fORM 4720

2006 Instructions for Form 4720, Return of Certain Excise Taxes Under
Chapters 41 and 42 of the Internal Revenue Code
Purpose: This is the first circulated draft of the 2006 Instructions for Form 4720, Return
of Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code for your review
and comments. See below for a discussion of the major changes.
TPCC Meeting: None but one may be arranged if requested.
Prior Version: The 2005 Form 4720 is available at:
http://publish.no.irs.gov/INSTRS/PDF/13023Y05.PDF
Form: The 2005 Form 4720 is available at:
http://publish.no.irs.gov/FORMS/PUBLIC/PDF/13021Y05.PDF
Other Products: Circulations of draft tax forms, instructions, notices and publications
are posted at: http://taxforms.web.irs.gov/draft_products.html
Comments: Please email, fax, call or make any comments by January 4, 2007

Carl Medley
Tax Law Specialist
TE/GE Forms and Publications
SE:W:CAR:MP:T:T:FP
(202) 622-5318
(202) 283-0837

[email protected]

Major Changes to
Instructions for Form 4720, Return of Excise Taxes Under
Chapters 41 and 42 of the Internal Revenue Code
Title
-

We changed the title of the form.

-

Throughout the instructions, we added the terms “donors, donor advisors,
related persons and managers” to the already present list of “self-dealers and
disqualified persons etc. In addition, we have replaced the terms
“organization manager” and “foundation manager” with “manager” in most, if
not all cases.

-

We also replaced the references to Publication 578, Tax Information for
Private Foundations and Foundation Managers with a link to the Private
Foundations Handbook on irs.gov.

Table of contents
- We added new schedules J, K, and L to the form 4720 and have included
information in the instructions.
What’s New
-

We added text to highlight amendments to Sections 4940(c)(2) and 509(e)
regarding expansion of the base of tax on a Private Foundation’s net
investment income.

-

We added text to highlight amendments to Section 4941 through 4945 which
provide for increased penalties involving several prohibited transactions.

-

We added text to highlight the addition of three new Code Sections 4965,
4966, and 4967 under Chapter 42.

-

We added text to highlight new limitations on amounts distributed by non
operating foundations to supporting organizations.

-

We added text to highlight amendments to IRC 4943 which regards Donor
Advised Funds as Private Foundations and subjects Donor Advised Funds to
tax on its excess business holdings.

-

We added text to highlight amendments to IRC 4943 which treats certain
Supporting Organizations as Private Foundations and subjects these entities to
the tax on excess business holdings.

-

We added text to highlight changes to Section 4958 which expands the
definition of “disqualified person” to include transactions involving donors
and advisors of Donor Advised Funds and transactions involving sponsoring
organizations and its investment advisors.

-

We added text to highlight amendments to section 6104 requiring that
business tax returns of charities be made available for public inspection.

-

We added text under “IRS E-Services Make Taxes Easier”

General Instructions
-

We added information on the new IRC 4965 tax on entering into prohibited
tax shelter transactions.

-

We added text on the new IRC 4966 tax on taxable distributions by
sponsoring organizations maintaining donor advised funds.

-

We added text on the new IRC 4967 tax on prohibited benefits distributed
from donor advised funds

Who Must File
-

We added text to explain the requirements of Sponsoring organizations
maintaining donor advised funds.

-

We added text explaining the requirement of certain tax-exempt entities that
enter into prohibited tax shelter transactions (PTST).

Completing the Schedules
-

We included text to explain that some charities may be treated as Private
foundations for purposes of section 4943 and may be required to complete
Schedule C for tax years beginning after August 17, 2006 (date of enactment
of Pension Protection Act of 2006).

-

We added schedules J, K, and L to the list of schedules under Part II-A.

-

We added text explaining the completion of Part II-A as it pertains to the
additional schedules J, K, and L.

Schedule A-Initial Taxes on Self Dealing
-

We changed the amount of the initial tax on self dealing from 5% to 10% and
increased the limitation from $10,000 to $20,000 for tax years beginning after
August 17, 2006.

Schedule B-Initial Tax on Undistributed Income
-

We changed the amount of the initial tax on undistributed income from 15%
to 30% for tax years beginning after August 17, 2006.
Schedule C-Initial Tax on Excess Business Holdings
-

We added text to explain the applicability of Schedule C and the initial tax on
excess business holdings in donor advised funds to certain public charities
treated as private foundations.

Exceptions to Tax on Excess Business Holdings

-

We added text emphasizing that holdings by donor advised funds or
supporting organizations treated as private foundations are not eligible for the
transitional rules for disposing of excess business holdings without being
subject to the tax on excess business holdings.

General rules on the permitted holdings of donor advised funds or supporting organizations
in a business enterprise

-

We included text explaining the rules for donor advised funds and supporting
organizations.

-

We included text providing the definitions of “donor advised fund”
“sponsoring organization”, and “supporting organization”

-

We added text clarifying the completion of Schedule C with regard to donor
advised funds, supporting organizations, and sponsoring organizations as they
pertain to IRC 4943.

Schedule D-Initial Taxes on Investments that Jeopardize Charitable Purposes
-

We changed the amount of the initial tax on the foundation from 5% to 10%
for investments made in tax years beginning after August 17, 2006
We changed the amount of the initial tax on foundation managers from 5% to
10% for investments made in tax years beginning after August 17, 2006.

Schedule E-Initial taxes on Taxable Expenditures
-

We changed the amount of the initial tax on the foundation from 10% to 20%
for expenditures made in tax years beginning after August 17, 2006

-

We changed the amount of the initial tax on foundation managers from 2 ½ %
to 5% for expenditures made in tax years beginning after August 17, 2006.

-

-

We changed the maximum total amount of tax due on all foundation managers
for any single expenditure from $5000 to $10,000 for expenditures made in
tax years beginning after August 17, 2006.
We changed the amount of the maximum amount of tax imposed by the
section from $10,000 to $20,000 for expenditures made in tax years beginning
after August 17, 2006.

Schedule I-Initial Taxes on Excess Benefit Transactions
-

We changed the maximum amount of tax on organization managers from
$10,000 to $20,000 for transactions entered into for tax years beginning after
August 17, 2006.

-

We added text explaining the treatment of transactions involving grants, loans,
compensation or other similar payments from donor advised funds to donors,
family members, or a controlled entity after August 17, 2006.

-

We added text explaining the treatment of transactions involving grants, loans,
compensation or other similar payments by supporting organizations to a
substantial contributor, family member, or controlled entity after July 25,
2006.

-

We added text to explain the term “excess benefit”

-

We added text to explain exceptions and special rules with regard to this
section.

-

We added text to provide additional definitions of the term “disqualified
person.”

-

We added text to provide definitions for the terms “donor advised fund”,
“investment advisor”, and “sponsoring organization.”

-

We changed the amount of tax on organization managers from the lesser of
10% of the excess benefit or $10,000 to the lesser of 10% of the excess benefit
or $20,000.

-We added complete instructions for new Schedules J, K, and L

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Instructions for Form 4720

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2006

Department of the Treasury
Internal Revenue Service

Instructions for Form 4720
Return of Certain Excise Taxes Under Chapters 41 and 42 of the
Internal Revenue Code
(Sections 170(f)(10), 4911, 4912, 4941, 4942,
4943, 4944, 4945, 4955, 4958, 4965, 4966, and 4967)
Section references are to the Internal
Revenue Code unless otherwise noted.

Contents
Purpose of Form . . . . . . . . . . .
Who Must File . . . . . . . . . . . . .
Where To File . . . . . . . . . . . . .
When To File . . . . . . . . . . . . .
Extension . . . . . . . . . . . . . . . .
Name, Address, etc. . . . . . . . .
Signature and Verification . . . .
Attachments . . . . . . . . . . . . . .
Organizations Organized or
Created in a Foreign
Country or U.S. Possession
Tax Payments . . . . . . . . . . . . .
Rounding Off to Whole Dollars
Penalties and Interest . . . . . . .
Abatement . . . . . . . . . . . . . . .
Initial Tax Liability . . . . . . . . . .
Completing the Schedules . . . .
Specific Instructions for Page 1
Schedule A — Initial Taxes on
Self-Dealing . . . . . . . . . . . . .
Schedule B — Initial Tax on
Undistributed Income . . . . . .
Schedule C — Initial Tax on
Excess Business Holdings . .
Schedule D — Initial Taxes on
Investments That Jeopardize
Charitable Purpose . . . . . . .
Schedule E — Initial Taxes on
Taxable Expenditures . . . . . .
Schedule F — Initial Taxes on
Political Expenditures . . . . . .
Schedule G — Tax on Excess
Lobbying Expenditures . . . . .
Schedule H — Taxes on
Disqualifying Lobbying
Expenditures . . . . . . . . . . . .
Schedule I — Initial Taxes on
Excess Benefit Transactions
Schedule J — Taxes on Being
a Party to Prohibited Tax
Shelter Transactions . . . . . .
Schedule K — Taxes on
Taxable Distributions of
Sponsoring Organizations
Maintaining Donor
Advised Funds . . . . . . . . . . .
Schedule L — Taxes on
Prohibited Benefits
Distributed From Donor
Advised Funds . . . . . . . . . . .

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Contents
Page
Privacy Act and Paperwork
Reduction Act Notice . . . . . . . . . . 15

What’s New
Tax Increase Prevention and
Reconciliation Act of 2005 (TIPRA).
Beginning August 15, 2006, new
section 4965 imposes an excise tax on
tax-exempt organizations and certain
governmental entities that are parties to
prohibited tax shelter transactions
(PTSTs). Section 4965 also imposes an
excise tax on any entity manager who
approves the tax-exempt entity’s
participation in a PTST and who knows
(or has reason to know) that the
transaction is a PTST. For more
information see Schedule J — Taxes on
Being a Party to Prohibited Tax Shelter
Transactions.
The Pension Protection Act of 2006
(PPA). The following items reflect
changes made by the PPA.
• For tax years beginning after August
17, 2006, the excise tax rates and the
maximum tax amounts on managers
described in sections 4941 through
4945 have been increased. For more
information see:
1. Schedule A — Initial Taxes on
Self Dealing,
2. Schedule B — Initial Tax on
Undistributed Income,
3. Schedule C — Initial Tax on
Excess Business Holdings,
4. Schedule D — Initial Taxes on
Investments that Jeopardize Charitable
Purpose, and
5. Schedule E — Initial Taxes on
Taxable Expenditures.
The PPA also includes a change that
increases the maximum amount of tax
imposed on managers on Schedule I,
Initial Taxes on Excess Benefit
Transactions.
• For tax years beginning after August
17, 2006, section 4966 imposes an
excise tax on sponsoring organizations
that make taxable distributions and
taxes fund managers who knowingly
agree to the making of such taxable
distributions. For more information, see
Schedule K — Tax on Taxable
Cat. No. 13023Z

Distributions of Sponsoring
Organizations Maintaining Donor
Advised Funds.
• For tax years beginning after August
17, 2006, new section 4967 imposes an
excise tax on donors, donor advisors
and related persons who receive a
prohibited benefit distributed by a
sponsoring organization for a donor
advised fund on the advice of the
donor, donor advisor or related person.
Section 4967 also taxes fund managers
of such sponsoring organization who
knowingly agreed to the making of the
distribution. For more information, see
Schedule L — Tax on Prohibited
Benefits Distributed from Donor
Advised Funds.
• For tax years beginning after August
17, 2006, section 4943 applies to
certain public charities. Donor advised
funds and certain supporting
organizations are treated as private
foundations for section 4943 purposes.
For more information, see Schedule
C — Initial Tax on Excess Business
Holdings.
• For tax years beginning after August
17, 2006, section 4958 expands the
definition of a disqualified person and
treats certain transactions as excess
benefit transactions. For more
information, see Schedule I — Initial
Taxes on Excess Benefit Transactions.
• For expenditures after August 17,
2006, grants made by private
foundations to certain supporting
organizations are treated as taxable
expenditures. For more information,
see Schedule E — Initial Taxes on
Taxable Expenditures.

