26 USC 4941 - Taxes on self-dealing

United States Code

USC most recently checked for updates: Feb 08, 2023

§ 4940. Excise tax based on investment income

§ 4942. Taxes on failure to distribute income

U.S. Code
Notes

§ 4941.

Taxes on self-dealing

(a)

Initial taxes

(1)

On self-dealer

There is hereby imposed a tax on each act of self-dealing between a disqualified person and a private foundation. The rate of tax shall be equal to 10 percent of the amount involved with respect to the act of self-dealing for each year (or part thereof) in the taxable period. The tax imposed by this paragraph shall be paid by any disqualified person (other than a foundation manager acting only as such) who participates in the act of self-dealing. In the case of a government official (as defined in section 4946(c)), a tax shall be imposed by this paragraph only if such disqualified person participates in the act of self-dealing knowing that it is such an act.

(2)

On foundation manager

In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the participation of any foundation manager in an act of self-dealing between a disqualified person and a private foundation, knowing that it is such an act, a tax equal to 5 percent of the amount involved with respect to the act of self-dealing for each year (or part thereof) in the taxable period, unless such participation is not willful and is due to reasonable cause. The tax imposed by this paragraph shall be paid by any foundation manager who participated in the act of self-dealing.

(b)

Additional taxes

(1)

On self-dealer

In any case in which an initial tax is imposed by subsection (a)(1) on an act of self-dealing by a disqualified person with a private foundation and the act is not corrected within the taxable period, there is hereby imposed a tax equal to 200 percent of the amount involved. The tax imposed by this paragraph shall be paid by any disqualified person (other than a foundation manager acting only as such) who participated in the act of self-dealing.

(2)

On foundation manager

In any case in which an additional tax is imposed by paragraph (1), if a foundation manager refused to agree to part or all of the correction, there is hereby imposed a tax equal to 50 percent of the amount involved. The tax imposed by this paragraph shall be paid by any foundation manager who refused to agree to part or all of the correction.

(c)

Special rules

For purposes of subsections (a) and (b)—

(1)

Joint and several liability

If more than one person is liable under any paragraph of subsection (a) or (b) with respect to any one act of self-dealing, all such persons shall be jointly and severally liable under such paragraph with respect to such act.

(2)

$20,000 limit for management

With respect to any one act of self-dealing, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $20,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $20,000.

(d)

Self-dealing

(1)

In general

For purposes of this section, the term “self-dealing” means any direct or indirect—

(A)

sale or exchange, or leasing, of property between a private foundation and a disqualified person;

(B)

lending of money or other extension of credit between a private foundation and a disqualified person;

(C)

furnishing of goods, services, or facilities between a private foundation and a disqualified person;

(D)

payment of compensation (or payment or reimbursement of expenses) by a private foundation to a disqualified person;

(E)

transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation; and

(F)

agreement by a private foundation to make any payment of money or other property to a government official (as defined in section 4946(c)), other than an agreement to employ such individual for any period after the termination of his government service if such individual is terminating his government service within a 90-day period.

(2)

Special rules

For purposes of paragraph (1)—

(A)

the transfer of real or personal property by a disqualified person to a private foundation shall be treated as a sale or exchange if the property is subject to a mortgage or similar lien which the foundation assumes or if it is subject to a mortgage or similar lien which a disqualified person placed on the property within the 10-year period ending on the date of the transfer;

(B)

the lending of money by a disqualified person to a private foundation shall not be an act of self-dealing if the loan is without interest or other charge (determined without regard to section 7872) and if the proceeds of the loan are used exclusively for purposes specified in section 501(c)(3);

(C)

the furnishing of goods, services, or facilities by a disqualified person to a private foundation shall not be an act of self-dealing if the furnishing is without charge and if the goods, services, or facilities so furnished are used exclusively for purposes specified in section 501(c)(3);

(D)

the furnishing of goods, services, or facilities by a private foundation to a disqualified person shall not be an act of self-dealing if such furnishing is made on a basis no more favorable than that on which such goods, services, or facilities are made available to the general public;

(E)

except in the case of a government official (as defined in section 4946(c)), the payment of compensation (and the payment or reimbursement of expenses) by a private foundation to a disqualified person for personal services which are reasonable and necessary to carrying out the exempt purpose of the private foundation shall not be an act of self-dealing if the compensation (or payment or reimbursement) is not excessive;

