Instructions For Form 4720 - 2016 (Page 9 of 19) in pdf

than 2% of the voting stock and not

second phase limit before the increase

Interests held by a private founda

more than 2% in value of all outstanding

will be treated as held by the foundation.

tion (other than donor advised funds

shares of all classes of stock.

See sections 4943(c)(4)(D) and 4943(c)

and supporting organizations) on

(6).

May 26, 1969. For private foundations,

Disposition of excess business hold

other than donor advised funds and

The first-phase periods may be

ings within 90 days. Generally, when

supporting organizations considered to

suspended pending the outcome of any

a private foundation acquires excess

be private foundations for purposes of

judicial proceeding the private

business holdings other than as a result

section 4943, that had business

foundation brings regarding reform or

of purchase by the foundation (such as

holdings on May 26, 1969 (or holdings

other procedure to excuse it from

an acquisition by a disqualified person),

acquired by trust or will as described

compliance with its governing

the foundation won't be taxed on those

below), that were more than the current

instrument or similar instrument in effect

excess holdings if it disposes of enough

limits permit, there are transitional rules

on May 26, 1969. See section 4943(c)

of them so that it no longer has an

that permit the foundation to dispose of

(4)(C) and Regulations section

excess. To avoid the tax, the disposition

the excess over time without being

53.4943-4.

must take place within 90 days from the

subject to the tax on excess business

date the foundation knew, or had reason

Holdings acquired by trust or will.

holdings.

to know, of the event that caused it to

Holdings acquired under the terms of a

have excess business holdings. That

During the first phase, no excess

trust that was irrevocable on May 26,

90-day period will be extended to

business holdings tax was imposed on

1969, or under the terms of a will

include the period during which federal

a private foundation for interests held

executed by that date, are treated as

or state securities laws prevent the

since May 26, 1969, if the foundation

held by the foundation on May 26, 1969,

foundation from disposing of those

had excess holdings on that date. The

except that the 15- and 10-year periods

excess business holdings. See

first phase is:

of the first phase for the holdings start

Regulations section 53.4943-2(a).

on the date of distribution under the trust

A 20-year period beginning on May

or will instead of on May 26, 1969. See

26, 1969, if on that date the foundation

General rules on the permitted hold

section 4943(c)(5) and Regulations

and all disqualified persons held more

ings of a private foundation in a

section 53.4943-5. See section 4943(d)

than a 95% voting interest in the

business enterprise. No excess

(1) and Regulations section 53.4943-8

enterprise (the 20-year first phase

business holdings tax is imposed (a) if a

for rules relating to constructive

expired on May 25, 1989);

private foundation and all disqualified

holdings held in a corporation,

A 15-year period beginning on May

persons together hold no more than

partnership, estate, or trust for the

26, 1969, if on that date the foundation

20% of the voting stock of a business

benefit of the foundation.

and all disqualified persons together

enterprise or (b) on nonvoting stock, if

had more than a 75% voting stock

all disqualified persons together don't

Gifts or bequests of business hold

interest (or more than a 75% profits or

own more than 20% of the voting stock

ings. Except as provided in the

beneficial interest of any unincorporated

of the business enterprise.

exception regarding Holdings acquired

business), or more than a 75% interest

If the private foundation and all

by trust or will (discussed above), there

in the value of all outstanding shares of

disqualified persons together don't own

is a special rule for private foundations

all classes of stock (or more than a 75%

more than 35% of the enterprise's voting

that have excess business holdings as a

capital interest of a partnership or joint

stock, and effective control is in one or

result of a change in holdings after May

venture) in the enterprise (the 15-year

more persons who aren't disqualified

26,1969. This rule applies if the change

first phase expired on May 25, 1984);

persons in connection with the

is other than by purchase by the

and

foundation, then 35% may be

foundation or by disqualified persons

A 10-year period beginning on May

substituted for 20% wherever it appears

(such as through gift or bequest) and

26, 1969, in all other cases in which the

in the preceding paragraph. See

the additional holdings result in the

foundation had excess business

sections 4943(c)(2) and 4943(c)(3).

foundation having excess business

holdings on May 26, 1969. The 10-year

holdings. In that case, the foundation

If a private foundation and all

first phase expired on May 25, 1979.

has 5 years to reduce these holdings or

disqualified persons together had

During the second phase (the

those of its disqualified persons to

holdings in a business enterprise of

15-year period after the first phase), if

permissible levels to avoid the tax. See

more than 20% of the voting stock on

the foundation's disqualified persons

section 4943(c)(6) and Regulations

May 26, 1969, substitute that

hold more than 2% of the enterprise's

section 53.4943-6.

percentage for 20% and for 35% (if the

voting stock, the foundation will be liable

holding is greater than 35%), using the

A private foundation that received an

for tax if the foundation holds more than

principles of section 4943(c)(4) that

unusually large gift or bequest of

25% of the voting stock or if the

apply. However, the percentage

business holdings after 1969, and that

foundation and its disqualified persons

substituted can't be more than 50%.

has made a diligent effort to dispose of

together hold more than 50% of the

excess business holdings, may apply

The percentage substituted under

voting stock.

for an additional 5-year period to reduce

the preceding paragraph is (a) subject

However, during the second phase, if

its holdings to permissible levels if

to reductions and limitations (see

a foundation's disqualified persons

certain conditions are met. See section

sections 4943(c)(4)(A)(ii) and 4943(c)

purchase voting stock in a business

4943(c)(7).

(4)(D)) and (b) applicable, both in

enterprise after July 18, 1984, causing

connection with the voting stock and,

General rules on the permitted hold

the combined holdings of the

separately, in connection with the value

ings of donor advised funds and cer

disqualified persons to exceed 2% of

of all outstanding shares of all classes of

tain supporting organizations in a

the enterprise's voting stock, the

stock (see section 4943(c)(4)(A)(iii)).

business enterprise. Rules similar to

foundation has 5 years to reduce its

those described above for interests held

holdings in the enterprise to below its

Instructions for Form 4720 (2016)

Instructions For Form 4720 - 2016 Page 9

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