Internal Revenue Code:Sec. 4945. Taxes on taxable expenditures
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle D - Miscellaneous Excise Taxes
CHAPTER 42 - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
Subchapter A - Private Foundations
Statute
Sec. 4945. Taxes on taxable expenditures
(a) Initial taxes
(1) On the foundation
There is hereby imposed on each taxable expenditure (as defined
in subsection (d)) a tax equal to 10 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 expenditure, a tax equal to 2 1/2 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 imposed by subsection
(a)(1) on a taxable expenditure and such expenditure is not
corrected within the taxable period, there is hereby imposed a
tax equal to 100 percent of the amount of the expenditure. 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 imposed by paragraph
(1), if a foundation manager refused to agree to part or all of
the correction, there is hereby imposed a tax equal to 50 percent
of the amount of the taxable expenditure. The tax imposed by
this paragraph shall be paid by any foundation manager who
refused to agree to part or all of the correction.
(c) Special rules
For purposes of subsections (a) and (b) -
(1) Joint and several liability
If more than one person is liable under subsection (a)(2) or
(b)(2) with respect to the making 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 incurred 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 influence 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 individual, unless such grant satisfies
the requirements 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 section
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 expenditure
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 legislation (except technical advice or
assistance provided to a governmental body or to a committee or
other subdivision thereof in response to a written request by
such body or subdivision, 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 possible decision of such body which might affect
the existence of the private foundation, its powers and duties, its
tax-exempt status, or the deduction 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 period, 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 operated,
(4) substantially all of the support (other than gross
investment income as defined in section 509(e)) of which is
received from exempt organizations, the general public,
governmental 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 respect to each other as one exempt
organization); and not more than half of the support of which is
received from gross investment income, and
(5) contributions to which for voter registration drives are
not subject to conditions that they may be used only in specified
States, possessions of the United States, or political
subdivisions or other areas of any of the foregoing, 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 taxable year of such organization, there
shall be taken into account the support received by such
organization during such taxable year and during the immediately
preceding 4 taxable years of such organization (excluding therefrom
any preceding taxable year which begins before January 1, 1970).
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 individual grant awarded
on an objective and nondiscriminatory basis pursuant to a procedure
approved in advance by the Secretary, if it is demonstrated to the
satisfaction of the Secretary that -
(1) the grant constitutes a scholarship or fellowship 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 selected
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 literary, 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 foundation 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 respect to such
expenditures to the Secretary.
(i) Other definitions
For purposes of this section -
(1) Correction
The terms ''correction'' and ''correct'' means, with respect to
any taxable expenditure, (A) recovering part or all of the
expenditure to the extent recovery is possible, and where full
recovery is not possible such additional corrective 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), obtaining
or making the report in question.
(2) Taxable period
The term ''taxable period'' means, with respect 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 deficiency 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.
Sources
(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83
Stat. 512; amended Pub. L. 94-455, title XIX, Sec. 1901(b)(8)(H),
1906(b)(13(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96-596,
Sec. 2(a)(1)(F), (2)(E), Dec. 24, 1980, 94 Stat. 3469, 3470; Pub.
L. 98-369, div. A, title III, Sec. 302(b), July 18, 1984, 98 Stat.
780; Pub. L. 99-514, title I, Sec. 122(a)(2)(B), Oct. 22, 1986, 100
Stat. 2110; Pub. L. 100-647, title I, Sec. 1001(d)(1)(B), Nov. 10,
1988, 102 Stat. 3350.)
References in Text
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 enactment of Pub. L. 99-514,
which was approved Oct. 22, 1986.
Miscellaneous
AMENDMENTS
2006 - Pension Protection Act of 2006 (P.L. 109-280)
Section 1244(b) Taxable Expenditures.--Subparagraph (A) of section 4945(d)(4) is
amended to read as follows:
``(A) such organization--
``(i) is described in paragraph (1) or (2) of
section 509(a),
``(ii) is an organization described in section
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''.
2006 - Pension Protection Act of 2006 (P.L. 109-280)
Section 1212(e)(2) Increased limitation for managers.--Section
4945(c)(2) <<NOTE: 26 USC 4945.>> is amended--
(A) by striking ``$5,000,'' and inserting
``$10,000,'', and
(B) by striking ``$10,000.'' and inserting
``$20,000.''.
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 organization 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 exempt foundations (as
defined in section 4940(d)(2)).
1980 - Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(F),
substituted ''taxable period'' for ''correction period''.
Subsec. (i)(2). Pub. L. 96-596, Sec. 2(a)(2)(E), substituted
provision defining taxable period as the period beginning 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 subsec.
(a)(1) of this section is assessed for provision defining
correction period as the period beginning with the date on which
the taxable expenditure occurs and ending 90 days after the date of
mailing of a notice of deficiency 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 assessed
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, Sec. 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 section 170(b)(1)(A)(ii)''
for ''educational institution described in section 151(e)(4)''.
Subsecs. (h), (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out ''or his delegate'' after ''Secretary'' wherever appearing.
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
Section 302(c)(2) of Pub. L. 98-369 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 Effective 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.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 508, 4947, 4955, 4963,
6213, 7422, 7454 of this title.
