26 U.S.C. § 4943 — Taxes on excess business holdings

Page 3027 TITLE 26—INTERNAL REVENUE CODE § 4943 Subsec. (f)(2)(D). Pub. L. 94–455, § 1310(a), added sub- par. (D). Subsec. (g)(2). Pub. L. 94–455, § 1302(a), among other changes, inserted reference to all taxable years begin- ning on or after Jan. 1, 1975, requirement that the project will not be completed before the end of the tax- able year of the foundation in which the set-aside is made, and subpars. (C) to (E). Subsecs. (h)(2), (j)(2)(B). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title. EFFECTIVE DATE OF 2006 AMENDMENT Amendment by section 1212(b) of Pub. L. 109–280 ap- plicable to taxable years beginning after Aug. 17, 2006, see section 1212(f) of Pub. L. 109–280, set out as a note under section 4941 of this title. Pub. L. 109–280, title XII, § 1244(c), Aug. 17, 2006, 120 Stat. 1108, provided that: ‘‘The amendments made by this section [amending this section and section 4945 of this title] shall apply to distributions and expenditures after the date of the enactment of this Act [Aug. 17, 2006].’’ EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of Pub. L. 99–514, set out as an Effective Date; Transitional Rules note under section 141 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title III, § 304(c), July 18, 1984, 98 Stat. 783, provided that: ‘‘The amendments made by this section [amending this section] shall apply to tax- able years beginning after December 31, 1984.’’ Amendment by section 305(b)(4) of Pub. L. 98–369 ap- plicable to taxable events occurring after Dec. 31, 1984, see section 305(c) of Pub. L. 98–369, set out as an Effec- tive Date note under section 4962 of this title. Pub. L. 98–369, div. A, title III, § 314(a)(4), July 18, 1984, 98 Stat. 787, provided that: ‘‘The amendments made by this subsection [amending this section and section 6501 of this title] shall take effect on the date of the enact- ment of this Act [July 18, 1984].’’. EFFECTIVE DATE OF 1983 AMENDMENT Amendment by Pub. L. 97–448 effective, except as oth- erwise provided, as if it had been included in the provi- sion of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Pub. L. 97–34, title VIII, § 823(b), Aug. 13, 1981, 95 Stat. 352, provided that: ‘‘The amendments made by this sec- tion [amending this section] shall apply to taxable years beginning after December 31, 1981.’’ EFFECTIVE DATE OF 1980 AMENDMENT For effective date of amendment by Pub. L. 96–596 with respect to any first tier tax and to any second tier tax, see section 2(d) of Pub. L. 96–596, set out as an Ef- fective Date note under section 4961 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–600, title V, § 522(b), Nov. 6, 1978, 92 Stat. 2885, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to tax- able years beginning after December 31, 1969.’’ EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title XIII, § 1302(c), Oct. 4, 1976, 90 Stat. 1715, provided that: ‘‘The amendments made by this section [amending this section and section 6501 of this title] shall apply to taxable years beginning after De- cember 31, 1974.’’ Pub. L. 94–455, title XIII, § 1303(b), Oct. 4, 1976, 90 Stat. 1715, provided that: ‘‘The amendment made by this sec- tion [amending this section] applies to taxable years beginning after December 31, 1975.’’ Pub. L. 94–455, title XIII, § 1310(b), Oct. 4, 1976, 90 Stat. 1729, provided that: ‘‘The amendments made by this section [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [Oct. 4, 1976].’’ SAVINGS PROVISION Applicability of section to organizations organized before May 27, 1969, see section 101(l)(3) of Pub. L. 91–172, set out as a note under section 4940 of this title. § 4943. Taxes on excess business holdings (a) Initial tax (1) Imposition There is hereby imposed on the excess busi- ness holdings of any private foundation in a business enterprise during any taxable year which ends during the taxable period a tax equal to 10 percent of the value of such hold- ings. (2) Special rules The tax imposed by paragraph (1)— (A) shall be imposed on the last day of the taxable year, but (B) with respect to the private founda- tion’s holdings in any business enterprise, shall be determined as of that day during the taxable year when the foundation’s excess holdings in such enterprise were the great- est. (b) Additional tax In any case in which an initial tax is imposed under subsection (a) with respect to the holdings of a private foundation in any business enter- prise, if, at the close of the taxable period with respect to such holdings, the foundation still has excess business holdings in such enterprise, there is hereby imposed a tax equal to 200 per- cent of such excess business holdings. (c) Excess business holdings For purposes of this section— (1) In general The term ‘‘excess business holdings’’ means, with respect to the holdings of any private foundation in any business enterprise, the