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Taxes on Jeopardizing Investments

If a private foundation makes any investments that would financially jeopardize the carrying out of its exempt purposes, both the foundation and the individual foundation managers may become liable for taxes on these jeopardizing investments under section 4944.

Initial tax. An excise tax of ten percent of the amount involved (the jeopardizing investment) is imposed on the foundation for each tax year, or part of a year, in the taxable period. The foundation will not be liable for the tax if it can show that the jeopardizing investment was due to reasonable cause and not willful neglect, and that the jeopardizing investment was corrected within the correction period.

An excise tax of ten percent of the amount involved is also imposed on any foundation manager who knowingly, willfully , and without reasonable cause participated in making the jeopardizing investment.

This tax applies to investments of either income or principal.

Additional tax. If a private foundation is liable for the initial tax and has not removed the investment from jeopardy within the taxable period, an additional excise tax of 25 percent of the amount involved will be imposed on the foundation. The additional tax will not be assessed, or if assessed will be abated, if the investment is removed from jeopardy within the correction period .

In each case where this additional tax is imposed on the foundation, an additional excise tax of ten percent of the amount involved is imposed on any foundation manager who refuses to agree to all or part of the removal from jeopardy within the correction period.

If more than one individual manager is liable for the excise tax on jeopardizing investments, all parties will be jointly and severally liable.

Limits on liability for management.  For any one jeopardizing investment, the maximum initial tax that may be imposed is $10,000, and the maximum additional tax is $20,000.


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Page Last Reviewed or Updated: 30-Apr-2013