Phone Help
If you have questions and/or need help
completing this form, please call
1-877-829-5500. This toll-free
telephone service is available Monday
through Friday.

Photographs of Missing
Children
The Internal Revenue Service is a
proud partner with the National Center
for Missing and Exploited Children.

Page 2 of 15

Instructions for Form 4720

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Photographs of missing children
selected by the Center may appear in
instructions on pages that would
otherwise be blank. You can help bring
these children home by looking at the
photographs and calling
1-800-THE-LOST (1-800-843-5678) if
you recognize a child.

How To Get Forms and
Publications
Internet
You can access the IRS website 24
hours a day, 7 days a week, at www.irs.
gov to:
• Download forms, instructions, and
publications.
• Order IRS products online.
• Research your tax questions online.
• Search publications online by topic or
keyword.
• View Internal Revenue Bulletins
(IRBs) published in the last few years.
• Sign up to receive local and national
tax news by email.

CD-ROM
You can order Publication 1796, IRS
Tax Products CD, and obtain:
• Current-year forms, instructions, and
publications.
• Prior-year forms, instructions, and
publications.
• Bonus: Historical Tax Products DVD
— Ships with the final release.
• Tax Map: an electronic research tool
and finding aid.
• Tax Law frequently asked questions
(FAQs).
• Tax Topics from the IRS telephone
response system.
• Fill-in, print, and save features for
most tax forms.
• Internal Revenue Bulletins.
• Toll-free and email technical support.
The CD is released twice during the
year. The first release will ship the
beginning of January 2007 and the final
release will ship the beginning of March
2007.
Buy the CD at www.irs.gov/cdorders
from National Technical Information
Service for $35 (no handling fee) or call
1-877-CDFORMS (1-877-233-6767)
toll-free to buy the CD for $35 (plus a
$5 handling fee). Price is subject to
change.

By Phone and In Person
You can order forms and publications
by calling 1-800-TAX-FORMS
(1-800-829-3676). You can also get
most forms and publications at your
local IRS office.
Use these electronic options to make
filing and paying easier.

IRS E-Services Make
Taxes Easier
Now more than ever before, businesses
can enjoy the benefits of filing and
paying their federal taxes electronically.
Whether you rely on a tax professional
or handle you own taxes, the IRS offers
you convenient programs to make
taxes easier.
• You can e-file your Form 990 or
Form 990-PF; Form 940 and 941
employment tax returns; Form 1099;
and other information returns. Visit
www.irs.gov/efile for details.
• You can pay taxes online or by
phone using the free Electronic Federal
Tax Payment System (EFTPS). Visit
www.eftps.gov or call 1-800-555-4477
for details. Electronic Funds Withdrawal
(EFW) from a checking or savings
account also is available to those who
file electronically.

General Instructions
Purpose of Form
Use Form 4720 to figure and pay:

• The initial taxes on private

foundations and self-dealers, under
sections 4941 through 4945 for
self-dealing, failure to distribute income,
excess business holdings, investments
that jeopardize charitable purpose, and
taxable expenditures;
• The initial tax on certain supporting
organizations and donor advised funds
excess business holdings under section
4943 for excess business holdings;
• The section 4911 tax on excess
lobbying expenditures by public
charities that have elected to be subject
to section 501(h) regarding
expenditures to influence legislation.
(Private foundations and section
4947(a) trusts are not eligible to make
this election.);
• The section 4912 tax on excess
lobbying expenditures that result in loss
of section 501(c)(3) tax-exempt status;
• The section 4955 tax imposed on any
amount paid or incurred by a section
501(c)(3) organization that participates
or intervenes in any political campaign
on behalf of, or in opposition to, any
candidate for public office;
• The section 4958 initial taxes on
disqualified persons and organization
managers of section 501(c)(3) (except
private foundations) and section
501(c)(4) organizations that engage in
excess benefit transactions;
• The section 4965 tax for being a
party to a prohibited tax shelter
transaction;
• The section 4966 tax on taxable
distributions by sponsoring
organizations maintaining donor
advised funds;

-2-

• The section 4967 tax on distribution

of prohibited benefits from donor
advised funds; and
• The section 170(f)(10) tax on any
premiums paid on a personal benefit
contract in connection with a transfer to
an organization or charitable remainder
trust for which a charitable deduction is
not allowed to the transferor.

Who Must File
Private foundations and section
4947(a) trusts. Generally, Form 4720
must be filed by all organizations,
including foreign organizations, that
answered “Yes” to question 1b, 1c, 2b,
3b, 4a, 4b, or 5b in Part VII-B of Form
990-PF; or “Yes” to question 1b, 1c, 3b,
4a, 4b, or 5b in Part VI-B of Form 5227.
A trust described in section 4947(a)(2)
is considered a private foundation
insofar as it is subject to Chapter 42
provisions.
Public charities making excess
lobbying expenditures. Public
charities that made the election under
section 501(h) and owe tax on excess
lobbying expenditures as figured on
Schedule A (Form 990 or 990-EZ), Part
VI-A, must file Form 4720 to report the
liability and pay the tax (Schedule G).
Certain organizations (and possibly
their managers) whose section
501(c)(3) status is revoked because of
excess lobbying activities are subject to
a 5% excise tax on their lobbying
expenditures.
Organizations making political
expenditures. All section 501(c)(3)
organizations that make a political
expenditure must file Form 4720 to
report the liability and pay the tax.
Organization managers may report any
first tier tax they owe on Schedule F of
Form 4720. (See Schedule F
instructions for the definition of political
expenditures.)
Charitable organizations that make
certain premium payments on
personal benefit contracts. Form
4720 must be filed by any organization
described in section 170(c) or section
664(d) that answered “Yes” to question
(b) in Part X of Form 990, question 6b
in Part VII-B of Form 990-PF, or
question 6b in Part VI-B of Form 5227.
Sponsoring organizations
maintaining donor advised funds. All
170(c) organizations (excluding private
foundations and government
organizations referred to in 170(c)(1)
and 170(c)(2)(A)) that maintain one or
more donor advised funds must file
Form 4720 to report the liability and pay
the tax owed on any taxable
distributions under section 4966
(Schedule K).
Certain tax-exempt entities party to a
prohibited tax shelter transaction
Form 4720 Instructions

Page 3 of 15

Instructions for Form 4720

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(PTST). Certain tax-exempt entities
must file Form 4720 to report the
liability and pay the tax due under
section 4965(a)(1). This requirement
applies to entities described in section
501(c), 501(d), or 170(c) (other than the
United States) or an Indian tribal
government (within the meaning of
section 7701(a)(40)).
Any entity described in section

TIP 4965(c) that is a party to a
PTST must file Form 8886-T.
Self-dealers, disqualified persons,
donors, donor advisors, related
persons, and managers. If you are a
self-dealer, disqualified person, donor,
donor advisor, related person, or
manager and you have the same tax
year as the foundation or organization,
you may report any first tier tax you
owe on the Form 4720 filed by the
foundation or organization. Managers,
self-dealers, and disqualified persons
who do this are responsible for the
parts that relate to taxes they owe and
should include their own check or
money order, payable to the United
States Treasury, with the return.
Self-dealers, disqualified persons,
donors, donor advisors, related persons
and managers who owe tax under
Chapter 41 or 42, including entity
managers under section 4965, and do
not have the same tax year or do not
sign the return of the foundation or
organization must file a separate return
on Form 4720 showing the tax owed
and the name of the foundation or
organization for which you owe tax. If
you file a separate Form 4720, enter
your tax year at the top of the form.
Enter your name, address, and
taxpayer identification number in Part
II-A. Complete all the information the
form requires, to the extent possible,
that applies to your liability.
Managers of tax favored

TIP retirement plans, individual
retirement arrangements, and
savings arrangements described in
sections 401(a), 403(a), 403(b), 529,
457(b), 408(a), 220(d), 408(b), 530, or
223(d) must report and pay tax due
under 4965(a)(2) on Form 5330.

Where To File
To file Form 4720, mail or deliver it to:
Internal Revenue Service Center
Ogden, UT 84201-0027

When To File
Part I taxes. File Form 4720 by the
due date (not including extensions) for
filing the organization’s Form 990-PF,
Form 990, Form 990-EZ, or Form 5227.
If you are not required to file any of
these forms, file Form 4720 by the 15th
Form 4720 Instructions

day of the 5th month after the entity’s
accounting period ends.
If the regular due date falls on a
Saturday, Sunday, or legal holiday, file
by the next business day.
Affiliated group member. For
members of an affiliated group of
organizations that have different tax
years, and who are filing Form 4720 to
report tax under section 4911, the tax
year of the affiliated group is the
calendar year, unless all members of
the group elect under Regulations
section 56.4911-7(e)(5) to make a
member’s year the group’s tax year.
Part II taxes. If you are a manager,
self-dealer, donor, donor advisor,
related person, or disqualified person
owing taxes under Chapter 41 or 42
and filing a separate Form 4720, and
your tax year ends on the same date as
the organization, you must file by the
due date for filing Form 990-PF, Form
5227, Form 990, or Form 990-EZ of the
organization for which you owe tax. If
your tax year ends on a date different
from that of the organization, you must
file a Form 4720 by the 15th day of the
5th month after your tax year ends.
If the regular due date falls on a
Saturday, Sunday, or legal holiday, file
by the next business day.

Extension
If you cannot file Form 4720 by the due
date, you may request an automatic
3-month extension of time to file by
using Form 8868, Application for
Extension of Time To File an Exempt
Organization Return. The automatic
3-month extension will be granted if you
properly complete this form, file it, and
pay any balance due by the due date
for Form 4720.
Form 8868 is also used to request
an additional extension of time to file;
however, these extensions are not
automatically granted.

Name, Address, etc.
The name, address, and employer
identification number of the
organization or entity should be the
same as shown on Form 990-PF, Form
5227, Form 990, Form 990-EZ, and
Schedule A (Form 990 or 990-EZ). If
you are a self-dealer, donor, donor
advisor, related person, disqualified
person, or manager filing a separate
Form 4720, enter your name, address,
and taxpayer identification number in
Part II-A.
Include the suite, room, or other unit
number after the street address.
If the Post Office does not deliver
mail to the street address, show the
P.O. box number instead of the street
address.