amount of stock or other interest in the enter- prise which the foundation would have to dis- pose of to a person other than a disqualified person in order for the remaining holdings of the foundation in such enterprise to be per- mitted holdings. (2) Permitted holdings in a corporation (A) In general The permitted holdings of any private foundation in an incorporated business en- terprise are— (i) 20 percent of the voting stock, re- duced by (ii) the percentage of the voting stock owned by all disqualified persons. In any case in which all disqualified persons together do not own more than 20 percent of Page 3028 TITLE 26—INTERNAL REVENUE CODE § 4943 the voting stock of an incorporated business enterprise, nonvoting stock held by the pri- vate foundation shall also be treated as per- mitted holdings. (B) 35 percent rule where third person has effective control of enterprise If— (i) the private foundation and all dis- qualified persons together do not own more than 35 percent of the voting stock of an incorporated business enterprise, and (ii) it is established to the satisfaction of the Secretary that effective control of the corporation is in one or more persons who are not disqualified persons with respect to the foundation, then subparagraph (A) shall be applied by substituting 35 percent for 20 percent. (C) 2 percent de minimis rule A private foundation shall not be treated as having excess business holdings in any corporation in which it (together with all other private foundations which are de- scribed in section 4946(a)(1)(H)) owns not more than 2 percent of the voting stock and not more than 2 percent in value of all out- standing shares of all classes of stock. (3) Permitted holdings in partnerships, etc. The permitted holdings of a private founda- tion in any business enterprise which is not in- corporated shall be determined under regula- tions prescribed by the Secretary. Such regu- lations shall be consistent in principle with paragraphs (2) and (4), except that— (A) in the case of a partnership or joint venture, ‘‘profits interest’’ shall be sub- stituted for ‘‘voting stock’’, and ‘‘capital in- terest’’ shall be substituted for ‘‘nonvoting stock’’, (B) in the case of a proprietorship, there shall be no permitted holdings, and (C) in any other case, ‘‘beneficial interest’’ shall be substituted for ‘‘voting stock’’. (4) Present holdings (A)(i) In applying this section with respect to the holdings of any private foundation in a business enterprise, if such foundation and all disqualified persons together have holdings in such enterprise in excess of 20 percent of the voting stock on May 26, 1969, the percentage of such holdings shall be substituted for ‘‘20 per- cent,’’ and for ‘‘35 percent’’ (if the percentage of such holdings is greater than 35 percent), wherever it appears in paragraph (2), but in no event shall the percentage so substituted be more than 50 percent. (ii) If the percentage of the holdings of any private foundation and all disqualified persons together in a business enterprise (or if the per- centage of the holdings of the private founda- tion in such enterprise) decreases for any rea- son, clause (i) and subparagraph (D) shall, ex- cept as provided in the next sentence, be ap- plied for all periods after such decrease by sub- stituting such decreased percentage for the percentage held on May 26, 1969, but in no event shall the percentage substituted be less than 20 percent. For purposes of the preceding sentence, any decrease in percentage holdings attributable to issuances of stock (or to issuances of stock coupled with redemptions of stock) shall be disregarded so long as— (I) the net percentage decrease disregarded under this sentence does not exceed 2 per- cent, and (II) the number of shares held by the foun- dation is not affected by any such issuance or redemption. (iii) The percentage substituted under clause (i), and any percentage substituted under sub- paragraph (D), shall be applied both with re- spect to the voting stock and, separately, with respect to the value of all outstanding shares of all classes of stock. (iv) In the case of any merger, recapitaliza- tion, or other reorganization involving one or more business enterprises, the application of clauses (i), (ii), and (iii) shall be determined under regulations prescribed by the Secretary. (B) Any interest in a business enterprise which a private foundation holds on May 26, 1969, if the private foundation on such date has excess business holdings, shall (while held by the foundation) be treated as held by a dis- qualified person (rather than by the private foundation)— (i) during the 20-year period beginning on such date, if the private foundation and all disqualified persons have more than a 95 per- cent voting stock interest on such date, (ii) except as provided in clause (i), during the 15-year period beginning on such date, if the foundation and all