Instructions For Form 5227 - 2016 (Page 10 of 20) in pdf

For more information on investments that jeopardize

Line 76. Under section 4947(b)(3)(A), a split-interest trust

charitable purposes, see Regulations section 53.4944-1.

isn't subject to the excess business holdings tax (section

4943) or tax on investments that jeopardize the trust's

Line 79. Grants by a trust to a public charity aren't taxable

charitable purpose (section 4944) if all the income interest

expenditures if the grants aren't earmarked for use for any of

(and none of the remainder interest) of the trust is devoted

the activities described on lines 79a(1) through (5) and there

solely to one or more of the charitable purposes described in

is no oral or written agreement by which the trust may cause

section 170(c)(2)(B). In addition, all amounts in the trust for

the public charity to engage in any such prohibited activity or

which a charitable contribution deduction was allowed under

to select the grant grantee.

section 170 (for individual taxpayers) or similar section for

Grants made to exempt operating foundations (as defined

personal holding companies, foreign personal holding

in section 4940(d)(2)) aren't subject to the expenditure

companies, estates or trusts (including a deduction for estate

responsibility provisions of section 4945. If the trust made

or gift tax purposes) cannot have a total value of more than

grants to such organizations, you don't have to file Form

60% of the total FMV of all amounts in the trust. For the

4720 for those grants. See the section 4945 regulations for

purposes of section 4947(b)(3)(A), the term “income interest”

more information.

includes the right to receive an annuity or unitrust payment,

Line 79b. If you answered “Yes” to any of the questions in

as described in Regulations section 53.4947-2(b)(2)(i).

line 79a, you should answer “Yes” to line 79b unless all of the

Under section 4947(b)(3)(B), a split-interest trust isn't

transactions engaged in were “excepted” transactions.

subject to the section 4943 or 4944 taxes if a deduction was

Excepted transactions are described in Regulations section

allowed under section 170 (and related provisions for other

53.4945 or appear in Notices published in the Internal

entities) for amounts payable under the terms of the trust to

Revenue Bulletin, relating to disaster assistance. At the time

every remainder beneficiary but not to any income

this form went to print, there were no Notices currently in

beneficiary. For the purposes of section 4947(b)(3)(B), the

effect relating to disaster assistance for “excepted”

term “income beneficiary” includes the recipient entitled to

transactions to taxable expenditures.

receive an annuity or unitrust payment under a CRT, as well

as the donor entitled to payments from a pooled income

Line 80a. A personal benefit contract is, in general, any life

fund. The term “remainder beneficiary” includes the

insurance, annuity, or endowment contract that benefits,

charitable organization entitled to the remainder interest

directly or indirectly, a transferor, a transferor's family

under a CRT or a pooled income fund.

member, or a transferor designee that isn't an organization

described in section 170(c).

Line 77. In general, excess business holdings are the

amount of stock or other interest in a business enterprise that

Line 80b. Enter the total of all premiums paid by the

the trust must dispose of to a person other than a disqualified

split-interest trust on any personal benefit contract if the

person in order for the trust's remaining holdings in the

payment of premiums is in connection with a transfer for

enterprise to be permitted holdings.

which a deduction isn't allowed under section 170(f)(10)(A).

Also, if there is an understanding or expectation that any

In general, the combined permitted holdings of a trust and

person will directly or indirectly pay any premium on a

all disqualified persons may not be more than 20% of the

personal benefit contract for the transferor, include those

voting power (or beneficial or profits interest, in the case of a

premium payments in the amount entered on this line. For

trust or a partnership) in any business enterprise.

more information, see the Instructions for Form 8870.

In general, a business enterprise means the active

Part VII. Questionnaire for Charitable

conduct of a trade or business, including any activity that is

regularly conducted to produce income from selling goods or

Lead Trusts, Pooled Income Funds,

performing services that is an unrelated trade or business

under section 513.

and Charitable Remainder Trusts

The term “business enterprise” does not include:

Section A—All Trusts

1. A functionally related business, defined in section

4942(j)(4), or

All trusts are required to answer lines 81 and 82.

2. A trade or business if at least 95% of its gross income

Section B—Charitable Lead Trusts

is derived from passive sources.

Line 83. The information on this line is used to determine

See section 4943(d)(3)(B) for additional items that are

whether sections 4943 and 4944 apply for 2016.

included in gross income from passive sources.

Line 85. Enter the amount for payments described in

Line 77a. A private foundation isn't treated as having excess

sections 170(f)(2)(B), 2055(e)(2)(B), and 2522(c)(2)(B).

business holdings in any enterprise if, together with related

foundations, it owns 2% or less of the voting stock and 2% or

Section C—Pooled Income Funds

less in value of all outstanding shares of all classes of stock.

A similar exception applies to a beneficial or profits interest in

Line 87. Upon termination of the income interest retained or

any business enterprise that is a trust or partnership.

created by a donor, the trustee is required to sever from the

fund an amount equal to the value of the remainder interest in

Line 78. In general, an investment which jeopardizes any of

the property upon which the income interest is based. The

the charitable purposes of a trust is one in which a foundation

amount severed from the fund must either be paid to, or

manager did not exercise ordinary business care in making

retained for the use of, the designated public charity, as

the investment to provide for the long- and short-term

provided in the governing instrument. See Regulations

financial needs of the trust in carrying out its charitable

section 1.642(c)-5(b)(8) for valuation procedures.

purposes.

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Instructions for Form 5227

Instructions For Form 5227 - 2016 Page 10

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