-3-

If you want a third party (such as an
accountant or an attorney) to receive
mail for the foundation or charity, enter
on the street address line “C/O”
followed by the third party’s name and
street address or P.O. box.

Signature and
Verification
If you are a manager, donor, donor
advisor, disqualified person, related
person, or self-dealer, you should sign
only in the spaces that apply, whether
you use the return of the foundation or
organization as your return, or file
separately.
If you are signing on behalf of the
foundation or organization and also
because of personal tax liability, you
must sign twice. You sign:
1. On behalf of the foundation or
organization, and
2. For your own personal tax
liability.
For a corporation (or an association),
the form may be signed by one of the
following: president, vice president,
treasurer, assistant treasurer, chief
accounting officer, or other corporate
officer (such as tax officer).
For a partnership, the form may be
signed by a partner or partners
authorized to sign the partnership
return.
If the return is filed on behalf of a
trust, the authorized trustee(s) must
sign it.
A receiver, trustee, or assignee
required to file any return on behalf of
an individual, a trust, estate,
partnership, association, company, or
corporation must sign the Form 4720
filed for these taxpayers.
Also, a person with a valid power of
attorney may sign for the organization,
foundation, manager, donor, donor
advisor, related person, or self-dealer.
Include a copy of the power of attorney
with the return.
Any person, firm, or corporation that
prepared the return for a fee must also
sign it and fill in the address of the
preparer. If a firm or corporation
prepares the return, it should be signed
in the name of the firm or corporation.

Attachments
If you need more space, attach
separate sheets showing the same
information in the same order as on the
printed form. Show the totals on the
printed form.
Enter the organization’s name and
EIN on each sheet. Use sheets that are
the same size as the form and indicate
clearly the line of the printed form to
which the information relates.

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Instructions for Form 4720

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Organizations Organized
or Created in a Foreign
Country or U.S.
Possession
Report all amounts in U.S. currency
(state conversion rate used) and give
information in English. Report items in
total, including amounts and
transactions from both inside and
outside the United States.
Sections 4941 through 4945 and
section 4955 do not apply to foreign
private foundations that receive
substantially all of their support (other
than gross investment income) from
sources outside the United States.
These organizations must complete this
form and file it in the same manner as
other private foundations. However,
these organizations, as well as
foundation managers and self-dealers,
do not have to pay any tax that would
otherwise be due on this return.

Tax Payments
Managers, self-dealers, donors, donor
advisors, related persons, and
disqualified persons paying tax on the
organization’s Form 4720 must pay with
the return the tax that applies to them
as shown in Part II-A, page 1.
Managers, self-dealers, donors, donor
advisors, related persons, and
disqualified persons who file separate
Forms 4720 must pay the applicable
tax with their separate returns. When
managers do not sign the
organization’s Form 4720 to report their
own tax liability, the amount of tax they
owe should not be entered in Part II-B,
line 1.
Payment by a private foundation of
any taxes owed by the foundation
managers or self-dealers will result in
additional taxes under the self-dealing
and taxable expenditure provisions.
Managers and self-dealers should pay
taxes imposed on them with their own
check or money order.
Disqualified persons and entity
managers should pay taxes on excess
benefit transactions that are imposed
on them with their own check or money
order. Any reimbursement of a
disqualified person’s tax liability from
excess benefit transactions by the
organization will be treated as an
excess benefit transaction subject to
the tax unless the organization included
the reimbursement in the disqualified
person’s compensation and the
disqualified person’s total
compensation was reasonable. See the
instructions to Schedule I on page 11
for information on excess benefit
transactions.

Rounding Off to Whole
Dollars
You may round off cents to whole
dollars on your return and schedules. If
you do round to whole dollars, you
must round all amounts. To round, drop
amounts under 50 cents and increase
amounts from 50 to 99 cents to the next
dollar. For example, $1.39 becomes $1
and $2.50 becomes $3.
If you have to add two or more
amounts to figure the amount to enter
on a line, include cents when adding
the amounts and round off only the
total.

Penalties and Interest
There are penalties for failure to file or
to pay tax. There are also penalties for
willful failure to file, supply information
or pay tax, and for filing fraudulent
returns and statements, that apply to
public charities, private foundations,
managers, donors, donor advisors,
related persons, and self-dealers who
are required to file this return. See
sections 6651, 7203, 7206, and 7207.
Also, see section 6684 for penalties
that relate to tax liability under Chapter
42.
Interest at the underpayment rate
established under section 6621 is
charged for any unpaid tax. The
interest on underpayments is in addition
to any penalties.

Abatement
See section 4962 for rules on
abatement, refund, or relief from
payment of first tier taxes under
sections 4942 through 4945, 4955, and
4958. To request abatement, refund, or
relief under section 4962, write
“Request for Abatement Under Section
4962” in the top margin of Form 4720,
page 1.

Initial Tax Liability
If you pay an initial tax on self-dealing
or on investments that jeopardize
charitable purpose (figured on
Schedules A and D of Form 4720,
respectively) for tax year 2006, the
payment may not satisfy the entire tax
liability for an act of self-dealing or a
jeopardy investment. (For the definition
of self-dealing, see the instructions for
Schedule A of this form; for the
definition of jeopardy investment, see
the instructions for Schedule D of this
form.) Paying the tax and filing a Form
4720 are required for each year or part
of a year in the taxable period that
applies to the act or investment.
Generally, the taxable period begins
with the date of the act or investment
and ends with the date corrective action
is completed, a notice of deficiency is

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mailed, or the tax is assessed,
whichever comes first.
Similar rules apply for the initial tax
liability resulting from failing to distribute
income (Schedule B) and from
acquiring excess business holdings
(Schedule C). Thus, the initial tax
liability for those taxes continues to
accrue until the date a notice of
deficiency is mailed, the violation is
corrected, or the tax is assessed,
whichever comes first.

Completing the
Schedules
Before completing any of the schedules
in this return, read the applicable
instructions. If any completed schedule
shows taxes owed, enter them on page
1 of this return.
The instructions for Schedules A
through L describe acts or transactions
subject to tax under Chapter 42. Also,
go to www.irs.gov/charities/foundations/
index.html for a list of exceptions that
eliminate any tax liability that would
otherwise be shown on Schedules A
and E. Do not complete Schedules A
and E if exceptions apply to all the acts
or transactions. In general, question A
on page 1 and Schedules A, B, C, D,
and E do not apply to public charities.
However, for tax years beginning after
August 17, 2006, Schedule C will apply
to some public charities including donor
advised funds and certain supporting
organizations that are treated as private
foundations for purposes of section
4943. See the instructions for Schedule
C for a description of the public
charities to which section 4943 now
applies.
Before completing Schedule C,
determine whether the organization has
excess holdings in any business
enterprise. If the organization or donor
advised fund has holdings subject to
the tax on excess business holdings,
complete Schedule C for each
enterprise.
Before completing Schedule D,
determine whether the investment was
program related. If not, complete
Schedule D for each investment for
which you answered “Yes” to Form
990-PF, Part VII-B, question 4a or b, or
Form 5227, Part VI-B, question 4a or b.

Specific Instructions for
Page 1
Question B. To avoid additional taxes
and penalties under sections 4941
through 4945, 4955, and 4958, and in
some cases further initial taxes on the
foundation, organization, and related
persons, a foundation, organization,
disqualified person, or manager must
Form 4720 Instructions

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correct the taxable event within the
correction period. The taxable event is
the act, failure to act, or transaction that
resulted in the liability for initial taxes
under these provisions.
Generally, the correction period
begins on the date the event occurs
and ends 90 days after the mailing date
of a notice of deficiency, under section
6212, in connection with the second tier
tax imposed on that taxable event. That
time is extended by:
• Any period in which a deficiency
cannot be assessed under section
6213(a) because a petition to the Tax
Court for redetermination of the
deficiency is pending, not extended by
any supplemental proceeding by the
Tax Court under section 4961(b),
regarding whether correction was
made, and
• Any other period the IRS determines
is reasonable and necessary to correct
the taxable event.
The taxable event will be treated as
occurring:
• For the tax on failure to distribute
income, on the first day of the tax year
for which there was a failure to
distribute income,
• For the tax on excess business
holdings, on the first day on which there
were excess business holdings, or
• In any other case, on the date the
event occurred.
Generally, the term “correction” has
the following meanings.
1. Section 4941 (Schedule A) —
Undoing the transaction to the extent
possible, but in any case placing the
private foundation in a financial position
not worse than that in which it would be
if the disqualified person were dealing
under the highest fiduciary standards.
2. Section 4942 (Schedule B) —
Making sufficient qualifying distributions
to compensate for deficient qualifying
distributions for a prior tax year.
3. Section 4943 (Schedule C) —
Action that results in the foundation no
longer having excess business holdings
in a business enterprise.
4. Section 4944 (Schedule D) — An
investment is considered to be removed
from jeopardy when the investment is
sold or otherwise disposed of, and the
proceeds of such sale or other
disposition are not investments that
jeopardize the carrying out of the
foundation’s exempt purposes.
5. Section 4945 (Schedule E) —
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 regulations,
or
b. Obtaining or making the report in
question for a case that fails to comply
Form 4720 Instructions

with section 4945(h)(2) or (3)
(expenditure responsibility).
6. Section 4955 (Schedule F) —
Recovering part or all of the
expenditure to the extent recovery is
possible, establishment of safeguards
to prevent future political expenditures,
and where full recovery is not possible,
such additional corrective action as is
prescribed by the regulations.
7. Section 4958 (Schedule I) —
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 had been
dealing under the highest fiduciary
standards.
If, when the return is filed, the
foundation, entity, managers,
disqualified persons, self-dealers,
donors, donor advisors, or related
persons have corrected any acts or
transactions resulting in liability for tax
under Chapter 42, answer “Yes” to
question B and give the following
information separately for each
correction:
• Schedule and item number of the act
or transaction that has been corrected,
• A description of the act or transaction
that resulted in the tax,
• A detailed description of the
correction made,
• The amount of any political
expenditure recovered,
• Description of safeguards to prevent
future political expenditures, and
• The date of correction.
For any acts or transactions the
foundation, entity, managers,
disqualified persons, self-dealers,
donors, donor advisors, or related
persons have not corrected, give the
following information separately for
each act:
• Schedule and item number of the act
or transaction that has not been
corrected,
• A description of the act or
transaction, and
• A detailed explanation of why
correction has not been made and what
steps are being taken to make the
correction.
If you are correcting deficient
distributions under section 4942 where
an election under section 4942(h)(2)
was filed with the IRS, provide a copy
of the election. See the instructions for
Form 990-PF, Part XIII, lines 4b and 4c
for more information.

Part I
Line 8
If the organization has an entry

TIP on this line, it must also file
Form 8870.

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Enter the total of all premiums paid
by the organization on any personal
benefit contract if the payment of
premiums is in connection with a
transfer for which a deduction is not
allowed under section 170(f)(10)(A).
Also, if there is an understanding or
expectation that any person will directly
or indirectly pay any premium on a
personal benefit contract for the
transferor, include those premium
payments in the amount entered on this
line.
A personal benefit contract is (to the
transferor) any life insurance, annuity,
or endowment contract that benefits
directly or indirectly the transferor, a
member of the transferor’s family, or
any other person designated by the
transferor (other than an organization
described in section 170(c)).
For more information, see Notice
2000-24, which is on page 952 of
Internal Revenue Bulletin 2000-17 at
www.irs.gov/irbs/irs00-17.pdf.