(F)

any transaction between a private foundation and a corporation which is a disqualified person (as defined in section 4946(a)), pursuant to any liquidation, merger, redemption, recapitalization, or other corporate adjustment, organization, or reorganization, shall not be an act of self-dealing if all of the securities of the same class as that held by the foundation are subject to the same terms and such terms provide for receipt by the foundation of no less than fair market value;

(G)

in the case of a government official (as defined in section 4946(c)), paragraph (1) shall in addition not apply to—

(i)

prizes and awards which are subject to the provisions of section 74(b) (without regard to paragraph (3) thereof), if the recipients of such prizes and awards are selected from the general public,

(ii)

scholarships and fellowship grants which would be subject to the provisions of section 117(a) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) and are to be used for study at an educational organization described in section 170(b)(1)(A)(ii),

(iii)

any annuity or other payment (forming part of a stock-bonus, pension, or profit-sharing plan) by a trust which is a qualified trust under section 401,

(iv)

any annuity or other payment under a plan which meets the requirements of section 404(a)(2),

(v)

any contribution or gift (other than a contribution or gift of money) to, or services or facilities made available to, any such individual, if the aggregate value of such contributions, gifts, services, and facilities to, or made available to, such individual during any calendar year does not exceed $25,

(vi)

any payment made under chapter 41 of title 5, United States Code, or

(vii)

any payment or reimbursement of traveling expenses for travel solely from one point in the United States to another point in the United States, but only if such payment or reimbursement does not exceed the actual cost of the transportation involved plus an amount for all other traveling expenses not in excess of 125 percent of the maximum amount payable under section 5702 of title 5, United States Code, for like travel by employees of the United States; and

(H)

the leasing by a disqualified person to a private foundation of office space for use by the foundation in a building with other tenants who are not disqualified persons shall not be treated as an act of self-dealing if—

(i)

such leasing of office space is pursuant to a binding lease which was in effect on October 9, 1969, or pursuant to renewals of such a lease;

(ii)

the execution of such lease was not a prohibited transaction (within the meaning of section 503(b) or any corresponding provision of prior law) at the time of such execution; and

(iii)

the terms of the lease (or any renewal) reflect an arm’s-length transaction.

(e)

Other definitions

For purposes of this section—

(1)

Taxable period

The term “taxable period” means, with respect to any act of self-dealing, the period beginning with the date on which the act of self-dealing occurs and ending on the earliest of—

(A)

the date of mailing a notice of deficiency with respect to the tax imposed by subsection (a)(1) under section 6212,

(B)

the date on which the tax imposed by subsection (a)(1) is assessed, or

(C)

the date on which correction of the act of self-dealing is completed.

(2)

Amount involved

The term “amount involved” means, with respect to any act of self-dealing, the greater of the amount of money and the fair market value of the other property given or the amount of money and the fair market value of the other property received; except that, in the case of services described in subsection (d)(2)(E), the amount involved shall be only the excess compensation. For purposes of the preceding sentence, the fair market value—

(A)

in the case of the taxes imposed by subsection (a), shall be determined as of the date on which the act of self-dealing occurs; and

(B)

in the case of the taxes imposed by subsection (b), shall be the highest fair market value during the taxable period.

(3)

Correction

The terms “correction” and “correct” mean, with respect to any act of self-dealing, undoing the transaction to the extent possible, but in any case placing the private foundation in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards.

(Added Pub. L. 91–172, title I, § 101(b), Dec. 30, 1969, 83 Stat. 499; amended Pub. L. 94–455, title XIX, §§ 1901(b)(8)(H), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96–596, § 2(a)(1)(A), (B), (2)(A), (3)(A), Dec. 24, 1980, 94 Stat. 3469, 3471; Pub. L. 96–608, § 5, Dec. 28, 1980, 94 Stat. 3553; Pub. L. 99–234, title I, § 107(c), Jan. 2, 1986, 99 Stat. 1759; Pub. L. 99–514, title I, § 122(a)(2)(A), title XVIII, § 1812(b)(1), Oct. 22, 1986, 100 Stat. 2110, 2833; Pub. L. 100–647, title I, § 1001(d)(1)(A), Nov. 10, 1988, 102 Stat. 3350; Pub. L. 109–280, title XII, § 1212(a)(1), (2), Aug. 17, 2006, 120 Stat. 1074.)

cite as: 26 USC 4941