disqualified persons have more than a 75 percent voting stock in- terest (or more than a 75 percent profits or beneficial interest in the case of any unin- corporated enterprise) on such date or more than a 75 percent interest in the value of all outstanding shares of all classes of stock (or more than a 75 percent capital interest in the case of a partnership or joint venture) on such date, or (iii) during the 10–year period beginning on such date, in any other case. (C) The 20-year, 15-year, and 10-year periods described in subparagraph (B) for the disposi- tion of excess business holdings shall be sus- pended during the pendency of any judicial proceeding by the private foundation which is necessary to reform, or to excuse such founda- tion from compliance with, its governing in- strument or any other instrument (as in effect on May 26, 1969) in order to allow disposition of such holdings. (D)(i) If, at any time during the second phase, all disqualified persons together have holdings in a business enterprise in excess of 2 percent of the voting stock of such enterprise, then subparagraph (A)(i) shall be applied by substituting for ‘‘50 percent’’ the following: ‘‘50 percent, of which not more than 25 percent shall be voting stock held by the private foun- dation’’. (ii) If, immediately before the close of the second phase, clause (i) of this subparagraph did not apply with respect to a business enter- prise, then for all periods after the close of the second phase subparagraph (A)(i) shall be ap- Page 3029 TITLE 26—INTERNAL REVENUE CODE § 4943 plied by substituting for ‘‘50 percent’’ the fol- lowing: ‘‘35 percent, or if at any time after the close of the second phase all disqualified per- sons together have had holdings in such enter- prise which exceed 2 percent of the voting stock, 35 percent, of which not more than 25 percent shall be voting stock held by the pri- vate foundation’’. (iii) For purposes of this subparagraph, the term ‘‘second phase’’ means the 15-year period immediately following the 20-year, 15-year, or 10-year period described in subparagraph (B), whichever applies, as modified by subpara- graph (C). (E) Clause (ii) of subparagraph (B) shall not apply with respect to any business enterprise if before January 1, 1971, one or more individ- uals who are substantial contributors (or members of the family (within the meaning of section 4946(d)) of one or more substantial con- tributors) to the private foundation and who on May 26, 1969, held more than 15 percent of the voting stock of the enterprise elect, in such manner as the Secretary may by regula- tions prescribe, not to have such clause (ii) apply with respect to such enterprise. (5) Holdings acquired by trust or will Paragraph (4) (other than subparagraph (B)(i)) shall apply to any interest in a business enterprise which a private foundation acquires under the terms of a trust which was irrev- ocable on May 26, 1969, or under the terms of a will executed on or before such date, which are in effect on such date and at all times thereafter, as if such interest were held on May 26, 1969, except that the 15-year and 10- year periods prescribed in clauses (ii) and (iii) of paragraph (4)(B) shall commence with re- spect to such interest on the date of distribu- tion under the trust or will in lieu of May 26, 1969. (6) 5-year period to dispose of gifts, bequests, etc. Except as provided in paragraph (5), if, after May 26, 1969, there is a change in the holdings in a business enterprise (other than by pur- chase by the private foundation or by a dis- qualified person) which causes the private foundation to have— (A) excess business holdings in such enter- prise, the interest of the foundation in such enterprise (immediately after such change) shall (while held by the foundation) be treat- ed as held by a disqualified person (rather than by the foundation) during the 5-year period beginning on the date of such change in holdings; or (B) an increase in excess business holdings in such enterprise (determined without re- gard to subparagraph (A)), subparagraph (A) shall apply, except that the excess holdings immediately preceding the increase therein shall not be treated, solely because of such increase, as held by a disqualified person (rather than by the foundation). In any case where an acquisition by a disquali- fied person would result in a substitution under clause (i) or (ii) of subparagraph (D) of paragraph (4), the preceding sentence shall be applied with respect to such acquisition as if it did not contain the phrase ‘‘or by a disquali- fied person’’ in the material preceding sub- paragraph (A). (7) 5-year extension of period to dispose of cer- tain large gifts and bequests The Secretary may extend for an additional 5-year period the period under paragraph (6) for disposing of excess business holdings in the case of an unusually large gift or bequest of diverse business holdings