26 U.S.C. § 4944 — Taxes on investments which jeopardize charitable purpose
submitted 57 years ago by Pub. L. 91-172 to r/title-26-INTERNAL-REVENUE-CODE · 614 words · no verdicts yet
This section taxes private foundations and certain foundation managers when a foundation makes an investment that jeopardizes its exempt purposes. It excludes qualifying program-related investments and sets rules for additional taxes, shared liability, limits, and the taxable period.
(a) Initial taxes. (1) On the private foundation*. If a private foundation invests any amount in a way that jeopardizes carrying out any of its exempt purposes, the foundation owes a tax of 10% of the amount invested for each year or part of a year in the “taxable period.” The private foundation pays this tax. (2) On management. When paragraph (1) applies, a foundation manager* who participates in making the investment, knowing that it jeopardizes an exempt purpose, owes a tax of 10% of the amount invested for each year or part of a year in the “taxable period.” This does not apply if the participation was not willful and was caused by reasonable cause. The participating manager pays this tax. (b) Additional taxes. (1) On the foundation. If the initial tax under (a)(1) applies and the investment is not removed from jeopardy during the taxable period, the private foundation owes an additional tax of 25% of the investment amount. (2) On management. If paragraph (1) applies and a foundation manager refused to agree to all or part of removing the investment from jeopardy, that manager owes a tax of 5% of the investment amount. (c) Exception for program-related investments. An investment is not treated as jeopardizing exempt purposes if its main purpose is to accomplish one or more purposes described in section 170(c)(2)(B), and producing income or increasing property value is not a significant purpose. (d) Special rules. These rules apply to (a) and (b). (1) Joint and several liability. If more than one person is liable under (a)(2) or (b)(2) for one investment, each person is liable for the full tax under that paragraph. (2) Management limits. For one investment, the tax under (a)(2) cannot exceed $10,000, and the tax under (b)(2) cannot exceed $20,000. (e) Definitions. (1) “Taxable period” means, for an investment that jeopardizes exempt purposes, the period starting on the investment date and ending on the earliest of: (A) the date a notice of deficiency* for the (a)(1) tax is mailed under section 6212; (B) the date that tax is assessed; or (C) the date the invested amount is removed from jeopardy. (2) “Removal from jeopardy” occurs when the investment is sold or otherwise disposed of and the proceeds are not invested in a way that jeopardizes exempt purposes.
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 investment 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 foundation.
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.
In any case in which an initial tax is imposed by subsection (a)(1) on the making of an investment and such investment is not removed from jeopardy within the taxable period, 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.
In any case in which an additional tax is imposed by paragraph (1), if a foundation manager refused to agree to part or all of the removal from jeopardy, there is hereby imposed a tax equal to 5 percent of the amount of the investment. The tax imposed by this paragraph shall be paid by any foundation manager who refused to agree to part or all of the removal from jeopardy.
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 investments which jeopardize the carrying out of exempt purposes.
For purposes of subsections (a) and (b)—
If more than one person is liable under subsection (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.
With respect to any one investment, 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.
For purposes of this section—
The term “taxable period” means, with respect 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—
the date of mailing of a notice of deficiency* with respect to the tax imposed by subsection (a)(1) under section 6212,
the date on which the tax imposed by subsection (a)(1) is assessed, or
the date on which the amount so invested is removed from jeopardy.
An investment which jeopardizes the carrying out of exempt purposes shall be considered to be removed from jeopardy when such investment is sold or otherwise disposed of, and the proceeds of such sale or other disposition are not investments which jeopardize the carrying out of exempt purposes.
Source credit: (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.)
- 1969Enacted · Pub. L. 91-172 · 83 Stat. 511
- 1976Amended · Pub. L. 94-455 · 90 Stat. 1834
- 1980Amended · Pub. L. 96-596 · 94 Stat. 3469
- 2006Amended · Pub. L. 109-280 · 120 Stat. 1074
A history note hasn’t been published yet. The record shows enactment by Pub. L. 91-172 on 1969-12-30.
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