§4958 — Taxes on excess benefit transactions
20 cases·4 followed·3 distinguished·6 questioned·7 cited—20% support
Statute Text — 26 U.S.C. §4958
There is hereby imposed on each excess benefit transaction a tax equal to 25 percent of the excess benefit. The tax imposed by this paragraph shall be paid by any disqualified person referred to in subsection (f)(1) with respect to such transaction.
In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the participation of any organization manager in the excess benefit transaction, knowing that it is such a transaction, a tax equal to 10 percent of the excess benefit, unless such participation is not willful and is due to reasonable cause. The tax imposed by this paragraph shall be paid by any organization manager who participated in the excess benefit transaction.
In any case in which an initial tax is imposed by subsection (a)(1) on an excess benefit transaction and the excess benefit involved in such transaction is not corrected within the taxable period, there is hereby imposed a tax equal to 200 percent of the excess benefit involved. The tax imposed by this subsection shall be paid by any disqualified person referred to in subsection (f)(1) with respect to such transaction.
For purposes of this section—
The term “excess benefit transaction” means any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person if the value of the economic benefit provided exceeds the value of the consideration (including the performance of services) received for providing such benefit. For purposes of the preceding sentence, an economic benefit shall not be treated as consideration for the performance of services unless such organization clearly indicated its intent to so treat such benefit.
The term “excess benefit” means the excess referred to in subparagraph (A).
In the case of any donor advised fund (as defined in section 4966(d)(2))—
the term “excess benefit transaction” includes any grant, loan, compensation, or other similar payment from such fund to a person described in subsection (f)(7) with respect to such fund, and
the term “excess benefit” includes, with respect to any transaction described in subparagraph (A), the amount of any such grant, loan, compensation, or other similar payment.
In the case of any organization described in section 509(a)(3)—
the term “excess benefit transaction” includes—
any grant, loan, compensation, or other similar payment provided by such organization to a person described in subparagraph (B), and
any loan provided by such organization to a disqualified person (other than an organization described in subparagraph (C)(ii)), and
the term “excess benefit” includes, with respect to any transaction described in clause (i), the amount of any such grant, loan, compensation, or other similar payment.
A person is described in this subparagraph if such person is—
a substantial contributor to such organization,
a member of the family (determined under section 4958(f)(4)) of an individual described in clause (i), or
a 35-percent controlled entity (as defined in section 4958(f)(3) by substituting “persons described in clause (i) or (ii) of section 4958(c)(3)(B)” for “persons described in subparagraph (A) or (B) of paragraph (1)” in subparagraph (A)(i) thereof).
For purposes of this paragraph—
The term “substantial contributor” means any person who contributed or bequeathed an aggregate amount of more than $5,000 to the organization, if such amount is more than 2 percent of the total contributions and bequests received by the organization before the close of the taxable year of the organization in which the contribution or bequest is received by the organization from such person. In the case of a trust, such term also means the creator of the trust. Rules similar to the rules of subparagraphs (B) and (C) of section 507(d)(2) shall apply for purposes of this subparagraph.
Such term shall not include—
any organization described in paragraph (1), (2), or (4) of section 509(a), and
any organization which is treated as described in such paragraph (2) by reason of the last sentence of section 509(a) and which is a supported organization (as defined in section 509(f)(3)) of the organization to which subparagraph (A) applies.
To the extent provided in regulations prescribed by the Secretary, the term “excess benefit transaction” includes any transaction in which the amount of any economic benefit provided to or for the use of a disqualified person is determined in whole or in part by the revenues of 1 or more activities of the organization but only if such transaction results in inurement not permitted under paragraph (3) or (4) of section 501(c), as the case may be. In the case of any such transaction, the excess benefit shall be the amount of the inurement not so permitted.
For purposes of this section—
If more than 1 person is liable for any tax imposed by subsection (a) or subsection (b), all such persons shall be jointly and severally liable for such tax.
With respect to any 1 excess benefit transaction, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $20,000.
For purposes of this subchapter, the term “applicable tax-exempt organization” means—
any organization which (without regard to any excess benefit) would be described in paragraph (3), (4), or (29) of section 501(c) and exempt from tax under section 501(a), and
any organization which was described in paragraph (1) at any time during the 5-year period ending on the date of the transaction.
Such term shall not include a private foundation (as defined in section 509(a)).
For purposes of this section—
The term “disqualified person” means, with respect to any transaction—
any person who was, at any time during the 5-year period ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the organization,
a member of the family of an individual described in subparagraph (A),
a 35-percent controlled entity,
any person who is described in subparagraph (A), (B), or (C) with respect to an organization described in section 509(a)(3) and organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of the applicable tax-exempt organization,
which involves a donor advised fund (as defined in section 4966(d)(2)), any person who is described in paragraph (7) with respect to such donor advised fund (as so defined), and
which involves a sponsoring organization (as defined in section 4966(d)(1)), any person who is described in paragraph (8) with respect to such sponsoring organization (as so defined).
