Private Foundations — Excess Business Holdings (Portfolio 473)

Description

The Bloomberg Tax Portfolio, Private Foundations — Excess Business Holdings, No. 473, explains the application and operation of §4943 of the Internal Revenue Code, which imposes an excise tax on the excess business holdings of private foundations and certain supporting organizations. The Portfolio discusses the special rules for the required divestiture of a private foundation’s excess business holdings held on May 26, 1969, the effective date of §4943. These rules permit a private foundation a phased divestiture period of up to 20 years to dispose of its pre-May 27, 1969, excess business holdings until they have been reduced to the permitted level.

The Portfolio also explains the exception to the excess business holdings rules for functionally related businesses, as well as the complex rules governing the acquisition of excess business holdings after May 26, 1969. There is a discussion of how the holdings of disqualified persons with respect to the private foundation can have an effect on the calculation of the private foundation’s own holdings. Finally, there is a discussion of how the 10% initial tax (as increased from 5% by the Pension Protection Act of 2006) and 200% additional tax are calculated and imposed and the administrative and judicial remedies available to the foundation. The discussions are illustrated by comprehensive examples throughout the Portfolio. It is important to note that the Pension Protection Act of 2006, P.L. 109-280, made substantive changes to §4943. In addition, certain provisions of the Tax Relief and Health Care Act of 2006, P.L. 109-432, indirectly affect some of the regulations associated with §4943. This Portfolio reflects changes to §4943 and its accompanying regulations made by the Pension Protection Act of 2006 and the Tax Relief and Health Care Act of 2006. To date, in most instances new regulations to §4943 have not yet been promulgated to reflect the provisions of this legislation.
The Worksheets contain, inter alia, the legislative history of §4943, which was added to the Code by §101(b) of the Tax Reform Act of 1969.

This Portfolio may be cited as Horwood and Wiktor, 473 T.M., Private Foundations — Excess Business Holdings.

Table of Contents

I. Introduction
II. Threshold Requirements
III. Special Rules for May 26, 1969 Holdings and Certain Later Acquisitions
IV. Computation of Initial Tax and Additional Tax
V. Accumulated Earnings Tax and Stock Redemptions