26 U.S.C. § 4965 — Excise tax on certain tax-exempt entities

Page 3051 TITLE 26—INTERNAL REVENUE CODE § 4965 EFFECTIVE DATE For effective date of section 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 a note under section 4961 of this title. Subchapter F—Tax Shelter Transactions Sec. 4965. Excise tax on certain tax-exempt entities en- tering into prohibited tax shelter trans- actions. § 4965. Excise tax on certain tax-exempt entities entering into prohibited tax shelter trans- actions (a) Being a party to and approval of prohibited transactions (1) Tax-exempt entity (A) In general If a transaction is a prohibited tax shelter transaction at the time any tax-exempt en- tity described in paragraph (1), (2), or (3) of subsection (c) becomes a party to the trans- action, such entity shall pay a tax for the taxable year in which the entity becomes such a party and any subsequent taxable year in the amount determined under sub- section (b)(1). (B) Post-transaction determination If any tax-exempt entity described in para- graph (1), (2), or (3) of subsection (c) is a party to a subsequently listed transaction at any time during a taxable year, such entity shall pay a tax for such taxable year in the amount determined under subsection (b)(1). (2) Entity manager If any entity manager of a tax-exempt enti- ty approves such entity as (or otherwise causes such entity to be) a party to a prohib- ited tax shelter transaction at any time dur- ing the taxable year and knows or has reason to know that the transaction is a prohibited tax shelter transaction, such manager shall pay a tax for such taxable year in the amount determined under subsection (b)(2). (b) Amount of tax (1) Entity In the case of a tax-exempt entity— (A) In general Except as provided in subparagraph (B), the amount of the tax imposed under sub- section (a)(1) with respect to any trans- action for a taxable year shall be an amount equal to the product of the highest rate of tax under section 11, and the greater of— (i) the entity’s net income (after taking into account any tax imposed by this sub- title (other than by this section) with re- spect to such transaction) for such taxable year which— (I) in the case of a prohibited tax shel- ter transaction (other than a subse- quently listed transaction), is attrib- utable to such transaction, or (II) in the case of a subsequently listed transaction, is attributable to such transaction and which is properly allo- cable to the period beginning on the later of the date such transaction is identified by guidance as a listed trans- action by the Secretary or the first day of the taxable year, or (ii) 75 percent of the proceeds received by the entity for the taxable year which— (I) in the case of a prohibited tax shel- ter transaction (other than a subse- quently listed transaction), are attrib- utable to such transaction, or (II) in the case of a subsequently listed transaction, are attributable to such transaction and which are properly allo- cable to the period beginning on the later of the date such transaction is identified by guidance as a listed trans- action by the Secretary or the first day of the taxable year. (B) Increase in tax for certain knowing transactions In the case of a tax-exempt entity which knew, or had reason to know, a transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction, the amount of the tax imposed under subsection (a)(1)(A) with respect to any transaction for a taxable year shall be the greater of— (i) 100 percent of the entity’s net income (after taking into account any tax imposed by this subtitle (other than by this sec- tion) with respect to the prohibited tax shelter transaction) for such taxable year which is attributable to the prohibited tax shelter transaction, or (ii) 75 percent of the proceeds received by the entity for the taxable year which are attributable to the prohibited tax shelter transaction. This subparagraph shall not apply to any prohibited tax shelter transaction to which a tax-exempt entity became a party on or be- fore the date of the enactment of this sec- tion. (2) Entity manager In the case of each entity manager, the amount of the tax imposed under subsection (a)(2) shall be $20,000 for each approval (or other act causing participation) described in subsection (a)(2). (c) Tax-exempt entity For purposes of this section, the term ‘‘tax-ex- empt entity’’ means an entity which is— (1) described in section 501(c) or 501(d), (2) described in section 170(c) (other than the United States), (3) an Indian tribal government (within the meaning of section 7701(a)(40)), (4) described in paragraph (1), (2), or (3) of section 4979(e), (5) a program described in section 529, (6) an eligible deferred compensation plan described in section 457(b) which is maintained by an employer described in section 457(e)(1)(A), (7) an arrangement described in section 4973(a), or Page 3052 TITLE 26—INTERNAL REVENUE CODE § 4966 (8) a program described in section 529A. (d) Entity