Part II-A
Columns (a) and (b). List the names,
addresses, and taxpayer identification
numbers of all persons who owe tax in
connection with the foundation or
organization, whether as managers,
self-dealers, donors, donor advisors,
related persons, or disqualified
persons, as shown in Schedules A, D,
E, F, H, I, J, K, and L.
Column (c). For each person listed in
column (a), enter the sum of:
1. Taxes that person owes as a
self-dealer, from Schedule A, Part II,
column (d), and
2. Tax for acts of self-dealing in
which the individual participated as a
manager, from Schedule A, Part III,
column (d).
Column (d). Enter for each person
listed in column (a) the tax on jeopardy
investments from Schedule D, Part II,
column (d), that the individual took part
in as a foundation manager.
Column (e). Enter for each person
listed in column (a) the tax on taxable
expenditures from Schedule E, Part II,
column (d), that the individual took part
in as a foundation manager.
Column (f). Enter for each person
listed in column (a) the tax on political
expenditures from Schedule F, Part II,
column (d), that the individual took part
in as an organization or foundation
manager.
Column (g). Enter for each person
listed in column (a) the tax on
disqualifying lobbying expenditures
from Schedule H, Part II, column (d),
that the individual took part in as an
organization manager.

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Column (h). For each person listed in
column (a), enter the sum of:
1. Taxes that person owes as a
disqualified person, from Schedule I,
Part II, column (d), and
2. Tax on excess benefit
transactions in which the organization
manager participated knowing that the
transaction was improper, from
Schedule I, Part III, column (d).
Column (i). Enter for each person
listed in column (a) the tax for approval
of a Prohibited Tax Shelter Transaction
(or other act causing participation) from
Schedule J, Part II, column (d), that the
individual took part in as a manager.
Column (j). Enter for each person
listed in column (a) the tax on taxable
distributions from sponsoring
organizations maintaining donor
advised funds from Schedule K, Part II,
column (d) that the individual took part
in as a manager.
Column (k). For each person listed in
column (a), enter the:
1. Tax imposed on a donor, donor
advisor, or related person, from
Schedule L, Part II, column (d), and
2. Tax on each fund manager who
agreed to the making of a distribution of
a prohibited benefit from Schedule K,
Part III, column (d) that the individual
took part in as a manager.
A person’s liability for tax as a
self-dealer, manager, donor, donor
advisor, related person, or disqualified
person, under sections 4912, 4941,
4944, 4945, 4955, 4958, 4966, and
4967 is joint and several. Therefore, if
more than one person owes tax on an
act as a manager, self-dealer, donor,
donor advisor, related person, or
disqualified person, they may apportion
the tax among themselves. However,
when all managers, self-dealers,
donors, donor advisors, related
persons, or disqualified persons who
are liable for tax on a particular
transaction under sections 4912, 4941,
4944, 4945, 4955,4958, 4966, or 4967
pay less than the total tax due on that
transaction, then the IRS may charge
the amount owed to one or more of
them regardless of the tax
apportionment shown on this return.

Schedule A—Initial
Taxes on Self-Dealing
(Section 4941)
General Instructions
Requirement. All organizations that
answered “Yes” to question 1b or 1c in
Part VII-B of Form 990-PF, or “Yes” to
question 1b or 1c in Part VI-B of Form

5227, must complete Schedule A.
Complete Parts I, II, and III of Schedule
A only in connection with acts that are
subject to the tax on self-dealing.
Paying the tax and filing a Form
4720 is required for each year or part of
a year in the taxable period that applies
to the act of self-dealing. Generally, the
taxable period begins with the date on
which the self-dealing occurs and ends
on the earliest of:
• The date a notice of deficiency is
mailed under section 6212, in
connection with the initial tax imposed
on the self-dealer,
• The date the initial tax on the
self-dealer is assessed, or
• The date correction of the act of
self-dealing is completed.
Self-dealing. Self-dealing includes any
direct or indirect:
• Sale, exchange, or leasing of
property between a private foundation
and a disqualified person (see
definitions in Form 990-PF instructions),
• Lending of money or other extension
of credit between a private foundation
and a disqualified person,
• Furnishing of goods, services, or
facilities between a private foundation
and a disqualified person,
• Payment of compensation (or
payment or reimbursement of
expenses) by a private foundation to a
disqualified person,
• Transfer to, or use by or for the
benefit of, a disqualified person of the
income or assets of a private
foundation, and
• Agreement by a private foundation to
make any payment of money or other
property to a government official (go to
www.irs.gov/charities/foundations/
index.html for more information), other
than an agreement to employ or make
a grant to that individual for any period
after the end of government service if
that individual will be ending
government service within a 90-day
period.
Exceptions to self-dealing. Go to
www.irs.gov/charities/foundations/
index.html for a description of acts that
are not considered self-dealing.
Initial taxes on self-dealer. An initial
tax of 10% (5% for acts that took place
in a tax year beginning before August
18, 2006) of the amount involved is
charged for each act of self-dealing
between a disqualified person and a
private foundation for each year or part
of a year in the taxable period. Any
disqualified person (other than a
foundation manager acting only as
such) who takes part in the act of
self-dealing must pay the tax.
Initial taxes on foundation managers.
When a tax is imposed on a foundation

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manager for an act of self-dealing, the
tax will be 5% (21/2% for acts that took
place in a tax year beginning before
August 18, 2006) of the amount
involved in the act of self-dealing for
each year or part of a year in the
taxable period. However, the total tax
imposed for all years in the taxable
period is limited to $20,000 ($10,000 for
acts that took place in a tax year
beginning before August 18, 2006) for
each act of self-dealing. The tax is
imposed on any foundation manager
who took part in the act knowing that it
was self-dealing except those
foundation managers whose
participation was not willful and was
due to reasonable cause. Any
foundation manager who took part in
the act of self-dealing must pay the tax.

Specific Instructions
Part I. List each act of self-dealing in
Part I. Enter in column (d) the number
designation from Form 990-PF, Part
VII-B, question 1a, or Form 5227, Part
VI-B, question 1a, that applies to the
act. For example, “1a(1)” or “1a(4).”
Part II. Enter in column (a) the names
of all disqualified persons who took part
in the acts of self-dealing listed in Part
I. If more than one disqualified person
took part in an act of self-dealing, each
is individually liable for the entire tax in
connection with the act. But the
disqualified persons who are liable for
the tax may prorate the payment
among themselves. Enter in column (c)
the tax to be paid by each disqualified
person.
Carry the total amount in column (d)
for each self-dealer to page 1, Part II-A,
column (c).
Part III. Enter in column (a) the names
of all foundation managers who took
part in the acts of self-dealing listed in
Part I, and who knew that they were
acts of self-dealing (except for
foundation managers whose
participation was not willful and was
due to reasonable cause).
If more than one foundation
manager took part in the act of
self-dealing, knowing that it was such
an act, and participation was willful and
not due to reasonable cause, each is
individually liable for the entire tax in
connection with the act. But the
foundation managers liable for the tax
may prorate the payment among
themselves. Enter in column (c) the tax
to be paid by each foundation manager.
Carry the total amount in column (d)
for each foundation manager to page 1,
Part II-A, column (c).
Form 4720 Instructions

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Instructions for Form 4720

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Schedule B—Initial Tax
on Undistributed Income
(Section 4942)
Complete Schedule B if you answered
“Yes” to Form 990-PF, Part VII-B,
question 2b.
An initial excise tax of 30% (15% for
tax years beginning before August 18,
2006) is imposed on a private
foundation’s undistributed income on
the first day of the second or any
succeeding tax year after the tax year
in connection with which income
remains undistributed.
Use the 2006 Form 4720 to report
the initial tax on undistributed income
for tax years beginning in 2005 or
earlier that remains undistributed at the
end of the foundation’s current tax year
beginning in 2006. The initial tax will
not apply to a private foundation’s
undistributed income:
• For any tax year it is an operating
foundation (as defined in section
4942(j)(3) and related regulations or in
section 4942(j)(5)), or
• To the extent it did not distribute an
amount solely because of an incorrect
valuation of assets, provided the
foundation satisfies the requirements of
section 4942(a)(2), or
• For any year for which the initial tax
was previously assessed or a notice of
deficiency was issued.
Do not complete Schedule B for any
year for which any of the above
provisions apply to the undistributed
income.

Schedule C—Initial Tax
on Excess Business
Holdings (Section 4943)
General Instructions
Private foundations are generally not
permitted to hold more than a 20%
interest in an unrelated business
enterprise. They may be subject to an
excise tax on the amount of any excess
holdings. For purposes of section 4943,
for tax years beginning after August 17,
2006, donor advised funds and certain
supporting organizations are
considered private foundations. For
more information on the applicability of
Schedule C to such organizations, see
General rules on the permitted holdings
of donor advised funds and certain
supporting organizations in a business
enterprise on page 8.
Requirement. If you answered “Yes”
to Form 990-PF, Part VII-B, question
3b; Form 990, Part VI, question 89g; or
Form 5227, Part VI-B, question 3b,
Form 4720 Instructions

complete a Schedule C for each
business enterprise in which the
foundation had excess business
holdings for its tax year beginning in
2006.
Taxes. A private foundation that has
excess holdings in a business
enterprise may become liable for an
excise tax based on the amount of
holdings. The initial tax is 10% (5% for
tax years beginning before August 18,
2006) of the value of the excess
holdings and is imposed on the last day
of each tax year that ends during the
taxable period. The excess holdings are
determined on the day during the tax
year when they were the largest.
If the foundation keeps the excess
business holdings after the initial tax
has been imposed, it becomes liable for
an additional tax of 200% of the
remaining excess business holdings
unless it disposes of them within the
taxable period. However, if the
foundation disposes of its excess
business holdings during the correction
period, the additional tax will not be
assessed or, if assessed, will be abated
and if collected, will be credited or
refunded. For information on the
correction period go to www.irs.gov/
charities/foundations/index.html.
Business enterprise. In general, this
means the active conduct of a trade or
business, including any activity
regularly conducted to produce income
from selling goods or performing
services, that is an unrelated trade or
business described in section 513.
The term “business enterprise” does
not include a functionally related
business as defined in section
4942(j)(4). In addition, business
holdings do not include program-related
investments (such as investments in
small businesses in economically
depressed areas or in corporations to
assist in neighborhood renovations) as
defined in section 4944(c) and related
regulations. Also, business enterprise
does not include a trade or business at
least 95% of the gross income of which
comes from passive sources. Log on to
www.irs.gov/charities/foundations/
index.html.
Excess business holdings. Excess
business holdings is the amount of
stock or other interest in a business
enterprise that the foundation would
have to dispose of to a person other
than a disqualified person in order for
the foundation’s remaining holdings in
the enterprise to be permitted holdings
(section 4943(c)(1)). Go to www.irs.gov/
charities/foundations/index.html for
more information.
Sole proprietorships. In general, a
private foundation may not have any
permitted holdings in a business

