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Taxes on Self-Dealing: Private Foundations

Section 4941 of the Internal Revenue Code imposes an excise tax on certain transactions (acts of self-dealing) between a private foundation and disqualified persons.

Initial tax. An excise tax of 10 percent of the amount involved in the act of self-dealing is imposed on the disqualified person, other than a foundation manager acting only as a manager, for each year or part of a year in the taxable period.

An excise tax of 5 percent of the amount involved is imposed on a foundation manager who knowingly participates in an act of self-dealing, unless participation is not willful and is due to reasonable cause, for each year or part of a year in the taxable period.

Additional tax. An excise tax of 200 percent of the amount involved is imposed on the disqualified person, other than a foundation manager acting only as a manager, who participated in the act of self-dealing, if the act of self-dealing is not corrected within the taxable period. The additional tax will not be assessed, or if assessed will be abated, if the act of self-dealing is corrected during the correction period .

If the additional tax described above is imposed on the disqualified person, an excise tax of 50 percent of the amount involved is imposed on any foundation manager who refuses to agree to part or all of the correction of the self-dealing act.

Limits on liability for management. The maximum initial tax imposed on the foundation manager is $20,000 and the maximum additional tax is $20,000 for any one act.

There is no maximum on the liability of the self-dealer, including one who is a foundation manager.

If more than one person is liable for the initial and additional taxes imposed for any act of self-dealing, all parties will be jointly and severally liable for those taxes.

 



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