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Taxable Period: Private Foundation Self-Dealing

The tax on self-dealing is imposed for each year or part of a year within the taxable period. The taxable period begins on the date the act of self-dealing occurs and ends on the earliest of:

  1. The date a notice of deficiency for the initial tax is mailed,
  2. The date the initial tax is assessed, or
  3. The date correction of the act of self-dealing is completed.

Example 1.  On July 2,1986, Joe Jones, a manager of private foundation X, acting on behalf of the foundation, knowing the act to be one of self-dealing, willfully and without reasonable cause sold certain real estate to Paul Smith, a disqualified person.  On March 1, 1988, the IRS mailed a notice of deficiency to Smith for the initial and additional tax imposed by section 4941 on the sale.  The taxable period for both Jones and Smith is July 2, 1986, through March 1, 1988.

Example 2.  The facts are the same as in Example 1 except that on July 2, 1987, correction of the act of self-dealing is completed.  The taxable period for both Jones and Smith is July 2, 1986, through July 2, 1987.

The initial tax is figured based on the tax year of the disqualified person liable for the tax, rather than the tax year of the private foundation.

An act of self-dealing occurs on the date all the terms and conditions of the transaction and the liabilities of the parties are fixed.  For example, if a private foundation gives a disqualified person a binding option on June 17, 1985, to buy property owned by the foundation at any time before June 16, 1986, the act of self-dealing has occurred on June 17, 1985.


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Page Last Reviewed or Updated: 05-Sep-2013