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enterprise that is a sole proprietorship.
For exceptions, go to www.irs.gov/
charities/foundations/index.html. For a
definition of sole proprietorship, see
Regulations section 53.4943-10(e).
Corporate voting stock. This stock
entitles a person to vote for the election
of directors. Treasury stock and stock
that is authorized but unissued is not
voting stock for these purposes. See
Regulations sections 53.4943-3(b)(1)(ii)
and 53.4943-3(b)(2)(ii).
For a partnership (including a limited
partnership) or joint venture, the term
“profits interest” should be substituted
for “voting stock.” For any
unincorporated business enterprise that
is not a partnership, joint venture, or
sole proprietorship, the term “beneficial
interest” should be substituted for
“voting stock.” See Regulations section
53.4943-3(c).
Nonvoting stock. Corporate equity
interests that do not have voting power
should be classified as nonvoting stock.
Evidences of indebtedness (including
convertible indebtedness), warrants,
and other options or rights to acquire
stock should not be considered equity
interests. See Regulations section
53.4943-3(b)(2).
For a partnership (including a limited
partnership) or joint venture, the term
“capital interest” should be substituted
for “nonvoting stock.” For any
unincorporated business that is not a
partnership, joint venture, or sole
proprietorship, references to nonvoting
stock do not apply for computation of
permitted holdings. See Regulations
section 53.4943-3(c)(4).
Attribution of business holdings. In
determining the holdings in a business
enterprise of either a private foundation
or a disqualified person, any stock or
other interest owned directly or
indirectly by or for a corporation,
partnership, estate, or trust is
considered owned proportionately by or
for its shareholders, partners, or
beneficiaries. In general, this rule does
not apply to certain income interests or
remainder interests of a private
foundation in a split-interest trust
described in section 4947(a)(2). See
Regulations section 53.4943-8.
Taxable period. The taxable period
begins on the first day the foundation
has excess business holdings and ends
on the earliest of:
• The mailing date of a notice of
deficiency, under section 6212, in
connection with the initial tax on excess
business holdings related to those
holdings,
• The date the excess is eliminated, or
• The date the initial tax on excess
business holdings related to those
holdings is assessed.

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When a notice of deficiency is not
mailed because the restrictions on
assessment and collection are waived
or because the deficiency is paid, the
date of filing the waiver or the date of
paying the tax, respectively, will be
treated as the end of the taxable
period. See Regulations section
53.4943-9.

Exceptions to Tax on Excess
Business Holdings
2% De minimis rule. A private
foundation will not be treated as having
excess business holdings in any
enterprise in which it, together with
related foundations as described in the
instructions for Form 990-PF (under the
definition for “disqualified person” in the
General Instructions) owns not more
than 2% of the voting stock and not
more than 2% in value of all
outstanding shares of all classes of
stock.
Disposition of excess business
holdings within 90 days. Generally,
when a private foundation acquires
excess business holdings other than as
a result of purchase by the foundation
(such as an acquisition by a disqualified
person), the foundation will not be
taxed on those excess holdings if it
disposes of enough of them so that it
no longer has an excess. To avoid the
tax, the disposition must take place
within 90 days from the date the
foundation knew, or had reason to
know, of the event that caused it to
have excess business holdings. That
90-day period will be extended to
include the period during which federal
or state securities laws prevent the
foundation from disposing of those
excess business holdings. See
Regulations section 53.4943-2(a).
General rules on the permitted
holdings of a private foundation in a
business enterprise. No excess
business holdings tax is imposed (a) if
a private foundation and all disqualified
persons together hold no more than
20% of the voting stock of a business
enterprise or (b) on nonvoting stock, if
all disqualified persons together do not
own more than 20% of the voting stock
of the business enterprise.
If the private foundation and all
disqualified persons together do not
own more than 35% of the enterprise’s
voting stock, and effective control is in
one or more persons who are not
disqualified persons in connection with
the foundation, then 35% may be
substituted for 20% wherever it appears
in the preceding paragraph. See
sections 4943(c)(2) and 4943(c)(3).
If a private foundation and all
disqualified persons together had
holdings in a business enterprise of
more than 20% of the voting stock on

May 26, 1969, substitute that
percentage for 20% and for 35% (if the
holding is greater than 35%), using the
principles of section 4943(c)(4) that
apply. However, the percentage
substituted may not be more than 50%.
The percentage substituted under
the preceding paragraph is (a) subject
to reductions and limitations (see
sections 4943(c)(4)(A)(ii) and
4943(c)(4)(D)) and (b) applicable, both
in connection with the voting stock and,
separately, in connection with the value
of all outstanding shares of all classes
of stock (see section 4943(c)(4)(A)(iii)).
Interests held by a private
foundation (other than donor
advised funds and supporting
organizations) on May 26, 1969. For
private foundations, other than donor
advised funds and supporting
organizations considered to be private
foundations for purposes of section
4943, that had business holdings on
May 26, 1969 (or holdings acquired by
trust or will as described below), that
were more than the current limits
permit, there are transitional rules that
permit the foundation to dispose of the
excess over time without being subject
to the tax on excess business holdings.
During the first phase, no excess
business holdings tax was imposed on
a private foundation for interests held
since May 26, 1969, if the foundation
had excess holdings on that date. The
first phase is:
• A 20-year period beginning on May
26, 1969, if on that date the foundation
and all disqualified persons held more
than a 95% voting interest in the
enterprise (the 20-year first phase
expired on May 25, 1989);
• A 15-year period beginning on May
26, 1969, if on that date the foundation
and all disqualified persons together
had more than a 75% voting stock
interest (or more than a 75% profits or
beneficial interest of any
unincorporated business), or more than
a 75% interest in the value of all
outstanding shares of all classes of
stock (or more than a 75% capital
interest of a partnership or joint
venture) in the enterprise (the 15-year
first phase expired on May 25, 1984);
and
• A 10-year period beginning on May
26, 1969, in all other cases in which the
foundation had excess business
holdings on May 26, 1969. The 10-year
first phase expired on May 25, 1979.
During the second phase (the
15-year period after the first phase), if
the foundation’s disqualified persons
hold more than 2% of the enterprise’s
voting stock, the foundation will be
liable for tax if the foundation holds
more than 25% of the voting stock or if
the foundation and its disqualified

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persons together hold more than 50%
of the voting stock.
However, during the second phase,
if a foundation’s disqualified persons
purchase voting stock in a business
enterprise after July 18, 1984, causing
the combined holdings of the
disqualified persons to exceed 2% of
the enterprise’s voting stock, the
foundation has 5 years to reduce its
holdings in the enterprise to below its
second phase limit before the increase
will be treated as held by the
foundation. See sections 4943(c)(4)(D)
and 4943(c)(6).
The first-phase periods may be
suspended pending the outcome of any
judicial proceeding the private
foundation brings regarding reform or
other procedure to excuse it from
compliance with its governing
instrument or similar instrument in
effect on May 26, 1969. See section
4943(c)(4)(C) and Regulations section
53.4943-4.
Holdings acquired by trust or will.
Holdings acquired under the terms of a
trust that was irrevocable on May 26,
1969, or under the terms of a will
executed by that date, are treated as
held by the foundation on May 26,
1969, except that the 15- and 10-year
periods of the first phase for the
holdings start on the date of distribution
under the trust or will instead of on May
26, 1969. See section 4943(c)(5) and
Regulations section 53.4943-5. See
section 4943(d)(1) and Regulations
section 53.4943-8 for rules relating to
constructive holdings held in a
corporation, partnership, estate, or trust
for the benefit of the foundation.
Gifts or bequests of business
holdings. Except as provided in the
exception regarding Holdings acquired
by trust or will (discussed above), there
is a special rule for private foundations
that have excess business holdings as
a result of a change in holdings after
May 26,1969. This rule applies if the
change is other than by purchase by
the foundation or by disqualified
persons (such as through gift or
bequest) and the additional holdings
result in the foundation having excess
business holdings. In that case, the
foundation has 5 years to reduce these
holdings or those of its disqualified
persons to permissible levels to avoid
the tax. See section 4943(c)(6) and
Regulations section 53.4943-6.
A private foundation that received an
unusually large gift or bequest of
business holdings after 1969, and that
has made a diligent effort to dispose of
excess business holdings, may apply
for an additional 5-year period to
reduce its holdings to permissible levels
if certain conditions are met. See
section 4943(c)(7).
Form 4720 Instructions

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General rules on the permitted
holdings of donor advised funds and
certain supporting organizations in a
business enterprise. For tax years
beginning after August 17, 2006, rules
similar to those described above for
interests held by private foundations on
May 26, 1969, will be applied to
determine if donor advised funds or
certain supporting organizations with
interests as of August 17, 2006, have
any excess business holdings.
However, the date of August 17, 2006,
will be substituted for May 26, 1969.
Donor advised fund. In general, a
donor advised fund is a fund or account
separately identified by reference to
contributions of a donor or donors that
is owned and controlled by a
sponsoring organization and for which
the donor has or expects to have
advisory privileges concerning the
distribution or investment of the funds.
See Schedule K for further details.
Sponsoring organization. A
sponsoring organization is any
section170(c) organization other than
governmental entities (described in
section 170(c)(1) and (2)(A)) that is not
a private foundation as defined in
section 509(a)(3) that maintains one or
more donor advised funds.
Supporting organizations. Only
certain supporting organizations are
subject to the excess business holdings
tax under section 4943. These include
(1) Type III supporting organizations
that are not functionally integrated and
(2) Type II supporting organizations that
accept any gift or contribution from a
person who by himself or in connection
with a related party controls the
supported organization that the Type II
supporting organization supports. (See
Instructions for Schedule A (Form 990),
Part III, question 13, for help in
determining the type of your supporting
organization.)
Readjustments, distributions, or
changes in relative value of different
classes of stock. See Regulations
section 53.4943-4(d)(10) for special
rules whereby increases in the
percentage of value of holdings in a
corporation that result solely from
changes in the relative values of
different classes of stock will not result
in excess business holdings.
See Regulations section
53.4943-6(d) for rules on treatment of
increases in holdings due to
readjustments, distributions, or
redemptions.
See Regulations section 53.4943-7
for special rules for readjustments
involving grandfathered holdings.
Exceptions from self-dealing taxes
on certain dispositions of excess
Form 4720 Instructions

business holdings. Section
101(I)(2)(B) of the Tax Reform Act of
1969 provides for a limited exception
from self-dealing taxes for private
foundations that dispose of certain
excess business holdings to
disqualified persons, as long as the
sales price equals or is more than fair
market value.
The excess business holdings
involved are interests that are subject
to the section 4941 transitional rules for
May 26, 1969, holdings. These
interests would also be subject to the
excess business holdings tax if they
were not reduced by the required
amount.

