26 U.S.C. § 4951 — Taxes on self-dealing

Page 3039 TITLE 26—INTERNAL REVENUE CODE § 4951 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title. EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107–16 applicable to deduc- tions for taxable years beginning after Dec. 31, 2009, see section 542(f)(3) of Pub. L. 107–16, set out as a note under section 121 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–34 applicable to transfers made by trusts to, or for the use of, an employee stock ownership plan after Aug. 5, 1997, see section 1530(d) of Pub. L. 105–34, set out as a note under section 401 of this title. § 4948. Application of taxes and denial of exemp- tion with respect to certain foreign organiza- tions (a) Tax on income of certain foreign organiza- tions In lieu of the tax imposed by section 4940, there is hereby imposed for each taxable year on the gross investment income (within the mean- ing of section 4940(c)(2)) derived from sources within the United States (within the meaning of section 861) by every foreign organization which is a private foundation for the taxable year a tax equal to 4 percent of such income. (b) Certain sections inapplicable Section 507 (relating to termination of private foundation status), section 508 (relating to spe- cial rules with respect to section 501(c)(3) orga- nizations), and this chapter (other than this sec- tion) shall not apply to any foreign organization which has received substantially all of its sup- port (other than gross investment income) from sources outside the United States. (c) Denial of exemption to foreign organizations engaged in prohibited transactions (1) General rule A foreign organization described in sub- section (b) shall not be exempt from taxation under section 501(a) if it has engaged in a pro- hibited transaction after December 31, 1969. (2) Prohibited transactions For purposes of this subsection, the term ‘‘prohibited transaction’’ means any act or failure to act (other than with respect to sec- tion 4942(e)) which would subject a foreign or- ganization described in subsection (b), or a dis- qualified person (as defined in section 4946) with respect thereto, to liability for a penalty under section 6684 or a tax under section 507 if such foreign organization were a domestic or- ganization. (3) Taxable years affected (A) Except as provided in subparagraph (B), a foreign organization described in subsection (b) shall be denied exemption from taxation under section 501(a) by reason of paragraph (1) for all taxable years beginning with the tax- able year during which it is notified by the Secretary that it has engaged in a prohibited transaction. The Secretary shall publish such notice in the Federal Register on the day on which he so notifies such foreign organization. (B) Under regulations prescribed by the Sec- retary, any foreign organization described in subsection (b) which is denied exemption from taxation under section 501(a) by reason of paragraph (1) may, with respect to the second taxable year following the taxable year in which notice is given under subparagraph (A) (or any taxable year thereafter), file claim for exemption from taxation under section 501(a). If the Secretary is satisfied that such organi- zation will not knowingly again engage in a prohibited transaction, such organization shall not, with respect to taxable years begin- ning with the taxable year with respect to which such claim is filed, be denied exemption from taxation under section 501(a) by reason of any prohibited transaction which was engaged in before the date on which such notice was given under subparagraph (A). (4) Disallowance of certain charitable deduc- tions No gift or bequest shall be allowed as a de- duction under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, if made— (A) to a foreign organization described in subsection (b) after the date on which the Secretary publishes notice under paragraph (3)(A) that he has notified such organization that it has engaged in a prohibited trans- action, and (B) in a taxable year of such organization for which it is not exempt from taxation under section 501(a) by reason of paragraph (1). (Added Pub. L. 91–172, title I, § 101(b), Dec. 30, 1969, 83 Stat. 518; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 108–357, title IV, § 413(c)(30), Oct. 22, 2004, 118 Stat. 1509.) Editorial Notes AMENDMENTS 2004—Subsec. (c)(4). Pub. L. 108–357 struck out ‘‘556(b)(2),’’ after ‘‘545(b)(2),’’ in introductory provisions. 1976—Subsec. (c). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’ wherever appearing. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title. Subchapter B—Black Lung Benefit Trusts Sec. 4951. Taxes on self-dealing. 