Instructions For Form 4720 - 2016 (Page 8 of 19) in pdf

(3) and related regulations or in section

correction period, go to

should be classified as nonvoting stock.

4942(j)(5)), or

irm/part7/irm_07-027-017.html#d0e680.

Evidences of indebtedness (including

To the extent it didn't distribute an

convertible indebtedness), warrants,

Business enterprise. In general, this

amount solely because of an incorrect

and other options or rights to acquire

means the active conduct of a trade or

valuation of assets, provided the

stock shouldn't be considered equity

business, including any activity regularly

foundation satisfies the requirements of

interests. See Regulations section

conducted to produce income from

section 4942(a)(2), or

53.4943-3(b)(2).

selling goods or performing services,

For any year for which the initial tax

For a partnership (including a limited

that is an unrelated trade or business

was previously assessed or a notice of

partnership) or joint venture, the term

described in section 513.

deficiency was issued.

“capital interest” should be substituted

The term “business enterprise”

for “nonvoting stock.” For any

doesn't include a functionally related

unincorporated business that isn't a

Schedule C—Initial Tax on

business as defined in section 4942(j)

partnership, joint venture, or sole

Excess Business Holdings

(4). In addition, business holdings don't

proprietorship, references to nonvoting

include program-related investments

(Section 4943)

stock don't apply for computation of

(such as investments in small

permitted holdings. See Regulations

businesses in economically depressed

General Instructions

section 53.4943-3(c)(4).

areas or in corporations to assist in

Private foundations may be subject to

neighborhood renovations) as defined

Attribution of business holdings. In

an excise tax on the amount of any

in section 4944(c) and related

determining the holdings in a business

excess holdings, as described later. For

regulations. Also, business enterprise

enterprise of either a private foundation

purposes of section 4943, donor

doesn't include a trade or business at

or a disqualified person, any stock or

advised funds and certain supporting

least 95% of the gross income of which

other interest owned directly or

organizations are considered private

comes from passive sources. For more

indirectly by or for a corporation,

foundations. For more information on

information, go to

irm/

partnership, estate, or trust is

the applicability of Schedule C to such

part7/irm_07-027-017.html#d0e77.

considered owned proportionately by or

organizations, see General rules on the

for its shareholders, partners, or

Excess business holdings. Excess

permitted holdings of donor advised

beneficiaries. In general, this rule

business holdings is the amount of

funds and certain supporting

doesn't apply to certain income interests

stock or other interest in a business

organizations in a business

or remainder interests of a private

enterprise that the foundation would

enterprise,later.

foundation in a split-interest trust

have to dispose of to a person other

Requirement. If you answered “Yes,”

described in section 4947(a)(2). See

than a disqualified person in order for

to Form 990-PF, Part VII-B, question 3b;

Regulations section 53.4943-8.

the foundation's remaining holdings in

Form 990, Part V, question 8; or Form

the enterprise to be permitted holdings

Taxable period. The taxable period

5227, Part VI-B, question 77b, or

(section 4943(c)(1)). Go to

begins on the first day the foundation

otherwise had excess business

irm/part7/irm_07-027-017.html#d0e179

has excess business holdings and ends

holdings, complete a Schedule C for

for more information.

on the earliest of:

each business enterprise in which the

The mailing date of a notice of

Sole proprietorships. In general, a

foundation had excess business

deficiency, under section 6212, in

private foundation can't have any

holdings for its tax year beginning in

connection with the initial tax on excess

permitted holdings in a business

2016.

business holdings related to those

enterprise that is a sole proprietorship.

Taxes. A private foundation that has

holdings,

For exceptions, go to

irm/

excess holdings in a business

The date the excess is eliminated, or

part7/irm_07-027-017.html#d0e77. For

enterprise may become liable for an

The date the initial tax on excess

a definition of sole proprietorship, see

excise tax based on the amount of

business holdings related to those

Regulations section 53.4943-10(e).

holdings. The initial tax is 10% of the

holdings is assessed.

Corporate voting stock. This stock

value of the excess holdings and is

When a notice of deficiency isn't

entitles a person to vote for the election

imposed on the last day of each tax year

mailed because the restrictions on

of directors. Treasury stock and stock

that ends during the taxable period. The

assessment and collection are waived

that is authorized but unissued isn't

excess holdings are determined on the

or because the deficiency is paid, the

voting stock for these purposes. See

day during the tax year when they were

date of filing the waiver or the date of

Regulations sections 53.4943-3(b)(1)(ii)

the largest.

paying the tax, respectively, will be

and 53.4943-3(b)(2)(ii).

If the foundation keeps the excess

treated as the end of the taxable period.

For a partnership (including a limited

business holdings after the initial tax

See Regulations section 53.4943-9.

partnership) or joint venture, the term

has been imposed, it becomes liable for

“profits interest” should be substituted

an additional tax of 200% of the

Exceptions to Tax on Excess

for “voting stock.” For any

remaining excess business holdings

Business Holdings

unincorporated business enterprise that

unless it disposes of them within the

isn't a partnership, joint venture, or sole

taxable period. However, if the

2% de minimis rule. A private

proprietorship, the term “beneficial

foundation disposes of its excess

foundation won't be treated as having

business holdings during the correction

interest” should be substituted for

excess business holdings in any

“voting stock.” See Regulations section

period, the additional tax won't be

enterprise in which it, together with

53.4943-3(c).

assessed or, if assessed, will be abated

related foundations as described in the

and if collected, will be credited or

instructions for Form 990-PF (under the

Nonvoting stock. Corporate equity

refunded. For information on the

definition for “disqualified person” in the

interests that don't have voting power

General Instructions), owns not more

Instructions for Form 4720 (2016)

Instructions For Form 4720 - 2016 Page 8

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