
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC4945]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                 Subtitle D--Miscellaneous Excise Taxes
 
     CHAPTER 42--PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT 
                              ORGANIZATIONS
 
                    Subchapter A--Private Foundations
 
Sec. 4945. Taxes on taxable expenditures


(a) Initial taxes

                        (1) On the foundation

        There is hereby imposed on each taxable expenditure (as defined 
    in subsection (d)) a tax equal to 10 percent of the amount thereof. 
    The tax imposed by this paragraph shall be paid by the private 
    foundation.

                        (2) On the management

        There is hereby imposed on the agreement of any foundation 
    manager to the making of an expenditure, knowing that it is a 
    taxable expenditure, a tax equal to 2\1/2\ percent of the amount 
    thereof, unless such agreement is not willful and is due to 
    reasonable cause. The tax imposed by this paragraph shall be paid by 
    any foundation manager who agreed to the making of the expenditure.

(b) Additional taxes

                        (1) On the foundation

        In any case in which an initial tax is imposed by subsection 
    (a)(1) on a taxable expenditure and such expenditure is not 
    corrected within the taxable period, there is hereby imposed a tax 
    equal to 100 percent of the amount of the expenditure. The tax 
    imposed by this paragraph shall be paid by the private foundation.

                        (2) On the management

        In any case in which an additional tax is imposed by paragraph 
    (1), if a foundation manager refused to agree to part or all of the 
    correction, there is hereby imposed a tax equal to 50 percent of the 
    amount of the taxable expenditure. The tax imposed by this paragraph 
    shall be paid by any foundation manager who refused to agree to part 
    or all of the correction.

(c) Special rules

    For purposes of subsections (a) and (b)--

                   (1) Joint and several liability

        If more than one person is liable under subsection (a)(2) or 
    (b)(2) with respect to the making of a taxable expenditure, all such 
    persons shall be jointly and severally liable under such paragraph 
    with respect to such expenditure.

                      (2) Limit for management

        With respect to any one taxable expenditure, the maximum amount 
    of the tax imposed by subsection (a)(2) shall not exceed $5,000, and 
    the maximum amount of the tax imposed by subsection (b)(2) shall not 
    exceed $10,000.

(d) Taxable expenditure

    For purposes of this section, the term ``taxable expenditure'' means 
any amount paid or incurred by a private foundation--
        (1) to carry on propaganda, or otherwise to attempt, to 
    influence legislation, within the meaning of subsection (e),
        (2) except as provided in subsection (f), to influence the 
    outcome of any specific public election, or to carry on, directly or 
    indirectly, any voter registration drive,
        (3) as a grant to an individual for travel, study, or other 
    similar purposes by such individual, unless such grant satisfies the 
    requirements of subsection (g),
        (4) as a grant to an organization unless--
            (A) such organization is described in paragraph (1), (2), or 
        (3) of section 509(a) or is an exempt operating foundation (as 
        defined in section 4940(d)(2)), or
            (B) the private foundation exercises expenditure 
        responsibility with respect to such grant in accordance with 
        subsection (h), or

        (5) for any purpose other than one specified in section 
    170(c)(2)(B).

(e) Activities within subsection (d)(1)

    For purposes of subsection (d)(1), the term ``taxable expenditure'' 
means any amount paid or incurred by a private foundation for--
        (1) any attempt to influence any legislation through an attempt 
    to affect the opinion of the general public or any segment thereof, 
    and
        (2) any attempt to influence legislation through communication 
    with any member or employee of a legislative body, or with any other 
    government official or employee who may participate in the 
    formulation of the legislation (except technical advice or 
    assistance provided to a governmental body or to a committee or 
    other subdivision thereof in response to a written request by such 
    body or subdivision, as the case may be),

other than through making available the results of nonpartisan analysis, 
study, or research. Paragraph (2) of this subsection shall not apply to 
any amount paid or incurred in connection with an appearance before, or 
communication to, any legislative body with respect to a possible 
decision of such body which might affect the existence of the private 
foundation, its powers and duties, its tax-exempt status, or the 
deduction of contributions to such foundation.