or holdings with complex corporate structures if— (A) the foundation establishes that— (i) diligent efforts to dispose of such holdings have been made within the initial 5-year period, and (ii) disposition within the initial 5-year period has not been possible (except at a price substantially below fair market value) by reason of such size and com- plexity or diversity of such holdings, (B) before the close of the initial 5-year pe- riod— (i) the private foundation submits to the Secretary a plan for disposing of all of the excess business holdings involved in the extension, and (ii) the private foundation submits the plan described in clause (i) to the Attorney General (or other appropriate State offi- cial) having administrative or supervisory authority or responsibility with respect to the foundation’s disposition of the excess business holdings involved and submits to the Secretary any response received by the private foundation from the Attorney Gen- eral (or other appropriate State official) to such plan during such 5-year period, and (C) the Secretary determines that such plan can reasonably be expected to be car- ried out before the close of the extension pe- riod. (d) Definitions; special rules For purposes of this section— (1) Business holdings In computing the holdings of a private foun- dation, or a disqualified person (as defined in section 4946) with respect thereto, in any busi- ness enterprise, any stock or other interest owned, directly or indirectly, by or for a cor- poration, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or bene- ficiaries. The preceding sentence shall not apply with respect to an income or remainder interest of a private foundation in a trust de- scribed in section 4947(a)(2), but only if, in the case of property transferred in trust after May 26, 1969, such foundation holds only an income interest or only a remainder interest in such trust. (2) Taxable period The term ‘‘taxable period’’ means, with re- spect to any excess business holdings of a pri- vate foundation in a business enterprise, the period beginning on the first day on which there are excess holdings and ending on the earlier of— Page 3030 TITLE 26—INTERNAL REVENUE CODE § 4943 (A) the date of mailing of a notice of defi- ciency with respect to the tax imposed by subsection (a) under section 6212 in respect of such holdings, or (B) the date on which the tax imposed by subsection (a) in respect of such holdings is assessed. (3) Business enterprise The term ‘‘business enterprise’’ does not in- clude— (A) a functionally related business (as de- fined in section 4942(j)(4)), or (B) a trade or business at least 95 percent of the gross income of which is derived from passive sources. For purposes of subparagraph (B), gross in- come from passive sources includes the items excluded by section 512(b)(1), (2), (3), and (5), and income from the sale of goods (including charges or costs passed on at cost to pur- chasers of such goods or income received in settlement of a dispute concerning or in lieu of the exercise of the right to sell such goods) if the seller does not manufacture, produce, physically receive or deliver, negotiate sales of, or maintain inventories in such goods. (4) Disqualified person The term ‘‘disqualified person’’ (as defined in section 4946(a)) does not include a plan de- scribed in section 4975(e)(7) with respect to the holdings of a private foundation described in paragraphs (4) and (5) of subsection (c). (e) Application of tax to donor advised funds (1) In general For purposes of this section, a donor advised fund (as defined in section 4966(d)(2)) shall be treated as a private foundation. (2) Disqualified person In applying this section to any donor advised fund (as so defined), the term ‘‘disqualified person’’ means, with respect to the donor ad- vised fund, any person who is— (A) described in section 4966(d)(2)(A)(iii), (B) a member of the family of an indi- vidual described in subparagraph (A), or (C) a 35-percent controlled entity (as de- fined in section 4958(f)(3) by substituting ‘‘persons described in subparagraph (A) or (B) of section 4943(e)(2)’’ for ‘‘persons de- scribed in subparagraph (A) or (B) of para- graph (1)’’ in subparagraph (A)(i) thereof). (3) Present holdings For purposes of this subsection, rules simi- lar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to donor advised funds (as so defined), except that— (A) ‘‘the date of the enactment of this sub- section’’ shall be substituted for ‘‘May 26, 1969’’ each place it appears in paragraphs (4), (5), and (6), and (B) ‘‘January 1, 2007’’ shall be substituted for ‘‘January 1, 1971’’ in paragraph (4)(E). (f) Application of tax to supporting organizations (1) In general For purposes of this section, an organization which is described in paragraph (3) shall be treated as a private foundation. (2) Exception The Secretary may exempt the excess busi- ness holdings