Specific Instructions
Complete columns (a) and (b) of
Schedule C if sections 4943(c)(4),
4943(c)(3) (using the principles of
4943(c)(4)), or 4943(c)(5) apply.
Complete column (a) and column (c)
(if applicable) if sections 4943(c)(2) or
4943(c)(3) (using the principles of
4943(c)(2)) apply.
Complete Schedule C for that day
during the tax year when the
foundation’s excess holdings in the
enterprise were largest.
Line 1. Enter in column (a) the
percentage of voting stock the
foundation holds in the business
enterprise.
If the foundation is using the rules or
principles for determining present
holdings under section 4943(c)(4)(A) or
(D) (or for tax years beginning after
August 17, 2006, rules similar thereto
with respect to donor advised funds
and certain supporting organizations),
enter in column (b) the percentage of
value the foundation holds in all
outstanding shares of all classes of
stock.
Do not include in either column (a) or
(b) stock treated as held by disqualified
persons:
• Under section 4943(c)(6) or
Regulations sections 53.4943-6 and
53.4943-10(d), or
• During the first phase if the first
phase is still in effect (see Regulations
sections 53.4943-4(a), (b), and (c)).
Line 2. If the foundation is using the
rules or principles for determining
present holdings under section
4943(c)(4)(or for tax years beginning
after August 17, 2006, rules similar to
that for donor advised funds and certain
supporting organizations), refer to that
section and Regulations section
53.4943-4(d) to determine which entries
to record in columns (a) and (b). Enter
in column (a) the excess of the
substituted combined voting level over
the disqualified person voting level.
Enter in column (b) the excess of the

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substituted combined value level over
the disqualified person value level.
If the foundation is using the rules or
principles for determining permitted
holdings under section 4943(c)(2), refer
to that section to determine which
entries to record in column (a). Enter in
column (a) the percentage, using the
general rule (section 4943(c)(2)(A)) or
the 35% rule (see section
4943(c)(2)(B)), if applicable, of
permitted holdings the foundation may
have in the enterprise’s voting stock. If
the foundation determines the permitted
holdings under section 4943(c)(2)(B),
attach a statement showing effective
control by a third party.
Line 3. Enter the value of any stock,
interest, etc., in the business enterprise
that the foundation is required to
dispose of so the foundation’s holdings
in the enterprise are permitted. See
section 4943 and related regulations.
A private foundation using the
section 4943(c)(4) rules, or a donor
advised fund or supporting organization
using rules similar to that, has excess
holdings if line 1 is more than line 2 in
either column (a) or column (b). Do not
include in column (b) the value of any
voting stock included in column (a).
A private foundation using the
section 4943(c)(2) rules has excess
holdings if line 1 is more than line 2 in
column (a) or if the private foundation
holds nonvoting stock and all
disqualified persons together own more
than 20% (or 35%, if applicable) of the
enterprise’s voting stock, interest, etc.
In the latter case, enter in column (c)
the value of all nonvoting stock the
foundation holds.
Line 4. Enter the value of excess
holdings disposed of under the 90-day
rule in Regulations section
53.4943-2(a)(1)(ii). If other conditions
preclude imposition of tax on excess
business holdings, include the value of
the nontaxable amount on this line and
attach an explanation.

Schedule D—Initial
Taxes on Investments
That Jeopardize
Charitable Purpose
(Section 4944)
General Instructions
Requirement. Complete Schedule D if
you answered “Yes” to Form 990-PF,
Part VII-B, question 4a or b, or Form
5227, Part VI-B, question 4a or b.
Report each investment separately.
Paying tax and filing a Form 4720 are
required for each year or part of a year

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in the taxable period that applies to the
investments that jeopardize the
foundation’s charitable purpose.
Generally, the taxable period begins
with the date of the investment and
ends with the date corrective action is
completed, a notice of deficiency is
mailed, or the initial tax is assessed,
whichever comes first. Therefore, in
addition to investments made in 2006,
include all investments subject to tax
that were made before 2006 if those
investments were not removed from
jeopardy before 2006 and the initial tax
was not assessed before 2006.

Part II. Enter in column (a) the names
of all foundation managers who took
part in making the investments listed in
Part I. See Initial taxes on foundation
managers above.

Taxable investments. An investment
to be taxed on this schedule is an
investment by a private foundation that
jeopardizes the carrying out of its
exempt purposes (for example, if it is
determined that the foundation
managers, in making the investment,
did not exercise ordinary business care
and prudence, under prevailing facts
and circumstances, in providing for the
long- and short-term financial needs of
the foundation to carry out its exempt
purposes). See Regulations section
53.4944-1(a)(2). An investment is not
taxed on this schedule if it is a
program-related investment; that is, one
whose primary purpose is one or more
of those described in section
170(c)(2)(B) (religious, charitable,
educational, etc.). A significant purpose
of such an investment cannot be the
production of income or the
appreciation of property. See section
4944(c) and Regulations section
53.4944-3.

Carry the total amount in column (d)
for each foundation manager to page 1,
Part II-A, column (d).

Initial taxes on foundation. The initial
tax is 10% (5% for investments made in
a tax year beginning before August 18,
2006) of the amount invested for each
year or part of a year in the taxable
period.
Initial taxes on foundation managers.
When a tax is imposed on a jeopardy
investment of the foundation, the tax
will be10% (5% for investments made
in a tax year beginning before August
18, 2006) of the investment for each
year or part of a year in the taxable
period, up to $10,000 ($5,000 for
investments made in a tax year
beginning before August 17, 2006) for
any one investment. It is imposed on all
foundation managers who took part in
the act, knowing that it was such an
act, except for foundation managers
whose participation was not willful and
was due to reasonable cause. Any
foundation manager who took part in
making the investment must pay the
tax.

Specific Instructions
Part I. Complete this part for all taxable
investments.

If more than one foundation
manager is listed in column (a), each is
individually liable for the entire amount
of tax in connection with the
investment. However, the foundation
managers who are liable for the tax
may prorate payment among
themselves. Enter in column (c) the tax
each foundation manager will pay.

Schedule E—Initial
Taxes on Taxable
Expenditures (Section
4945)
General Instructions
Requirement. Complete Schedule E if
you answered “Yes” to Form 990-PF,
Part VII-B, question 5b, or Form 5227,
Part VI-B, question 5b. Complete Parts
I and II of Schedule E only for
expenditures that are subject to tax.
Note. Also, see Schedule F, Initial
Taxes on Political Expenditures.
Taxable expenditures. With certain
exceptions, this means any amount a
private foundation pays or incurs:
1. To carry on propaganda or
otherwise influence any legislation
through:
a. An attempt to influence general
public opinion or any segment of it, and
b. Communication with any member
or employee of a legislative body, or
with any other government official or
employee who may take part in
formulating legislation;
2. To influence the outcome of any
specific public election, or to conduct,
directly or indirectly, any voter
registration drive;
3. As a grant to an individual for
travel, study, or other purposes;
4. As a grant to an organization not
described in section 509(a)(1), (2), or
(3) or that is not an exempt operating
foundation (as defined in section
4940(d)(2)). After August 17, 2006, this
includes grants to:
a. Type I and II supporting
organizations (as described in section
4942(g)(4)(B)) if a disqualified person of
the foundation controls a Type I or II
supporting organization or the
supported organizations of the Type I
or II supporting organizations, and

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b. Type III supporting organizations
(as described in section 4943(f)(5)(B))
that are not functionally integrated with
its supported organizations; or
5. For any purpose other than
religious, charitable, scientific, literary,
educational, or public purposes, or the
prevention of cruelty to children or
animals.
Exceptions. Section 4945(d)(4)(B)
provides an exception to taxable
expenditures that applies to certain
grants to organizations when the
granting foundation exercises
expenditure responsibility described in
section 4945(h). Additional information
on special rules and exceptions to the
definition of taxable expenditures given
above can be found at www.irs.gov/
charities/foundations/index.html.
Initial tax on foundation. An initial tax
of 20% (10% for expenditures made in
a tax year beginning before August 18,
2006) of each taxable expenditure is
imposed on the foundation.
Initial tax on foundation managers.
When a tax is imposed on a taxable
expenditure of the foundation, a tax of
5% (21/2% for expenditures made in a
tax year beginning before August 18,
2006) of the expenditure will be
imposed on any foundation manager
who agreed to the expenditure and who
knew that it was a taxable expenditure.
Foundation managers whose
participation was not willful and was
due to reasonable cause are not liable
for the tax. Any foundation manager
who took part in the expenditure and is
liable for the tax must pay the tax. The
maximum total amount of tax on all
foundation managers for any one
taxable expenditure is $10,000 ($5,000
for expenditures made in a tax year
beginning before August 18, 2006). If
more than one foundation manager is
liable for tax on a taxable expenditure,
all those foundation managers are
jointly and severally liable for the tax.

Specific Instructions
Part I. Complete this part for all taxable
expenditures. Enter in column (f) the
number designation from Form 990-PF,
Part VII-B, question 5a, or Form 5227,
Part VI-B, question 5a, that applies to
the act; for example, “5a(1).”
Part II. Enter in column (a) the names
of all foundation managers who agreed
to make the taxable expenditure. See
Initial Tax on Foundation Managers on
page 6. If more than one foundation
manager is listed in column (a), each is
individually liable for the entire tax in
connection with the expenditure.
However, the foundation managers who
are liable for the tax may prorate the
payment among themselves. Enter in
Form 4720 Instructions

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column (c) the tax each foundation
manager will pay.
Carry the total amount in column (d)
for each foundation manager to page 1,
Part II-A, column (e).

Schedule F—Initial
Taxes on Political
Expenditures (Section
4955)
General Instructions
Requirement. Complete Schedule F if
you answered “Yes” to question 5a(2)
and 5b of Form 990-PF, Part VII-B.
Complete Schedule F if you entered an
amount of political expenditure in
question 81a, Part VI, of Form 990, or
in question 37a, Part V, of Form
990-EZ.
Political expenditures. These include
any amount paid or incurred by a
section 501(c)(3) organization that
participates or intervenes in (including
the publication or distribution of
statements) any political campaign on
behalf of, or in opposition to, any
candidate for public office. The tax is
imposed even if the political
expenditure gives rise to a revocation
of the organization’s section 501(c)(3)
status.
These taxes apply in the case of
both public charities and private
foundations. When tax is imposed
under this provision in the case of a
private foundation, however, the
expenditure in question will not be
treated as a taxable expenditure under
section 4945.
For an organization formed primarily
to promote the candidacy or
prospective candidacy of an individual
for public office (or that is effectively
controlled by a candidate or prospective
candidate and is used primarily for such
purposes), amounts paid or incurred for
any of the following purposes are
deemed political expenditures:
• Remuneration to the candidate or
prospective candidate for speeches or
other services;
• Travel expenses of the individual;
• Expenses of conducting polls,
surveys, or other studies, or preparing
papers or other material for use by the
individual;
• Expenses of advertising, publicity,
and fundraising for such individual; and
• Any other expense which has the
primary effect of promoting public
recognition or otherwise primarily
accruing to the benefit of the individual.
Form 4720 Instructions

Initial tax on organization or
foundation. The initial tax on the
organization or foundation is 10% of the
amount involved.
Initial tax on organization managers
or foundation managers. An initial tax
of 21/2% of the amount involved (up to
$5,000 of tax on any one expenditure)
is imposed on any manager who
agrees to an expenditure, knowing that
it is a political expenditure, unless the
agreement is not willful and is due to
reasonable cause.
Any manager who agreed to the
expenditure must pay the tax.

group return, enter on line 1 your share
of the excess grassroots lobbying
expenditures of the affiliated group, and
on line 2 your share of the excess
lobbying expenditures of the affiliated
group. Take these amounts from the
schedule of excess lobbying
expenditures that must be attached to
Schedule A (Form 990 or 990-EZ). See
the instructions for Schedule A (Form
990 or 990-EZ), Part VI-A, for a
discussion of the lobbying provisions,
including how to figure the taxable
amount.