(f) Nonpartisan activities carried on by certain organizations

    Subsection (d)(2) shall not apply to any amount paid or incurred by 
any organization--
        (1) which is described in section 501(c)(3) and exempt from 
    taxation under section 501(a),
        (2) the activities of which are nonpartisan, are not confined to 
    one specific election period, and are carried on in 5 or more 
    States,
        (3) substantially all of the income of which is expended 
    directly for the active conduct of the activities constituting the 
    purpose or function for which it is organized and operated,
        (4) substantially all of the support (other than gross 
    investment income as defined in section 509(e)) of which is received 
    from exempt organizations, the general public, governmental units 
    described in section 170(c)(1), or any combination of the foregoing; 
    not more than 25 percent of such support is received from any one 
    exempt organization (for this purpose treating private foundations 
    which are described in section 4946(a)(1)(H) with respect to each 
    other as one exempt organization); and not more than half of the 
    support of which is received from gross investment income, and
        (5) contributions to which for voter registration drives are not 
    subject to conditions that they may be used only in specified 
    States, possessions of the United States, or political subdivisions 
    or other areas of any of the foregoing, or the District of Columbia, 
    or that they may be used in only one specific election period.

In determining whether the organization meets the requirements of 
paragraph (4) for any taxable year of such organization, there shall be 
taken into account the support received by such organization during such 
taxable year and during the immediately preceding 4 taxable years of 
such organization (excluding therefrom any preceding taxable year which 
begins before January 1, 1970). Subsection (d)(4) shall not apply to any 
grant to an organization which meets the requirements of this 
subsection.

(g) Individual grants

    Subsection (d)(3) shall not apply to an individual grant awarded on 
an objective and nondiscriminatory basis pursuant to a procedure 
approved in advance by the Secretary, if it is demonstrated to the 
satisfaction of the Secretary that--
        (1) the grant constitutes a scholarship or fellowship grant 
    which would be subject to the provisions of section 117(a) (as in 
    effect on the day before the date of the enactment of the Tax Reform 
    Act of 1986) and is to be used for study at an educational 
    organization described in section 170(b)(1)(A)(ii),
        (2) the grant constitutes a prize or award which is subject to 
    the provisions of section 74(b) (without regard to paragraph (3) 
    thereof), if the recipient of such prize or award is selected from 
    the general public, or
        (3) the purpose of the grant is to achieve a specific objective, 
    produce a report or other similar product, or improve or enhance a 
    literary, artistic, musical, scientific, teaching, or other similar 
    capacity, skill, or talent of the grantee.

(h) Expenditure responsibility

    The expenditure responsibility referred to in subsection (d)(4) 
means that the private foundation is responsible to exert all reasonable 
efforts and to establish adequate procedures--
        (1) to see that the grant is spent solely for the purpose for 
    which made,
        (2) to obtain full and complete reports from the grantee on how 
    the funds are spent, and
        (3) to make full and detailed reports with respect to such 
    expenditures to the Secretary.

(i) Other definitions

    For purposes of this section--

                           (1) Correction

        The terms ``correction'' and ``correct'' means, with respect to 
    any taxable expenditure, (A) recovering part or all of the 
    expenditure to the extent recovery is possible, and where full 
    recovery is not possible such additional corrective action as is 
    prescribed by the Secretary by regulations, or (B) in the case of a 
    failure to comply with subsection (h)(2) or (h)(3), obtaining or 
    making the report in question.

                         (2) Taxable period

        The term ``taxable period'' means, with respect to any taxable 
    expenditure, the period beginning with the date on which the taxable 
    expenditure occurs and ending on the earlier of--
            (A) the date of mailing a notice of deficiency with respect 
        to the tax imposed by subsection (a)(1) under section 6212, or
            (B) the date on which the tax imposed by subsection (a)(1) 
        is assessed.