of any organization from the ap- plication of this subsection if the Secretary determines that such holdings are consistent with the purpose or function constituting the basis for its exemption under section 501. (3) Organizations described An organization is described in this para- graph if such organization is— (A) a type III supporting organization (other than a functionally integrated type III supporting organization), or (B) an organization which meets the re- quirements of subparagraphs (A) and (C) of section 509(a)(3) and which is supervised or controlled in connection with one or more organizations described in paragraph (1) or (2) of section 509(a), but only if such organi- zation accepts any gift or contribution from any person described in section 509(f)(2)(B). (4) Disqualified person (A) In general In applying this section to any organiza- tion described in paragraph (3), the term ‘‘disqualified person’’ means, with respect to the organization— (i) any person who was, at any time dur- ing the 5-year period ending on the date described in subsection (a)(2)(A), in a posi- tion to exercise substantial influence over the affairs of the organization, (ii) any member of the family (deter- mined under section 4958(f)(4)) of an indi- vidual described in clause (i), (iii) any 35-percent controlled entity (as defined in section 4958(f)(3) by substituting ‘‘persons described in clause (i) or (ii) of section 4943(f)(4)(A)’’ for ‘‘persons de- scribed in subparagraph (A) or (B) of para- graph (1)’’ in subparagraph (A)(i) thereof), (iv) any person described in section 4958(c)(3)(B), and (v) any organization— (I) which is effectively controlled (di- rectly or indirectly) by the same person or persons who control the organization in question, or (II) substantially all of the contribu- tions to which were made (directly or in- directly) by the same person or persons described in subparagraph (B) or a mem- ber of the family (within the meaning of section 4946(d)) of such a person. (B) Persons described A person is described in this subparagraph if such person is— (i) a substantial contributor to the orga- nization (as defined in section 4958(c)(3)(C)), (ii) an officer, director, or trustee of the organization (or an individual having pow- ers or responsibilities similar to those of the officers, directors, or trustees of the organization), or (iii) an owner of more than 20 percent of— (I) the total combined voting power of a corporation, Page 3031 TITLE 26—INTERNAL REVENUE CODE § 4943 (II) the profits interest of a partner- ship, or (III) the beneficial interest of a trust or unincorporated enterprise, which is a substantial contributor (as so defined) to the organization. (5) Type III supporting organization; function- ally integrated type III supporting organi- zation For purposes of this subsection— (A) Type III supporting organization The term ‘‘type III supporting organiza- tion’’ means an organization which meets the requirements of subparagraphs (A) and (C) of section 509(a)(3) and which is operated in connection with one or more organiza- tions described in paragraph (1) or (2) of sec- tion 509(a). (B) Functionally integrated type III sup- porting organization The term ‘‘functionally integrated type III supporting organization’’ means a type III supporting organization which is not re- quired under regulations established by the Secretary to make payments to supported organizations (as defined under section 509(f)(3)) due to the activities of the organi- zation related to performing the functions of, or carrying out the purposes of, such sup- ported organizations. (6) Special rule for certain holdings of type III supporting organizations For purposes of this subsection, the term ‘‘excess business holdings’’ shall not include any holdings of a type III supporting organiza- tion in any business enterprise if, as of No- vember 18, 2005, the holdings were held (and at all times thereafter, are held) for the benefit of the community pursuant to the direction of a State attorney general or a State official with jurisdiction over such organization. (7) Present holdings For purposes of this subsection, rules simi- lar to the rules of paragraphs (4), (5), and (6) of subsection (c) shall apply to organizations de- scribed in section 509(a)(3), except that— (A) ‘‘the date of the enactment of this sub- section’’ shall be substituted for ‘‘May 26, 1969’’ each place it appears in paragraphs (4), (5), and (6), and (B) ‘‘January 1, 2007’’ shall be substituted for ‘‘January 1, 1971’’ in paragraph (4)(E). (g) Exception for certain holdings limited to independently-operated philanthropic busi- ness (1) In general Subsection (a) shall not apply with respect to the holdings of a private foundation in any business enterprise which meets the require- ments of paragraphs (2), (3), and (4) for the tax- able year. (2) Ownership The requirements of this paragraph are met