Specific Instructions

Schedule H—Taxes on
Disqualifying Lobbying
Expenditures (Section
4912)

Part I. Complete this part for all
political expenditures.
Part II. Enter in column (a) the names
of all managers who took part in
making the political expenditures listed
in Part I. See Initial tax on organization
managers or foundation managers
above.
If more than one manager is listed in
column (a), each is individually liable for
the entire amount of tax on the
expenditure. However, the managers
who are liable for the tax may prorate
payment among themselves. Enter in
column (c) the tax each manager will
pay.
Carry the total amount in column (d)
for each manager to page 1, Part II-A,
column (f).

Schedule G—Tax on
Excess Lobbying
Expenditures (Section
4911)
Requirement. Schedule G must be
completed by eligible section 501(c)(3)
organizations that elected to be subject
to the limitations on lobbying
expenditures under section 501(h) and
that made excess lobbying
expenditures as defined in section
4911(b).
Except as noted below, follow the
line instructions on Schedule G.
Affiliated groups. If you are a
nonelecting member of an affiliated
group, you are not required to file Form
4720.
If you are an electing member of an
affiliated group and are filing a separate
return, enter on line 1 the amount from
Schedule A (Form 990 or 990-EZ), Part
VI-A, column (b), line 43. Enter on line
2 the amount from Schedule A (Form
990 or 990-EZ), Part VI-A, column (b),
line 44.
If you are an electing member of an
affiliated group and are included in a

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General Instructions
Requirement. Schedule H must be
completed by certain organizations
whose section 501(c)(3) status is
revoked because of excess lobbying
activities.
Exceptions. These taxes are not
imposed on a private foundation
(whose lobbying expenditures may be
subject to the tax on taxable
expenditures). These taxes also are not
imposed on any organization for which
a section 501(h) election was in effect
at the time of the lobbying expenditures
or that was not eligible to make a
section 501(h) election.
Tax on organization. A tax of 5% of
the lobbying expenditures is imposed
on the organization whose section
501(c)(3) status is revoked because of
excess lobbying activities.
Tax on organization managers. A tax
of 5% of the lobbying expenditures is
also imposed on any manager who
willfully and without reasonable cause
consented to the lobbying expenditures,
knowing that they would likely result in
the organization no longer qualifying
under section 501(c)(3).
There is no limit on the amount of
this tax that may be imposed against
either the organization or its managers.
Any organization manager who agreed
to the expenditure must pay the tax.

Specific Instructions
Part I. Complete this part for all
disqualifying lobbying expenditures.
Part II. Enter in column (a) the names
of all organization managers who took
part in making disqualifying lobbying
expenditures listed in Part I. See Tax
on organization managers above.
If more than one organization
manager is listed in column (a), each is
individually liable for the entire amount

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of tax in connection with the
expenditure. However, the managers
who are liable for the tax may prorate
payment among themselves. Enter in
column (c) the tax each manager will
pay.
Carry the total amount in column (d)
for each organization manager to page
1, Part II-A, column (g).

Schedule I—Initial Taxes
on Excess Benefit
Transactions (Section
4958)
General Instructions
Requirement. Complete Schedule I for
any Excess benefit transaction in which
an Applicable organization provides an
Excess benefit to a Disqualified person.
These terms are discussed below.
Applicable organization. In
general, an applicable organization is
any section 501(c)(3) (except a private
foundation) or any 501(c)(4)
organization.
Also, an applicable organization
includes any organization that was a
501(c)(3) (except a private foundation)
or 501(c)(4) organization at any time
during a five-year period ending on the
date of an excess benefit transaction
(the lookback period).
Initial taxes. Excise taxes are imposed
under section 4958 on each excess
benefit transaction. If a manager
receives an excess benefit from an
excess benefit transaction, the
manager may be liable for the tax on
disqualified persons and the tax on the
organization manager. See Abatement
on page 4 for information on
abatement, refund, or relief from this
tax.
Tax on disqualified persons. The
tax is 25% of the excess benefit and is
paid by any disqualified person who
improperly benefited from the excess
benefit transaction.
Tax on organization managers. If
tax is imposed on a disqualified person
for any excess benefit transaction, then
tax is also imposed on any manager
who knowingly participated in the
excess benefit transaction. The tax is
10% of the excess, not to exceed
$20,000 ($10,000 for transactions
entered in a tax year beginning before
August 18, 2006) for each transaction.
Additional tax on the disqualified
person. If the initial tax is imposed on
an excess benefit transaction and the
transaction is not corrected within the
taxable period, then any disqualified
person involved shall be liable for an

additional tax equal to 200% of the
excess benefit.
This additional tax is abated
(refunded if collected) if the excess
benefit transaction is corrected within
the correction period (defined in
Question B, under Specific Instructions
for Page 1 on page 3).
Taxable period. Taxable period
means the period beginning with the
date on which the excess benefit
transaction occurs and ending on the
earlier of:
1. The date a notice of deficiency
was mailed to the disqualified person
for the initial tax on the excess benefit
transaction, or
2. The date on which the initial tax
on the excess benefit transaction for
the disqualified person is assessed.
Excess benefit transaction. An
excess benefit transaction is any
transaction in which:
1. An excess benefit is provided by
the organization, directly or indirectly to,
or for the use of, any disqualified
person, or
2. 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 the
organization and violates the private
inurement prohibition rules (to the
extent provided in regulations).
Until final regulations are issued
regarding the special rules for
CAUTION revenue sharing transactions
described in 2 above, these
transactions will only be subject to
section 4958 liability under the general
rule described in 1 above.
Excess benefit. Excess benefit
means the excess of the economic
benefit received from the applicable
organization over the consideration
given (including services) by a
disqualified person.
However, an economic benefit will
not be treated as compensation for
services unless the applicable
organization clearly indicates its intent
to treat the economic benefit (when
paid) as compensation for a disqualified
person’s services. See Regulations
section 53.4958-4(c) for more
information.
Exception. Generally, section 4958
does not apply to any fixed payment
made to a person under an initial
contract. See Regulations section
53.4958-4(a)(3) for details.
Special rule. The initial and additional
taxes of this section do not apply if the
transaction described in 1 under
Excess benefit transaction was
pursuant to a written contract in effect
on September 13, 1995, and at all

!

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times after that date until the time that
the transaction occurs.
However, if a written contract is
materially modified, it is treated as a
new contract entered into as of the date
of the material modification. A material
modification includes amending the
contract to extend its term or to
increase the compensation payable to a
disqualified person.
Supporting organization
transactions occurring after July 25,
2006. For any supporting organization,
as defined in section 509(a)(3), any
grant, loan, compensation, or other
similar payment provided to a
substantial contributor (defined later),
family member, or 35% controlled entity
will be considered an excess benefit
transaction. The amount of the excess
benefit is the amount of such grant,
loan, compensation, or other similar
payment. Also, any loan provided by
any disqualified person that is not an
organization described in 509(a)(1), (2),
or (4) is considered an excess benefit
transaction as well.
Donor advised fund transactions
occurring after August 17, 2006. Any
grant, loan, compensation, or other
similar payment from any donor
advised fund to a donor, family
member, or 35% controlled entity is an
excess benefit transaction. The amount
of the excess benefit is the amount of
such grant, loan, compensation, or
other similar payment.
Disqualified person. For purposes of
this Schedule I, a disqualified person
means:
1. Any person (at any time during
the 5-year period ending on the date of
the transaction) in a position to exercise
substantial influence over the affairs of
the organization,
2. A family member of an individual
described in 1, 2, or 3, and
3. A 35% controlled entity.
Family members. Family members
of an individual (described in 1 above)
include a disqualified person’s spouse,
ancestors, children, grandchildren,
great grandchildren, and brothers and
sisters (whether by whole- or
half-blood). It also includes the spouse
of the children, grandchildren, great
grandchildren, brothers, or sisters
(whether by whole- or half-blood).
35% controlled entity. The term
35% controlled entity means:
• A corporation in which a person
described in 1 through 5 under
Disqualified person owns more than
35% of the total combined voting
power,
• A partnership in which such persons
own more than 35% of the profits
interest, or
Form 4720 Instructions

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Instructions for Form 4720

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• A trust or estate in which such
persons own more than 35% of the
beneficial interest.
In determining the holdings of a
business enterprise, any stock or other
interest owned directly or indirectly shall
apply.
For certain supporting
organization transactions occurring
after July 25, 2006. A disqualified
person includes substantial contributors
to supporting organizations.
For donor advised fund and
certain supporting organization
transactions occurring after August
17, 2006.
• For donor advised funds, donors of
donor advised funds, investment
advisors of sponsoring organizations
maintaining donor advised funds are
disqualified persons; and
• For Type I and Type II supporting
organizations, if a disqualified person of
a private foundation controls such
supporting organizations, that person is
a disqualified person for any supported
organization of the supporting
organization.
Donor advised fund. See the
Schedule K instructions for a definition
of donor advised fund.
Investment advisor. Investment
advisor means for any sponsoring
organization, any person compensated
by such organization for managing the
investment of, or providing investment
advice for assets maintained in donor
advised funds maintained by such
sponsoring organization.
Sponsoring organization. See the
Schedule K instructions for a definition
of sponsoring organization.
Substantial contributor. In general, a
substantial contributor means any
person who contributed or bequeathed
an aggregate of more than $5,000 to
the organization, if that amount is more
than 2% of the total contributions and
bequests received by the organization
before the end of the tax year of the
organization in which the contribution or
bequest is received by the organization
from such person.

Specific Instructions
Part I. List each excess benefit
transaction in Part I, column (c). Enter
the date of the transaction in column (b)
and the amount of the excess benefit in
column (d). Compute the tax on the
excess benefit for disqualified persons
and enter it in column (e). Compute any
tax on the excess benefit for
Form 4720 Instructions

organization managers and enter the
amount in column (f).
For organization managers, the tax
is the lesser of 10% of the excess
benefit or $20,000 ($10,000 for
transactions entered in a tax year
beginning before August 18, 2006).
This tax is computed on each
transaction.
Part II. Enter in column (a) the names
of all disqualified persons who took part
in the excess benefit transactions. If
more than one disqualified person took
part in an excess benefit transaction,
each is individually liable for the entire
tax on the transaction. But the
disqualified persons who are liable for
the tax may prorate the payment
among themselves. Enter in column (c)
the tax to be paid by each disqualified
person.
Carry the total amount in column (d)
for each disqualified person to page 1,
Part II-A,column (h).
Part III. Enter in column (a) the names
of all managers who knowingly took
part in the excess benefit transactions
listed in Part I. If more than one
manager knowingly took part in an
excess benefit transaction, each is
individually liable for the entire tax in
connection with the transaction. But the
managers liable for the tax may prorate
the payment among themselves. Enter
in column (c) the tax to be paid by each
organization manager.
Carry the total amount in column (d)
for each manager to page 1, Part II-A,
column (h).