4952. Taxes on taxable expenditures. 4953. Tax on excess contributions to black lung benefit trusts. § 4951. 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 Page 3040 TITLE 26—INTERNAL REVENUE CODE § 4951 a trust described in section 501(c)(21). 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 trustee acting only as a trustee of the trust) who participates in the act of self-dealing. (2) On trustee In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the participation of any trustee of such a trust in an act of self-dealing between a disqualified person and the trust, knowing that it is such an act, a tax equal to 21⁄2 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 such trustee who participated in the act of self-dealing. (b) Additional taxes (1) On self-dealer In any case in which an initial tax is im- posed by subsection (a)(1) on an act of self- dealing by a disqualified person with a trust described in section 501(c)(21) and in which the act is not corrected within the taxable period, there is hereby imposed a tax equal to 100 per- cent of the amount involved. The tax imposed by this paragraph shall be paid by any dis- qualified person (other than a trustee acting only as a trustee of such a trust) who partici- pated in the act of self-dealing. (2) On trustee In any case in which an additional tax is im- posed by paragraph (1), if a trustee of such a trust refused to agree to part or all of the cor- rection, there is hereby imposed a tax equal to 50 percent of the amount involved. The tax im- posed by this paragraph shall be paid by any such trustee who refused to agree to part or all of the correction. (c) 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. (d) Self-dealing (1) In general For purposes of this section, the term ‘‘self- dealing’’ means any direct or indirect— (A) sale, exchange, or leasing of real or personal property between a trust described in section 501(c)(21) and a disqualified per- son; (B) lending of money or other extension of credit between such a trust and a disquali- fied person; (C) furnishing of goods, services, or facili- ties between such a trust and a disqualified person; (D) payment of compensation (or payment or reimbursement of expenses) by such a trust to a disqualified person; and (E) transfer to, or use by or for the benefit of, a disqualified person of the income or as- sets of such a trust. (2) Special rules For purposes of paragraph (1)— (A) the transfer of personal property by a disqualified person to such a trust shall be treated as a sale or exchange if the property is subject to a mortgage or similar lien; (B) the furnishing of goods, services, or fa- cilities by a disqualified person to such a trust 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 the purposes specified in section 501(c)(21)(A); and (C) the payment of compensation (and the payment or reimbursement of expenses) by such a trust to a disqualified person for per- sonal services which are reasonable and nec- essary to carrying out the exempt purpose of the trust shall not be an act of self-dealing if the compensation (or payment or reim- bursement) is not excessive. (e) Definitions For purposes of this section— (1) Taxable period The term ‘‘taxable period’’ means, with re- spect to any act of self-dealing, the period be- ginning 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 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 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)(C), 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 taxes imposed by sub- section (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 trust in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards. (4) Disqualified person The term ‘‘disqualified person’’ means, with respect to a trust described in section 501(c)(21), a person who is— Page 3041 TITLE 26—INTERNAL REVENUE CODE § 4952 (A) a contributor to the trust, (B) a trustee of the trust, (C) an owner of more than 10 percent of— (i) the total combined voting power of a corporation, (ii) the profits interest of a partnership, or (iii) the beneficial interest of a trust or unincorporated enterprise, which is a contributor to the trust, (D) an officer, director, or employee of a person who is a contributor to the trust, (E) the spouse, ancestor, lineal descendant, or spouse of a lineal descendant of an indi- vidual described in subparagraph (A), (B), (C), or (D), (F) a corporation of which persons de- scribed in subparagraph (A), (B), (C), (D), or (E) own more than 35 percent of the total combined voting power, (G) a partnership in which