if— (A) 100 percent of the voting stock in the business enterprise is held by the private foundation at all times during the taxable year, and (B) all the private foundation’s ownership interests in the business enterprise were ac- quired by means other than by purchase. (3) All profits to charity (A) In general The requirements of this paragraph are met if the business enterprise, not later than 120 days after the close of the taxable year, distributes an amount equal to its net oper- ating income for such taxable year to the private foundation. (B) Net operating income For purposes of this paragraph, the net op- erating income of any business enterprise for any taxable year is an amount equal to the gross income of the business enterprise for the taxable year, reduced by the sum of— (i) the deductions allowed by chapter 1 for the taxable year which are directly connected with the production of such in- come, (ii) the tax imposed by chapter 1 on the business enterprise for the taxable year, and (iii) an amount for a reasonable reserve for working capital and other business needs of the business enterprise. (4) Independent operation The requirements of this paragraph are met if, at all times during the taxable year— (A) no substantial contributor (as defined in section 4958(c)(3)(C)) to the private foun- dation or family member (as determined under section 4958(f)(4)) of such a contributor is a director, officer, trustee, manager, em- ployee, or contractor of the business enter- prise (or an individual having powers or re- sponsibilities similar to any of the fore- going), (B) at least a majority of the board of di- rectors of the private foundation are persons who are not— (i) directors or officers of the business enterprise, or (ii) family members (as so determined) of a substantial contributor (as so defined) to the private foundation, and (C) there is no loan outstanding from the business enterprise to a substantial contrib- utor (as so defined) to the private foundation or to any family member of such a contrib- utor (as so determined). (5) Certain deemed private foundations ex- cluded This subsection shall not apply to— (A) any fund or organization treated as a private foundation for purposes of this sec- tion by reason of subsection (e) or (f), (B) any trust described in section 4947(a)(1) (relating to charitable trusts), and (C) any trust described in section 4947(a)(2) (relating to split-interest trusts). (Added Pub. L. 91–172, title I, § 101(b), Dec. 30, 1969, 83 Stat. 507; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Page 3032 TITLE 26—INTERNAL REVENUE CODE § 4943 Pub. L. 96–596, § 2(a)(1)(D), (2)(C), (3)(C), (4)(B), Dec. 24, 1980, 94 Stat. 3469–3472; Pub. L. 98–369, div. A, title III, §§ 307(a), 308(a), 309(a), 310(a), 314(c)(1), July 18, 1984, 98 Stat. 784, 785, 787; Pub. L. 109–280, title XII, §§ 1212(c), 1233(a), 1243(a), Aug. 17, 2006, 120 Stat. 1074, 1099, 1105; Pub. L. 113–295, div. A, title II, § 220(r), Dec. 19, 2014, 128 Stat. 4036; Pub. L. 115–123, div. D, title II, § 41110(a), Feb. 9, 2018, 132 Stat. 159.) Editorial Notes REFERENCES IN TEXT The date of enactment of this subsection, referred to in subsecs. (e)(3)(A) and (f)(7)(A), probably means the date of enactment of subsecs. (e) and (f) which were en- acted by Pub. L. 109–280, which was approved Aug. 17, 2006. CODIFICATION Sections 1212(c), 1233(a), and 1243(a) of Pub. L. 109–280, which directed the amendment of section 4943 without specifying the act to be amended, were executed to this section, which is section 4943 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below. AMENDMENTS 2018—Subsec. (g). Pub. L. 115–123 added subsec. (g). 2014—Subsecs. (e)(3)(B), (f)(7)(B). Pub. L. 113–295 sub- stituted ‘‘January 1, 1971’’ for ‘‘January 1, 1970’’. 2006—Subsec. (a)(1). Pub. L. 109–280, § 1212(c), sub- stituted ‘‘10 percent’’ for ‘‘5 percent’’. See Codification note above. Subsec. (e). Pub. L. 109–280, § 1233(a), added subsec. (e). See Codification note above. Subsec. (f). Pub. L. 109–280, § 1243(a), added subsec. (f). See Codification note above. 1984—Subsec. (c)(4)(A)(ii). Pub. L. 98–369, § 308(a), sub- stituted ‘‘For purposes of the preceding sentence, any decrease in percentage holdings attributable to issuances of stock (or to issuances of stock coupled with redemptions of stock) shall be disregarded so long as (I) the net percentage decrease disregarded under this sentence does not exceed 2 percent, and (II) the number of shares held by the foundation is not affected by any such issuance or redemption’’ for ‘‘For purposes of this clause, any decrease in percentage holdings at- tributable to issuances of stock (or to issuances of stock coupled with redemptions of stock) shall be de- termined only as of the close of each taxable year of the private foundation unless the aggregate of the per- centage decreases attributable to the issuances of stock (or such issuances and redemptions) during such tax- able year equals or exceeds 1 percent’’. Subsec. (c)(4)(B)(i). Pub. L. 98–369, § 309(a), substituted ‘‘the private foundation and all disqualified persons have’’ for ‘‘the private foundation has’’. Subsec. (c)(6). Pub. L. 98–369, § 310(a), inserted fol- lowing subpar. (B) ‘‘In any case where an acquisition by a disqualified person would result in a substitution under clause (i) or (ii) of subparagraph (D) of paragraph (4), the preceding sentence shall be applied with respect to such acquisition as if it did not contain the phrase ‘or by a disqualified person’ in the material preceding subparagraph (A).’’ Subsec. (c)(7). Pub. L. 98–369, § 307(a), added par. (7). Subsec. (d)(4). Pub. L. 98–369, § 314(c)(1), added par. (4). 1980—Subsec. (b). Pub. L. 96–596, § 2(a)(1)(D), sub- stituted ‘‘taxable period’’ for ‘‘correction period’’. Subsec. (d)(2). Pub. L. 96–596, § 2(a)(2)(C), substituted provision ending the taxable period on the earlier of the date of mailing of a notice of deficiency with re- spect to the tax imposed by subsec. (a) of this section under section 6212 of this title in respect to such hold- ings or the date on which the tax imposed by subsec. (a) of this section in respect to such holdings is assessed for provision ending the taxable period on the date of mailing the notice of deficiency with respect to a tax imposed by subsec. (a) of this section under section 6212 of this title in respect to such holdings. Subsec. (d)(3), (4). Pub. L. 96–596, § 2(a)(3)(C), (4)(B), re- designated par. (4) as (3), and in subpar. (A) of par. (3) as so redesignated, substituted ‘‘section 4942(j)(4)’’ for ‘‘section 4942(j)(5)’’, and struck out par. (3), which de- fined correction period, with respect to excess business holdings of a private foundation in a business enter- prise, as the period ending 90 days after the date of mailing of a notice of deficiency with respect to the tax imposed by subsec. (b) of this section under section 6212 of this title, extended by any period in which a defi- ciency cannot be assessed under section 6213(a) of this title and any other period which the Secretary deter- mines is reasonable and necessary to permit orderly disposition of such excess business holdings. 1976—Subsecs. (c), (d). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’ wherever appearing. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2018 AMENDMENT Pub. L. 115–123, div. D, title II, § 41110(b), Feb. 9, 2018, 132 Stat. 160, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2017.’’ EFFECTIVE DATE OF 2006 AMENDMENT Amendment by section 1212(c) of Pub. L. 109–280 appli- cable to taxable years beginning after Aug. 17, 2006, see section 1212(f) of Pub. L. 109–280, set out as a note under section 4941 of this title. Pub. L. 109–280, title XII, § 1233(b), Aug. 17, 2006, 120 Stat. 1100, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years beginning after the date of the enactment of this Act [Aug. 17, 2006].’’ Pub. L. 109–280, title XII, § 1243(b), Aug. 17, 2006, 120 Stat. 1107, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years beginning after the date of the enactment of this Act [Aug. 17, 2006].’’ EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title III, § 307(b), July 18, 1984, 98 Stat. 785, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—The amendment made by sub- section (a) [amending this section] shall apply to busi- ness holdings with respect to which the 5-year period described in section 4943(c)(6) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] ends on or after No- vember 1, 1983. ‘‘(2) TRANSITIONAL RULE.—Any plan submitted to the Secretary of the Treasury or his delegate on or before the 60th day after the date of the enactment of this Act [July 18, 1984] shall be treated as submitted before the close of the initial 5-year period referred to in section 4943(c)(7)(B) of the Internal Revenue Code of 1986 (as added by subsection (a)).’’ Pub. L. 98–369, div. A, title III, § 308(b), July 18, 1984, 98 Stat. 785, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to in- creases and decreases occurring after the date of the enactment of this Act [July 18, 1984].’’ Pub. L. 98–369, div. A, title III, § 309(b), July 18, 1984, 98 Stat. 785, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall take effect as if included in the amendment made by section 101(b) of the Tax Reform Act of 1969 [section 101(b) of Pub. L. 91–172 which enacted this section].’’ Pub. L. 98–369, div. A, title III, § 310(b), July 18, 1984, 98 Stat. 786, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to acquisitions after the date of the enactment of this Act [July 18, 1984].’’ Pub. L. 98–369, div. A, title III, § 314(c)(2), July 18, 1984, 98 Stat. 788, provided that: ‘‘The amendment made by Page 3033 TITLE 26—INTERNAL REVENUE CODE § 4944 paragraph (1) [amending this section] shall apply with respect to taxable years beginning after the date of the enactment of this Act [July 18, 1984].’’ EFFECTIVE DATE OF 1980 AMENDMENT For effective date of amendment by Pub. L. 96–596 with respect to any first tier tax and to any second tier tax, see section 2(d) of Pub. L. 96–596, set out as an Ef- fective Date note under section 4961 of this title. SAVINGS PROVISION Applicability of section to private foundations, see section 101(l)(4) of Pub. L. 91–172, set out as a note under section 4940 of this title. § 4944. Taxes on investments which jeopardize charitable purpose (a) Initial taxes (1) On the private foundation If a private foundation invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes, there is hereby imposed on the making of such invest- ment a tax equal to 10 percent of the amount so invested for each year (or part thereof) in the taxable period. The tax imposed by this paragraph shall be paid by the private founda- tion. (2) On the management In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the participation of any foundation manager in the making of the investment, knowing that it is jeopardizing the carrying out of any of the foundation’s exempt purposes, a tax equal to 10 percent of the amount so invested 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 making of the investment. (b) Additional taxes (1) On the foundation In any case in which an initial tax is im- posed by subsection (a)(1) on the making of an investment and such investment is not re- moved from jeopardy within the taxable pe- riod, there is hereby imposed a tax equal to 25 percent of the amount of the investment. The tax imposed by this paragraph shall be paid by the private foundation. (2) On the management In any case in which an additional tax is im- posed by paragraph (1), if a foundation man- ager refused to agree to part or all of the re- moval from jeopardy, there is hereby imposed a tax equal to 5 percent of the amount of the investment. The tax imposed by this para- graph shall be paid by any foundation manager who refused to agree to part or all of the re- moval from jeopardy. (c) Exception for program-related investments For purposes of this section, investments, the primary purpose of which is to accomplish one or more of the purposes described in section 170(c)(2)(B), and no significant purpose of which is the production of income or the appreciation of property, shall not be considered as invest- ments which jeopardize the carrying out of ex- empt purposes. (d) Special rules For purposes of subsections (a) and (b)— (1) Joint and several liability If more than one person is liable under sub- section (a)(2) or (b)(2) with respect to any one investment, all such persons shall be jointly and severally liable under such paragraph with respect to such investment. (2) Limit for management With respect to any one investment, the maximum amount of the tax imposed by sub- section (a)(2) shall not exceed $10,000, and the maximum amount of the tax imposed by sub- section (b)(2) shall not exceed $20,000. (e) Definitions For purposes of this section— (1) Taxable period The term ‘‘taxable period’’ means, with re- spect to any investment which jeopardizes the carrying out of exempt purposes, the period beginning with the date on which the amount is so invested and ending on the earliest of— (A) the date of mailing of a notice of defi- ciency 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 the amount so in- vested is removed from jeopardy. (2) Removal from jeopardy An investment which jeopardizes the car- rying out of exempt purposes shall be consid- ered to be removed from jeopardy when such investment is sold or otherwise disposed of, and the proceeds of such sale or other disposi- tion are not investments which jeopardize the carrying out of exempt purposes. (Added Pub. L. 91–172, title I, § 101(b), Dec. 30, 1969, 83 Stat. 511; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96–596, § 2(a)(1)(E), (2)(D), (3)(D), Dec. 24, 1980, 94 Stat. 3469–3471; Pub. L. 109–280, title XII, § 1212(d), Aug. 17, 2006, 120 Stat. 1074.) Editorial Notes CODIFICATION Section 1212(d) of Pub. L. 109–280, which directed the amendment of section 4944 without specifying the act to be amended, was executed to this section, which is section 4944 of the Internal Revenue Code of 1986, to re- flect the probable intent of Congress. See 2006 Amend- ment notes below. AMENDMENTS 2006—Subsec. (a). Pub. L. 109–280, § 1212(d)(1), sub- stituted ‘‘10 percent’’ for ‘‘5 percent’’ in pars. (1) and (2). See Codification note above. Subsec. (d)(2). Pub. L. 109–280, § 1212(d)(2), substituted ‘‘$10,000,’’ for ‘‘$5,000,’’ and ‘‘$20,000.’’ for ‘‘$10,000.’’ See Codification note above. 1980—Subsec. (b)(1). Pub. L. 96–596, § 2(a)(1)(E), sub- stituted ‘‘taxable period’’ for ‘‘correction period’’. Subsec. (e)(1)(B), (C). Pub. L. 96–596, § 2(a)(2)(D), added subpar. (B) and redesignated former subpar. (B) as (C).