007-9 I.R.B. 608;

For donor advised funds, sponsor

T.D. 9334, 2007-34 I.R.B. 382; and

For organization managers, the tax is

ing organizations, and certain sup

the lesser of 10% of the excess benefit

T.D. 9492, 2010-33 I.R.B. 242.

porting organization transactions

occurring after August 17, 2006. The

Instructions for Form 4720 (2016)

Instructions For Form 4720 - 2016 Page 14

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