26 U.S.C. § 4944 — Taxes on investments which jeopardize

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). Page 3034 TITLE 26—INTERNAL REVENUE CODE § 4945 Subsec. (e)(3). Pub. L. 96–596, § 2(a)(3)(D), struck out par. (3), which defined correction period, with respect to any investment which jeopardizes the carrying out of exempt purposes, as the period beginning with the date on which such investment is entered into and end- ing 90 days after the date of mailing of a notice of defi- ciency with respect to the tax imposed by subsec. (b)(1) of this section under section 6212 of this title, 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 nec- essary to bring about removal from jeopardy. 1976—Subsec. (e)(3)(B). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2006 AMENDMENT Amendment by Pub. L. 109–280 applicable 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. 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. § 4945. Taxes on taxable expenditures (a) Initial taxes (1) On the foundation There is hereby imposed on each taxable ex- penditure (as defined in subsection (d)) a tax equal to 20 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the private foundation. (2) On the management There is hereby imposed on the agreement of any foundation manager to the making of an expenditure, knowing that it is a taxable ex- penditure, a tax equal to 5 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 any foundation manager who agreed to the making of the expenditure. (b) Additional taxes (1) On the foundation 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 private founda- tion. (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 cor- rection, there is hereby imposed a tax equal to 50 percent of the amount of the taxable ex- penditure. The tax imposed by this paragraph shall be paid by any foundation manager who refused to agree to part or all of the correc- tion. (c) 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 the mak- ing of a taxable expenditure, all such persons shall be jointly and severally liable under such paragraph with respect to such expenditure. (2) Limit for management With respect to any one taxable expenditure, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $10,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $20,000. (d) Taxable expenditure For purposes of this section, the term ‘‘taxable expenditure’’ means any amount paid or in- curred by a private foundation— (1) to carry on propaganda, or otherwise to attempt, to influence legislation, within the meaning of subsection (e), (2) except as provided in subsection (f), to in- fluence the outcome of any specific public election, or to carry on, directly or indirectly, any voter registration drive, (3) as a grant to an individual for travel, study, or other similar purposes by such indi- vidual, unless such grant satisfies the require- ments of subsection (g), (4) as a grant to an organization unless— (A) such organization— (i) is described in paragraph (1) or (2) of section 509(a), (ii) is an organization described in sec- tion 509(a)(3) (other than an organization described in clause (i) or (ii) of section 4942(g)(4)(A)), or (iii) is an exempt operating foundation (as defined in section 4940(d)(2)), or (B) the private foundation exercises ex- penditure responsibility with respect to such grant in accordance with subsection (h), or (5) for any purpose other than one specified in section 170(c)(2)(B). (e) Activities within subsection (d)(1) For purposes of subsection (d)(1), the term ‘‘taxable expenditure’’ means any amount paid or incurred by a private foundation for— (1) any attempt to influence any legislation through an attempt to affect the opinion of the general public or any segment thereof, and (2) any attempt to influence legislation through communication with any member or employee of a legislative body, or with any other government official or employee who may participate in the formulation of the leg- islation (except technical advice or assistance provided to a governmental body or to a com- mittee or other subdivision thereof in response to a written request by such body or subdivi- sion, as the case may be), other than through making available the results of nonpartisan analysis, study, or research. Paragraph (2) of this subsection shall not apply to any amount paid or incurred in connection with an appearance before, or communication to, any legislative body with respect to a pos- sible decision of such body which might affect the existence of the private foundation, its pow-