The term “organization manager” means, with respect to any applicable tax-exempt organization, any officer, director, or trustee of such organization (or any individual having powers or responsibilities similar to those of officers, directors, or trustees of the organization).
The term “35-percent controlled entity” means—
a corporation in which persons described in subparagraph (A) or (B) of paragraph (1) own more than 35 percent of the total combined voting power,
a partnership in which such persons own more than 35 percent of the profits interest, and
a trust or estate in which such persons own more than 35 percent of the beneficial interest.
Rules similar to the rules of paragraphs (3) and (4) of section 4946(a) shall apply for purposes of this paragraph.
The members of an individual’s family shall be determined under section 4946(d); except that such members also shall include the brothers and sisters (whether by the whole or half blood) of the individual and their spouses.
The term “taxable period” means, with respect to any excess benefit transaction, the period beginning with the date on which the transaction occurs and ending on the earliest of—
the date of mailing a notice of deficiency under section 6212 with respect to the tax imposed by subsection (a)(1), or
the date on which the tax imposed by subsection (a)(1) is assessed.
The terms “correction” and “correct” mean, with respect to any excess benefit transaction, undoing the excess benefit to the extent possible, and taking any additional measures necessary to place the organization in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards, except that in the case of any correction of an excess benefit transaction described in subsection (c)(2), no amount repaid in a manner prescribed by the Secretary may be held in any donor advised fund.
For purposes of paragraph (1)(E), a person is described in this paragraph if such person—
is described in section 4966(d)(2)(A)(iii),
is a member of the family of an individual described in subparagraph (A), or
is a 35-percent controlled entity (as defined in paragraph (3) by substituting “persons described in subparagraph (A) or (B) of paragraph (7)” for “persons described in subparagraph (A) or (B) of paragraph (1)” in subparagraph (A)(i) thereof).
For purposes of paragraph (1)(F)—
A person is described in this paragraph if such person—
is an investment advisor,
is a member of the family of an individual described in clause (i), or
is a 35-percent controlled entity (as defined in paragraph (3) by substituting “persons described in clause (i) or (ii) of paragraph (8)(A)” for “persons described in subparagraph (A) or (B) of paragraph (1)” in subparagraph (A)(i) thereof).
For purposes of subparagraph (A), the term “investment advisor” means, with respect to any sponsoring organization (as defined in section 4966(d)(1)), any person (other than an employee of such organization) compensated by such organization for managing the investment of, or providing investment advice with respect to, assets maintained in donor advised funds (as defined in section 4966(d)(2)) owned by such organization.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §53.4958-0 Table of contents
- Treas. Reg. §Treas. Reg. §53.4958-0(a) Substantive requirements for exemption still apply.
- Treas. Reg. §Treas. Reg. §53.4958-0(b) Interaction between section 4958 and section 7611 rules for church tax inquiries and examinations.
- Treas. Reg. §Treas. Reg. §53.4958-0(c) Other substantiation requirements.
- Treas. Reg. §Treas. Reg. §53.4958-0(d) Correction where contract has been partially performed.
- Treas. Reg. §Treas. Reg. §53.4958-0(e) Correction in the case of an applicable tax-exempt organization that has ceased to exist, or is no longer tax-exempt.
- Treas. Reg. §Treas. Reg. §53.4958-0(f) Examples.
- Treas. Reg. §Treas. Reg. §53.4958-0(g) Examples.
- Treas. Reg. §Treas. Reg. §53.4958-0(i) In general.
- Treas. Reg. §Treas. Reg. §53.4958-0(v) Economic benefits provided to a charitable beneficiary.
- Treas. Reg. §Treas. Reg. §53.4958-1 Taxes on excess benefit transactions
- Treas. Reg. §Treas. Reg. §53.4958-1(a) In general.
- Treas. Reg. §Treas. Reg. §53.4958-1(b) Excess benefit defined.
- Treas. Reg. §Treas. Reg. §53.4958-1(c) Taxes paid by disqualified person—(1) Initial tax.
- Treas. Reg. §Treas. Reg. §53.4958-1(d) Tax paid by organization managers—(1) In general.
- Treas. Reg. §Treas. Reg. §53.4958-1(e) Date of occurrence—(1) In general.
- Treas. Reg. §Treas. Reg. §53.4958-1(f) Effective date for imposition of taxes—(1) In general.
- Treas. Reg. §Treas. Reg. §53.4958-2 Definition of applicable tax-exempt organization
- Treas. Reg. §Treas. Reg. §53.4958-2(a) Organizations described in section 501(c)(3) or (4) and exempt from tax under section 501(a)—(1) In general.
- Treas. Reg. §Treas. Reg. §53.4958-2(b) Special rules—(1) Transition rule for lookback period.
- Treas. Reg. §Treas. Reg. §53.4958-2(i) §53.4958-2(i)
- Treas. Reg. §Treas. Reg. §53.4958-3 Definition of disqualified person
- Treas. Reg. §Treas. Reg. §53.4958-3(a) In general—(1) Scope of definition.
