26 U.S.C. § 4948 — Application of taxes and denial of exemption with respect to certain foreign organizations

(a) Tax on income of certain foreign organizations. Instead of the section 4940 tax, each taxable year a foreign organization that is a private foundation owes 4% of its gross investment income from United States sources, as those terms are defined in sections 4940(c)(2) and 861. (b) Certain sections inapplicable. Sections 507, 508, and this chapter other than this section do not apply to a foreign organization that received substantially all support other than gross investment income from outside the United States. (c) Denial of exemption. (1) A foreign organization described in (b) is not exempt under section 501(a) if it engaged in a prohibited transaction after December 31, 1969. (2) “Prohibited transaction” means an act or failure to act, other than one concerning section 4942(e), that would make that organization or its section 4946 disqualified person liable for a section 6684 penalty or section 507 tax if it were domestic. (3)(A) Unless (B) applies, exemption is denied for all years beginning with the year in which the Secretary notifies the organization of the prohibited transaction. The Secretary must publish the notice in the Federal Register that day. (B) Under regulations, beginning with the second year after notice, the organization may claim exemption. If the Secretary is satisfied it will not knowingly repeat a prohibited transaction, it will not be denied exemption for years covered by the claim because of a pre-notice transaction. (4) No gift or bequest is deductible under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522 if it is made (A) after the notice publication to the organization, or (B) in a year when the organization is not exempt because of (1).