Schedule J—Tax on
Being a Party to
Prohibited Tax Shelter
Transactions (Section
4965)
General Instructions
Requirement.
1. Complete Schedule J if you are
an entity described in section 501(c),
501(d), or 170(c) (other than the United
States) or an Indian tribal government
(within the meaning of section
7701(a)(40)) and you received
proceeds from or have net income
attributable to a prohibited tax shelter
transaction (PTST).
2. Complete Schedule J if you are
an entity manager of such an entity
who approved the entity as (or

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otherwise caused the entity to be) a
party to a PTST at any time during the
tax year and who knew (or had reason
to know) that the transaction is a PTST.
See Notice 2006-65, 2006-31 I.R.B.
102, and any subsequent guidance for
details.
Managers of tax favored

TIP retirement plans, individual
retirement arrangements, and
savings arrangements described in
sections 401(a), 403(a), 403(b), 529,
457(b), 408(a), 220(d), 408(b), 530, or
223(d) must report and pay tax due
under 4965(a)(2) on Form 5330.
Prohibited tax shelter transaction.
In general, prohibited tax shelter
transaction means any listed
transaction and any prohibited
reportable transaction.
Listed transaction. A listed
transaction includes any transaction
that is the same as or substantially
similar to one of the types of
transactions that the IRS has
determined to be a tax avoidance
transaction. These transactions are
identified by notice, regulation, or other
form of published guidance as a listed
transaction. For existing guidance see:
• Notice 2004-67, 2004-41 I.R.B. 600
• Notice 2005-13, 2005-9 I.R.B. 630.
For updates to this list go to the IRS
web page at www.irs.gov/businesses/
corporations and click on Abusive Tax
Shelters and Transactions. The listed
transactions in the above notices and
rulings will also be periodically updated
in future issues of the Internal Revenue
Bulletin.
Prohibited reportable transaction. A
prohibited reportable transaction is any
confidential transaction or any
transaction with contractual protection
that is a reportable transaction. See
Regulations sections 1.6011-4(b)(3)
and (4) for more information.

Specific Instructions
Part I. Complete this part if you
received proceeds from or have net
income attributable to a PTST.
Part II. Enter in column (a) the names
of all entity managers who approved
the entity as (or otherwise caused the
entity to be) a party to a PTST at any
time during the taxable year and who
knew or had reason to know that the
transaction is a PTST.
Carry the total amount in column (d)
for each manager to page 1, Part II-A,
column (i).

Page 14 of 15

Instructions for Form 4720

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Schedule K—Taxes on
Taxable Distributions of
Sponsoring
Organizations
Maintaining Donor
Advised Funds (Section
4966)
General Instructions
Requirement. Complete Schedule K if
you answered “Yes” to question 4b in
Part III of Schedule A (Form 990 or
990-EZ), or if you are a fund manager
of a sponsoring organization who
agreed to the making of a taxable
distribution knowing that it was a
taxable distribution. Report each
taxable distribution separately. These
terms are discussed below.
Taxable distribution. A taxable
distribution is any distribution from a
donor advised fund to any natural
person or to any other person if:
1. the distribution is for any purpose
other than one specified in section
170(c)(2)(B), or
2. the sponsoring organization
maintaining the donor advised fund
does not exercise expenditure
responsibility with respect to such
distribution in accordance with section
4945(h).
However, a taxable distribution does
not include a distribution from a donor
advised fund to:
1. any organization described in
section 170(b)(1)(A) (other than a
disqualified supporting organization),
2. the sponsoring organization of
such donor advised fund, or (3) any
other donor advised fund.
The tax on taxable distributions
applies to distributions occurring in tax
years beginning after August 17, 2006.
Sponsoring organization. A
sponsoring organization is a
section170(c) organization that is not a
government organization (as referred to
in section 170(c)(1) and (2)(A)) or a
private foundation and maintains one or
more donor advised funds.
Donor advised fund. A donor advised
fund is a fund or account:
1. Which is separately identified by
reference to contributions of a donor or
donors,
2. Which is owned and controlled by
a sponsoring organization, and
3. For which the donor (or any
person appointed or designated by the
donor) has or expects to have advisory
privileges concerning the distribution or

investment of the funds held in the
donor advised funds or accounts
because of the donor’s status as a
donor.
Exception. A donor advised fund
does not include:
1. A fund or account that makes
distributions only to a single identified
organization or governmental entity, or
2. Any fund or account for a person
described in 3 above that gives advice
about which individuals receive grants
for travel, study, or similar purposes, if;
a. The person’s advisory privileges
are performed exclusively by such
person in their capacity as a committee
member of which all the committee
members are appointed by the
sponsoring organization.
b. No combination of persons with
advisory privileges, described in 3
above, or persons related to those in 3
above, directly or indirectly control the
committee, or
c. All grants from the fund or
account are awarded on an objective
and nondiscriminatory basis according
to a procedure approved in advance by
the board of directors of the sponsoring
organization. The procedure must be
designed to ensure that all grants meet
the requirements of section 4945(g)(1),
(2), or (3).
Tax on sponsoring oganization. A
tax of 20% of the amount of each
taxable distribution is imposed on the
sponsoring organization.
Tax on fund manager. If a tax is
imposed on a taxable distribution of the
sponsoring organization, a tax of 5% of
the distribution will be imposed on any
fund manager who agreed to the
distribution knowing that it was a
taxable distribution. Any fund manager
who took part in the distribution and is
liable for the tax must pay the tax. The
maximum amount of tax on all fund
managers for any one taxable
distribution is $10,000. If more than one
fund manager is liable for tax on a
taxable distribution, all such managers
are jointly and severally liable for the
tax.

Specific Instructions
Part I. Complete this part for all taxable
distributions.
Part II. Enter in column (a) the names
of all fund managers who agreed to
make the taxable distribution. If more
than one fund manager is listed in
column (a) for one distribution, each is
individually liable for the entire tax in
connection with that distribution.
However, the fund managers who are
liable for the tax may prorate the
payment among themselves. Enter in
column (c) the tax each manager will

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pay for each distribution for which such
manager owes a tax.
Carry the total amount in column (d)
for each fund manager to page 1, Part
II-A, column (j).

Schedule L—Taxes on
Prohibited Benefits
Distributed From Donor
Advised Funds (Section
4967)
General Instructions
Requirement. All organizations that
answered “Yes” in Part III of Schedule
A (Form 990 or 990-EZ), questions 4c,
must complete Schedule L. Report
each taxable distribution separately.
Complete Parts I, II, and III of Schedule
L only in connection with distributions
made by a sponsoring organization
from a donor advised fund which results
in a prohibited benefit. (See instructions
to Schedule K for definitions of the
terms sponsoring organization and
donor advised fund).
Prohibited benefit. If any donor, donor
advisor, or related party advises the
sponsoring organization about making
a distribution which results in a donor,
donor advisor, or related party receiving
(either directly or indirectly) a more than
incidental benefit, then such benefit is a
prohibited transaction. The tax on
prohibited benefits applies to
distributions occurring in tax years
beginning after August 17, 2006.
Donor advisor. A donor advisor is any
person appointed or designated by a
donor to advise a sponsoring
organization on the distribution or
investment of amounts held in the
donor’s fund or account.
Related party. A related party includes
any family member or 35% controlled
entity. See the General Instructions for
Schedule I for a definition of those
terms.
Tax on donor, donor advisor, or
related person. A tax of 125% of the
benefit resulting from the distribution is
charged for each prohibited benefit
received by a donor, donor advisor, or
related person.
Tax on fund managers. If a tax is
imposed on a prohibited benefit
received by a donor, donor advisor, or
related person, a tax of 10% of the
amount of the prohibited benefit is
imposed on any fund manager who
agreed to the distribution knowing that
it would confer a prohibited benefit. Any
fund manager who took part in the
distribution and is liable for the tax must
pay the tax. The maximum amount of
Form 4720 Instructions

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Instructions for Form 4720

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tax on all fund managers for any one
taxable distribution is $10,000. If more
than one fund manager is liable for tax
on a taxable distribution, all such
managers are jointly and severally
liable for the tax.
Exception. If a person engaged in an
excess benefit transaction and received
a prohibited benefit for the same
transaction, the person is taxed under
section 4958, and no tax is imposed
under section 4967 for a prohibited
benefit.

Specific Instructions
Part I. Complete this part for all
prohibited benefits.
Part II. Enter in column (a) the names
of all donors, donor advisors, and
related persons who received a
prohibited benefit. If more than one
donor, donor advisor, or related person
is listed in column (a) for one
distribution, each is individually liable
for the entire tax for that distribution.
However, the donors, donor advisors,
or related persons who are liable for the
tax may prorate the payment among
themselves. Enter in column (c) the tax
each manager will pay for each
distribution for which such manager
owes a tax.
Carry the total amount in column (d)
for each donor, donor advisor, or
related person to page 1, Part II-A,
column (k).
Part III. Enter in column (a) the names
of all fund managers who agreed to
make the distribution conferring the
prohibited benefit. If more than one
fund manager is listed in column (a) for
one distribution, each is individually
liable for the entire tax for that
distribution. However, the fund
managers who are liable for the tax

Form 4720 Instructions

may prorate the payment among
themselves. Enter in column (c) the tax
each manager will pay for each
distribution for which such manager
owes a tax.
Carry the total amount in column (d)
for each fund manager to page 1, Part
II-A, column (k).
Privacy Act and Paperwork
Reduction Act Notice.
We ask for the information on this form
to carry out the Internal Revenue laws
of the United States. We need it to
ensure that you are complying with
these laws and to allow us to figure and
collect the right amount of tax. Certain
individuals who owe tax under Chapter
41 or 42 of the Internal Revenue Code,
and who do not sign the Form 4720 of
the foundation or organization, must file
a separate Form 4720 showing the tax
owed and the name of the foundation
or organization for which they owe tax.
Sections 6001 and 6011 of the Internal
Revenue Code require you to provide
the requested information if the tax
applies to you. Section 6109 requires
you to provide your social security
number or other identifying number.
Routine uses of this information include
disclosing it to the Department of
Justice for civil and criminal litigation
and to other federal agencies, as
provided by law. We may disclose the
information to cities, states, the District
of Columbia, and U.S. Commonwealths
or possessions to administer their laws.
If you do not file this information, you
may be subject to interest, penalties,
and/or criminal prosecution.
We may also disclose this
information to other countries under a
tax treaty, to federal and state agencies
to enforce federal nontax criminal laws,

-15-

or to federal law enforcement and
intelligence agencies to combat
terrorism.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions
must be retained as long as their
contents may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
estimated average time is:
Recordkeeping . . . . . . . . .
Learning about the law or
the form . . . . . . . . . . . . . .
Preparing the form . . . . . .

39 hr., 55
min.
16 hr., 30
min.
23 hr., 22
min.

Copying, assembling, and
sending the form to the IRS 1 hr., 36 min.

If you have comments concerning
the accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the Internal
Revenue Service, Tax Products
Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave. NW, IR-6406,
Washington, DC 20224. Do not send
the tax form to this address. Instead,
see Where To File on page 2.