The correction period begins with the first day of the tax year in which there was a failure to distribute income and ends 90 days after a notice of deficiency for the additional tax is mailed.

The correction period is extended by any period during which a deficiency cannot be assessed. In addition, this period may be extended by any period that the IRS determines is reasonable and necessary to make distributions of undistributed income as required to comply with section 4942.

Example 1.  In 2000 the Jones Foundation, a private foundation that uses the calendar year as its tax year, made an error in asset valuation that was not willful and was due to reasonable cause. The error caused the Jones Foundation not to distribute $25,000 that should have been distributed for 2000. On March 2, 2003, a notice of deficiency for the initial and additional tax was mailed to the Jones Foundation. For the undistributed 2000 income, the taxable period runs from January 1, 2000, through March 2, 2003, and the allowable distribution period runs from January 1, 2001, through May 31, 2003 (90 days after the notice of deficiency was mailed). If the Service determines that it is reasonable and necessary to extend the distribution period through June 15, 2003, the allowable distribution period runs from January 1, 2001, through June 15, 2003.

Example 2.  Assume the facts given in Example 1 except that the failure to distribute was not due to an incorrect valuation of assets. On April 1, 2003, a notice of deficiency for the initial and additional tax was mailed to the foundation. If the Jones Foundation has not filed a petition with the Tax Court for a redetermination of the deficiency, the correction period runs from January 1, 2000, through June 30, 2003, unless the Service determines it is reasonable and necessary to extend the correction period to permit the Jones Foundation to distribute the 2000 undistributed income.

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