manager For purposes of this section, the term ‘‘entity manager’’ means— (1) in the case of an entity described in para- graph (1), (2), or (3) of subsection (c)— (A) the person with authority or responsi- bility similar to that exercised by an officer, director, or trustee of an organization, and (B) with respect to any act, the person having authority or responsibility with re- spect to such act, and (2) in the case of an entity described in para- graph (4), (5), (6), or (7) of subsection (c), the person who approves or otherwise causes the entity to be a party to the prohibited tax shel- ter transaction. (e) Prohibited tax shelter transaction; subse- quently listed transaction For purposes of this section— (1) Prohibited tax shelter transaction (A) In general The term ‘‘prohibited tax shelter trans- action’’ means— (i) any listed transaction, and (ii) any prohibited reportable trans- action. (B) Listed transaction The term ‘‘listed transaction’’ has the meaning given such term by section 6707A(c)(2). (C) Prohibited reportable transaction The term ‘‘prohibited reportable trans- action’’ means any confidential transaction or any transaction with contractual protec- tion (as defined under regulations prescribed by the Secretary) which is a reportable transaction (as defined in section 6707A(c)(1)). (2) Subsequently listed transaction The term ‘‘subsequently listed transaction’’ means any transaction to which a tax-exempt entity is a party and which is determined by the Secretary to be a listed transaction at any time after the entity has become a party to the transaction. Such term shall not include a transaction which is a prohibited reportable transaction at the time the entity became a party to the transaction. (f) Regulatory authority The Secretary is authorized to promulgate regulations which provide guidance regarding the determination of the allocation of net in- come or proceeds of a tax-exempt entity attrib- utable to a transaction to various periods, in- cluding before and after the listing of the trans- action or the date which is 90 days after the date of the enactment of this section. (g) Coordination with other taxes and penalties The tax imposed by this section is in addition to any other tax, addition to tax, or penalty im- posed under this title. (Added Pub. L. 109–222, title V, § 516(a)(1), May 17, 2006, 120 Stat. 368; amended Pub. L. 110–172, § 11(a)(30), Dec. 29, 2007, 121 Stat. 2487; Pub. L. 113–295, div. B, title I, § 102(e)(3), Dec. 19, 2014, 128 Stat. 4062.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this section, referred to in subsecs. (b)(1)(B) and (f), is the date of enactment of Pub. L. 109–222, which was approved May 17, 2006. AMENDMENTS 2014—Subsec. (c)(8). Pub. L. 113–295 added par. (8). 2007—Subsec. (c)(6). Pub. L. 110–172 substituted ‘‘sec- tion 457(e)(1)(A)’’ for ‘‘section 4457(e)(1)(A)’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 applicable to taxable years beginning after Dec. 31, 2014, see section 102(f)(1) of Pub. L. 113–295, set out as a note under section 552a of Title 5, Government Organization and Employees. EFFECTIVE DATE Pub. L. 109–222, title V, § 516(d), May 17, 2006, 120 Stat. 372, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [enacting this section and amending sections 6011, 6033, and 6652 of this title] shall apply to taxable years ending after the date of the enactment of this Act [May 17, 2006], with respect to transactions before, on, or after such date, except that no tax under section 4965(a) of the Internal Revenue Code of 1986 (as added by this section) shall apply with respect to income or proceeds that are prop- erly allocable to any period ending on or before the date which is 90 days after such date of enactment. ‘‘(2) DISCLOSURE.—The amendments made by sub- sections (b) and (c) [amending sections 6011, 6033, and 6652 of this title] shall apply to disclosures the due date for which are after the date of the enactment of this Act.’’ Subchapter G—Donor Advised Funds Sec. 4966. Taxes on taxable distributions. 4967. Taxes on prohibited benefits. Editorial Notes CODIFICATION Pub. L. 109–280, title XII, § 1231(a), Aug. 17, 2006, 120 Stat. 1094, which directed the addition of subchapter G at the end of chapter 42, without specifying the act to be amended, was executed by adding subchapter G at the end of chapter 42 of this title, which consists of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. § 4966. Taxes on taxable distributions (a) Imposition of taxes (1) On the sponsoring organization There is hereby imposed on each taxable dis- tribution a tax equal to 20 percent of the amount thereof. The tax imposed by this para- graph shall be paid by the sponsoring organi- zation with respect to the donor advised fund. (2) On the fund management There is hereby imposed on the agreement of any fund manager to the making of a distribu- tion, knowing that it is a taxable distribution, a tax equal to 5 percent of the amount thereof.