- Treas. Reg. §Treas. Reg. §53.4958-3(b) Statutory categories of disqualified persons—(1) Family members.
- Treas. Reg. §Treas. Reg. §53.4958-3(c) Persons having substantial influence.
20 Citing Cases
Finally, section 4958, imposing an excise tax on “excess benefit transactions”, applies only to transactions occurring on or after September 14, 1995, and so does not apply to the instant case.
Because the issue of whether petitioners - 60 - will or would qualify for an abatement is not yet ripe for decision, we express no opinion on this issue.
Archer a Letter 3614, commonly known as a 30-day letter, with an accompanying revenue agent's report, proposing the imposition ofan excise tax pursuant to section 4958.
Archer a Letter 3614, commonly known as a 30-day letter, with an accompanying revenue agent's report, proposing the imposition ofan excise tax pursuant to section 4958.
In that notice, respondent determined, inter alia, that during those taxable years petitioner, a so-called disqualified person, had engaged in certain excess benefit transactions with AHA under section 4958 totaling $6,963.76, $27,232.53, and $5,299.05, respectively. OPINION We must decide whether to sustain respondent's determinations in the notice. Petitioner has the burden ofestablishing that those determinations are erroneous.5 See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). 5
eror’s liabilities. R determined that the fair market value of the transferred assets substantially exceeded the consideration received in exchange. Accordingly, R determined S1, S2, S3, and members of the C family were liable for excise taxes under sec. 4958, I.R.C., and members of the C family who received stock in S1, S2, or S3 but did not have an ownership interest in P1, P2, and P3 were liable for income taxes on the value of the stock received. R also revoked the tax exemptions of P1, P2,
eror’s liabilities. R determined that the fair market value of the transferred assets substantially exceeded the consideration received in exchange. Accordingly, R determined S1, S2, S3, and members of the C family were liable for excise taxes under sec. 4958, I.R.C., and members of the C family who received stock in S1, S2, or S3 but did not have an ownership interest in P1, P2, and P3 were liable for income taxes on the value of the stock received. R also revoked the tax exemptions of P1, P2,
eror’s liabilities. R determined that the fair market value of the transferred assets substantially exceeded the consideration received in exchange. Accordingly, R determined S1, S2, S3, and members of the C family were liable for excise taxes under sec. 4958, I.R.C., and members of the C family who received stock in S1, S2, or S3 but did not have an ownership interest in P1, P2, and P3 were liable for income taxes on the value of the stock received. R also revoked the tax exemptions of P1, P2,
eror’s liabilities. R determined that the fair market value of the transferred assets substantially exceeded the consideration received in exchange. Accordingly, R determined S1, S2, S3, and members of the C family were liable for excise taxes under sec. 4958, I.R.C., and members of the C family who received stock in S1, S2, or S3 but did not have an ownership interest in P1, P2, and P3 were liable for income taxes on the value of the stock received. R also revoked the tax exemptions of P1, P2,
The latter examination was based on section 4958, which imposes an excise tax on a “disqualified person” who engages in “excess benefit transaction[s]” with a charity.
The latter examination was based on section 4958, which imposes an excise tax on a “disqualified person” who engages in “excess benefit transaction[s]” with a charity.
g 2004, he caused SPI, Inc., to transfer $105,000 to the entity, which it used to further petitioner’s corrupt scheme to obtain money from the funding sources. 13Respondent’s notice determines no deficiency in any of the excise taxes provided for in section 4958. Section 4958 imposes excise taxes on excess benefit transactions between disqualified persons and section 501(c)(3) or (4) organizations. The excise tax, which is paid by the disqualified person, is imposed on the amount received by the
Governing Statutory Structure Section 4958 is captioned “Taxes on Excess Benefit Transactions.” Section 4958(c)(1)(A) defines an “excess benefit transaction” to mean “any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person if the value of the economic benefit provided e
MEMORANDUM FINDINGS OF FACT AND OPINION LAUBER, Judge: Section 4958 imposes an excise tax on a “disqualified person” who engages in an “excess benefit transaction” with a tax-exempt charity.1 1All statutory references are to the Internal Revenue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
We therefore hold that allowing an increase in the charitable deduction to reflect the increase in the value of the estate’s property going to the Foundation violates no public policy and should be allowed. Decision will be entered under Rule 155. Reviewed by the Court. Colvin, Cohen, Wells, Foley, Vasquez, Thornton, Marvel, Haines, and
that a quorum could not consist of a majority of disqualified persons, that any director could be removed by a majority vote of the current directors, and that directors were prohibited from engaging in any excess benefit transactions as defined in section 4958. Similarly enclosed was a copy of a proposed demand note - 12 - for use in lieu of the 15-year term instrument and incorporating reference to mortgage security and protection against other liens. By letter dated December 18, 2000, respon