26 U.S.C. § 4945 — Taxes on taxable expenditures

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- Page 3035 TITLE 26—INTERNAL REVENUE CODE § 4945 ers and duties, its tax-exempt status, or the de- duction of contributions to such foundation. (f) Nonpartisan activities carried on by certain organizations Subsection (d)(2) shall not apply to any amount paid or incurred by any organization— (1) which is described in section 501(c)(3) and exempt from taxation under section 501(a), (2) the activities of which are nonpartisan, are not confined to one specific election pe- riod, and are carried on in 5 or more States, (3) substantially all of the income of which is expended directly for the active conduct of the activities constituting the purpose or function for which it is organized and oper- ated, (4) substantially all of the support (other than gross investment income as defined in section 509(e)) of which is received from ex- empt organizations, the general public, gov- ernmental units described in section 170(c)(1), or any combination of the foregoing; not more than 25 percent of such support is received from any one exempt organization (for this purpose treating private foundations which are described in section 4946(a)(1)(H) with re- spect to each other as one exempt organiza- tion); and not more than half of the support of which is received from gross investment in- come, and (5) contributions to which for voter registra- tion drives are not subject to conditions that they may be used only in specified States, pos- sessions of the United States, or political sub- divisions or other areas of any of the fore- going, or the District of Columbia, or that they may be used in only one specific election period. In determining whether the organization meets the requirements of paragraph (4) for any tax- able year of such organization, there shall be taken into account the support received by such organization during such taxable year and dur- ing the immediately preceding 4 taxable years of such organization. Subsection (d)(4) shall not apply to any grant to an organization which meets the requirements of this subsection. (g) Individual grants Subsection (d)(3) shall not apply to an indi- vidual grant awarded on an objective and non- discriminatory basis pursuant to a procedure ap- proved in advance by the Secretary, if it is dem- onstrated to the satisfaction of the Secretary that— (1) the grant constitutes a scholarship or fel- lowship grant 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 is to be used for study at an educational organization described in section 170(b)(1)(A)(ii), (2) the grant constitutes a prize or award which is subject to the provisions of section 74(b) (without regard to paragraph (3) thereof), if the recipient of such prize or award is se- lected from the general public, or (3) the purpose of the grant is to achieve a specific objective, produce a report or other similar product, or improve or enhance a lit- erary, artistic, musical, scientific, teaching, or other similar capacity, skill, or talent of the grantee. (h) Expenditure responsibility The expenditure responsibility referred to in subsection (d)(4) means that the private founda- tion is responsible to exert all reasonable efforts and to establish adequate procedures— (1) to see that the grant is spent solely for the purpose for which made, (2) to obtain full and complete reports from the grantee on how the funds are spent, and (3) to make full and detailed reports with re- spect to such expenditures to the Secretary. (i) Other definitions For purposes of this section— (1) Correction The terms ‘‘correction’’ and ‘‘correct’’ mean, with respect to any taxable expenditure, (A) recovering part or all of the expenditure to the extent recovery is possible, and where full re- covery is not possible such additional correc- tive action as is prescribed by the Secretary by regulations, or (B) in the case of a failure to comply with subsection (h)(2) or (h)(3), ob- taining or making the report in question. (2) Taxable period The term ‘‘taxable period’’ means, with re- spect to any taxable expenditure, the period beginning with the date on which the taxable expenditure occurs and ending on the earlier of— (A) the date of mailing a notice of defi- ciency with respect to the tax imposed by subsection (a)(1) under section 6212, or (B) the date on which the tax imposed by subsection (a)(1) is assessed. (Added Pub. L. 91–172, title I, § 101(b), Dec. 30, 1969, 83 Stat. 512; 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)(F), (2)(E), Dec. 24, 1980, 94 Stat. 3469, 3470; Pub. L. 98–369, div. A, title III, § 302(b), July 18, 1984, 98 Stat. 780; Pub. L. 99–514, title I, § 122(a)(2)(B), Oct. 22, 1986, 100 Stat. 2110; Pub. L. 100–647, title I, § 1001(d)(1)(B), Nov. 10, 1988, 102 Stat. 3350; Pub. L. 109–280, title XII, §§ 1212(e), 1244(b), Aug. 17, 2006, 120 Stat. 1074, 1107; Pub. L. 113–295, div. A, title II, § 221(a)(106), Dec. 19, 2014, 128 Stat. 4053.) Editorial Notes REFERENCES IN TEXT The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (g)(1), is the date of enact- ment of Pub. L. 99–514, which was approved Oct. 22, 1986. CODIFICATION Sections 1212(e) and 1244(b) of Pub. L. 109–280, which directed the amendment of section 4945 without speci- fying the act to be amended, were executed to this sec- tion, which is section 4945 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below. AMENDMENTS 2014—Subsec. (f). Pub. L. 113–295 struck out ‘‘(exclud- ing therefrom any preceding taxable year which begins before January 1, 1970)’’ after ‘‘taxable years of such or- ganization’’ in concluding provisions. Page 3036 TITLE 26—INTERNAL REVENUE CODE § 4946 2006—Subsec. (a)(1). Pub. L. 109–280, § 1212(e)(1)(A), substituted ‘‘20 percent’’ for ‘‘10 percent’’. See Codifica- tion note above. Subsec. (a)(2). Pub. L. 109–280, § 1212(e)(1)(B), sub- stituted ‘‘5 percent’’ for ‘‘21⁄2 percent’’. See Codification note above. Subsec. (c)(2). Pub. L. 109–280, § 1212(e)(2), substituted ‘‘$10,000,’’ for ‘‘$5,000,’’ and ‘‘$20,000.’’ for ‘‘$10,000.’’ See Codification note above. Subsec. (d)(4)(A). Pub. L. 109–280, § 1244(b), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: ‘‘such organization is described in para- graph (1), (2), or (3) of section 509(a) or is an exempt op- erating foundation (as defined in section 4940(d)(2)), or’’. See Codification note above. 1988—Subsec. (g)(1). Pub. L. 100–647 amended par. (1) generally. Prior to amendment, par. (1) read as follows: ‘‘the grant constitutes a scholarship or fellowship grant which is subject to the provisions of section 117(a) and is to be used for study at an educational or- ganization described in section 170(b)(1)(A)(ii),’’. 1986—Subsec. (g)(2). Pub. L. 99–514 inserted ‘‘(without regard to paragraph (3) thereof)’’ after ‘‘section 74(b)’’. 1984—Subsec. (d)(4). Pub. L. 98–369, in amending par. (4) generally, divided existing provisions into subpars. (A) and (B) and inserted reference in subpar. (A) to ex- empt foundations (as defined in section 4940(d)(2)). 1980—Subsec. (b)(1). Pub. L. 96–596, § 2(a)(1)(F), sub- stituted ‘‘taxable period’’ for ‘‘correction period’’. Subsec. (i)(2). Pub. L. 96–596, § 2(a)(2)(E), substituted provision defining taxable period as the period begin- ning with the date on which the taxable expenditure occurs and ending on the earlier of the date of mailing a notice of deficiency with respect to the tax imposed by subsec. (a)(1) of this section under section 6212 of this title or the date on which the tax imposed by sub- sec. (a)(1) of this section is assessed for provision defin- ing correction period as the period beginning with the date on which the taxable expenditure occurs 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 the deficiency cannot be as- sessed under section 6213(a) of this title and any other period which the Secretary determines to be reasonable and necessary, except that such determination not be made with respect to any taxable expenditure within the meaning of pars. (1), (2), (3), or (4) of subsec. (d) of this section because of any action by an appropriate State officer. 1976—Subsec. (g). Pub. L. 94–455, §§ 1901(b)(8)(H), 1906(b)(13)(A), struck out in provisions preceding par. (1) ‘‘or his delegate’’ after ‘‘Secretary’’ and substituted in par. (1) ‘‘educational organization described in sec- tion 170(b)(1)(A)(ii)’’ for ‘‘educational institution de- scribed in section 151(e)(4)’’. Subsecs. (h), (i). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’ wherever ap- pearing. 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(e) 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. Amendment by section 1244(b) of Pub. L. 109–280 ap- plicable to distributions and expenditures after Aug. 17, 2006, see section 1244(c) of Pub. L. 109–280, set out as a note under section 4942 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to prizes and awards granted after Dec. 31, 1986, see section 151(c) of Pub. L. 99–514, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title III, § 302(c)(2), July 18, 1984, 98 Stat. 781, provided that: ‘‘The amendment made by subsection (b) [amending this section] shall apply to grants made after December 31, 1984, in taxable years ending after such date.’’ 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 subsecs. (d)(4) and (h) of this section to grants to private foundations described in section 101(l)(C)(3) of Pub. L. 91–172, see section 101(l)(5) of Pub. L. 91–172, set out as a note under section 4940 of this title. § 4946. Definitions and special rules (a) Disqualified person (1) In general For purposes of this subchapter, the term ‘‘disqualified person’’ means, with respect to a private foundation, a person who is— (A) a substantial contributor to the foun- dation, (B) a foundation manager (within the meaning of subsection (b)(1)), (C) an owner of more than 20 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 substantial contributor to the foundation, (D) a member of the family (as defined in subsection (d)) of any individual described in subparagraph (A), (B), or (C), (E) a corporation of which persons de- scribed in subparagraph (A), (B), (C), or (D) own more than 35 percent of the total com- bined voting power, (F) a partnership in which persons de- scribed in subparagraph (A), (B), (C), or (D) own more than 35 percent of the profits in- terest, (G) a trust or estate in which persons de- scribed in subparagraph (A), (B), (C), or (D) hold more than 35 percent of the beneficial interest, (H) only for purposes of section 4943, a pri- vate foundation— (i) which is effectively controlled (di- rectly or indirectly) by the same person or persons who control the private foundation in question, or (ii) substantially all of the contributions to which were made (directly or indirectly)