If a private foundation makes any taxable expenditures, it is liable for taxes on these expenditures under section 4945 of the Internal Revenue Code. The taxes are imposed on both the foundation and on any foundation manager who knowingly and willfully agrees to the expenditures.

Initial tax.  The initial tax on the foundation is 20 percent of the amount expended.  The foundation manager is not liable for the tax if it can show the expenditure was due to reasonable cause and not to willful neglect, and the expenditure was corrected within the correction period.  If a foundation manager knowingly, willfully, and without reasonable cause agrees to the taxable expenditure, the initial tax on the management is five percent of the amount expended, up to a maximum tax of $10,000 for any expenditure.  A foundation manager who acts on advice of counsel, given in a reasoned legal opinion in writing, is not liable for the tax.

Additional tax.  If the expenditure is not corrected within the taxable period, an additional tax of 100 percent of the amount expended is imposed on the foundation. The tax will not be assessed, or if assessed will be abated, if the expenditure is corrected within the correction period. Any foundation manager who refuses to agree to any part of the correction must pay an additional tax of 50 percent of the expenditure, up to a maximum tax of $20,000.

Reasonable Cause. A foundation manager's actions are due to reasonable cause if he has exercised his responsibility on behalf of the foundation with ordinary business care and prudence.

Willful agreement to taxable expenditure. A foundation manager's agreement to a taxable expenditure is willful if it is voluntary, conscious, and intentional. No motive to avoid the restrictions of the law or to incur any tax is necessary to make an agreement willful. However, a foundation manager's agreement to a taxable expenditure is not willful if he or she does not know that it is a taxable expenditure.

If more than one foundation manager is liable for either the initial or additional tax, all are jointly and severally liable.

Additional information

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