persons de- scribed in subparagraph (A), (B), (C), (D), or (E), own more than 35 percent of the profits interest, or (H) a trust or estate in which persons de- scribed in subparagraph (A), (B), (C), (D), or (E), hold more than 35 percent of the bene- ficial interest. For purposes of subparagraphs (C)(i) and (F), there shall be taken into account indirect stockholdings which would be taken into ac- count under section 267(c), except that, for purposes of this paragraph, section 267(c)(4) shall be treated as providing that the members of the family of an individual are only those individuals described in subparagraph (E) of this paragraph. For purposes of subparagraphs (C) (ii) and (iii), (G), and (H), the ownership of profits or beneficial interests shall be deter- mined in accordance with the rules for con- structive ownership of stock provided in sec- tion 267(c) (other than paragraph (3) thereof), except that section 267(c)(4) shall be treated as providing that the members of the family of an individual are only those individuals de- scribed in subparagraph (E) of this paragraph. (f) Payments of benefits For purposes of this section, a payment, out of assets or income of a trust described in section 501(c)(21), for the purposes described in subclause (I) or (IV) of section 501(c)(21)(A)(i) shall not be considered an act of self-dealing. (Added Pub. L. 95–227, § 4(c)(1), Feb. 10, 1978, 92 Stat. 18; amended Pub. L. 96–596, § 2(a)(1)(G), (H), (2)(F), (3)(E), Dec. 24, 1980, 94 Stat. 3469–3471; Pub. L. 102–486, title XIX, § 1940(b), Oct. 24, 1992, 106 Stat. 3035.) Editorial Notes AMENDMENTS 1992—Subsec. (f). Pub. L. 102–486 substituted ‘‘sub- clause (I) or (IV) of section 501(c)(21)(A)(i)’’ for ‘‘clause (i) of section 501(c)(21)(A)’’. 1980—Subsec. (b)(1). Pub. L. 96–596, § 2(a)(1)(G), sub- stituted ‘‘taxable period’’ for ‘‘correction period’’. Subsec. (e)(1)(B), (C). Pub. L. 96–596, § 2(a)(2)(F), added subpar. (B) and redesignated former subpar. (B) as (C). Subsec. (e)(2)(B). Pub. L. 96–596, § 2(a)(1)(H), sub- stituted ‘‘taxable period’’ for ‘‘correction period’’. Subsec. (e)(4), (5). Pub. L. 96–596, § 2(a)(3)(E), redesig- nated par. (5) as (4) and struck out former par. (4) which defined correction period, with respect to any act of self-dealing, as the period beginning with the date on which the act of self-dealing occurs and ending 90 days after the date of mailing of a notice of deficiency under section 6212 of this title with respect to the tax im- posed by subsec. (b)(1) of this section, extended by any period in which a deficiency cannot be assessed under section 6213(a) of this title and any other period which the Secretary determines is reasonable and necessary to bring about correction of the act of self-dealing. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1992 AMENDMENT Amendment by Pub. L. 102–486 applicable to taxable years beginning after Dec. 31, 1991, see section 1940(d) of Pub. L. 102–486, set out as a note under section 192 of this title. 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 Subchapter effective with respect to contributions, acts, and expenditures made after Dec. 31, 1977, in and for taxable years beginning after such date, see section 4(f) of Pub. L. 95–227, set out as a note under section 192 of this title. § 4952. Taxes on taxable expenditures (a) Tax imposed (1) On the fund There is hereby imposed on each taxable ex- penditure (as defined in subsection (d)) from the assets or income of a trust described in section 501(c)(21) a tax equal to 10 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the trustee out of the assets of the trust. (2) On the trustee There is hereby imposed on the agreement of any trustee of such a trust to the making of an expenditure, knowing that it is a taxable expenditure, a tax equal to 21⁄2 percent of the amount thereof, unless such agreement is not willful and is due to reasonable cause. The tax imposed by this paragraph shall be paid by the trustee who agreed to the making of the ex- penditure. (b) Additional taxes (1) On the fund In any case in which an initial tax is im- posed by subsection (a)(1) on a taxable expend- iture and such expenditure is not corrected within the taxable period, there is hereby im- posed a tax equal to 100 percent of the amount of the expenditure. The tax imposed by this paragraph shall be paid by the trustee out of the assets of the trust. (2) On the trustee In any case in which an additional tax is im- posed by paragraph (1), if a trustee refused to agree to a part or all of the correction, there is hereby imposed a tax equal to 50 percent of the amount of the taxable expenditure. The