(Added Pub. L. 91-172, title I, Sec. 101(b), Dec. 30, 1969, 83 Stat. 
512; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(8)(H), 
1906(b)(13(A), Oct. 4, 1976, 90 Stat. 1795, 1834; Pub. L. 96-596, 
Sec. 2(a)(1)(F), (2)(E), Dec. 24, 1980, 94 Stat. 3469, 3470; Pub. L. 98-
369, div. A, title III, Sec. 302(b), July 18, 1984, 98 Stat. 780; Pub. 
L. 99-514, title I, Sec. 122(a)(2)(B), Oct. 22, 1986, 100 Stat. 2110; 
Pub. L. 100-647, title I, Sec. 1001(d)(1)(B), Nov. 10, 1988, 102 Stat. 
3350.)

                       References in Text

    The date of the enactment of the Tax Reform Act of 1986, referred to 
in subsec. (g)(1), is the date of enactment of Pub. L. 99-514, which was 
approved Oct. 22, 1986.


                               Amendments

    1988--Subsec. (g)(1). Pub. L. 100-647 amended par. (1) generally. 
Prior to amendment, par. (1) read as follows: ``the grant constitutes a 
scholarship or fellowship grant which is subject to the provisions of 
section 117(a) and is to be used for study at an educational 
organization described in section 170(b)(1)(A)(ii),''.
    1986--Subsec. (g)(2). Pub. L. 99-514 inserted ``(without regard to 
paragraph (3) thereof)'' after ``section 74(b)''.
    1984--Subsec. (d)(4). Pub. L. 98-369, in amending par. (4) 
generally, divided existing provisions into subpars. (A) and (B) and 
inserted reference in subpar. (A) to exempt foundations (as defined in 
section 4940(d)(2)).
    1980--Subsec. (b)(1). Pub. L. 96-596, Sec. 2(a)(1)(F), substituted 
``taxable period'' for ``correction period''.
    Subsec. (i)(2). Pub. L. 96-596, Sec. 2(a)(2)(E), substituted 
provision defining taxable period as the period beginning with the date 
on which the taxable expenditure occurs and ending on the earlier of the 
date of mailing a notice of deficiency with respect to the tax imposed 
by subsec. (a)(1) of this section under section 6212 of this title or 
the date on which the tax imposed by subsec. (a)(1) of this section is 
assessed for provision defining correction period as the period 
beginning with the date on which the taxable expenditure occurs and 
ending 90 days after the date of mailing of a notice of deficiency with 
respect to the tax imposed by subsec. (b)(1) of this section under 
section 6212 of this title, extended by any period in which the 
deficiency cannot be assessed under section 6213(a) of this title and 
any other period which the Secretary determines to be reasonable and 
necessary, except that such determination not be made with respect to 
any taxable expenditure within the meaning of pars. (1), (2), (3), or 
(4) of subsec. (d) of this section because of any action by an 
appropriate State officer.
    1976--Subsec. (g). Pub. L. 94-455, Secs. 1901(b)(8)(H), 
1906(b)(13)(A), struck out in provisions preceding par. (1) ``or his 
delegate'' after ``Secretary'' and substituted in par. (1) ``educational 
organization described in section 170(b)(1)(A)(ii)'' for ``educational 
institution described in section 151(e)(4)''.
    Subsecs. (h), (i). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out 
``or his delegate'' after ``Secretary'' wherever appearing.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to prizes and awards granted 
after Dec. 31, 1986, see section 151(c) of Pub. L. 99-514, set out as a 
note under section 1 of this title.


                    Effective Date of 1984 Amendment

    Section 302(c)(2) of Pub. L. 98-369 provided that: ``The amendment 
made by subsection (b) [amending this section] shall apply to grants 
made after December 31, 1984, in taxable years ending after such date.''


                    Effective Date of 1980 Amendment

    For effective date of amendment by Pub. L. 96-596 with respect to 
any first tier tax and to any second tier tax, see section 2(d) of Pub. 
L. 96-596, set out as an Effective Date note under section 4961 of this 
title.


                            Savings Provision

    Applicability of subsecs. (d)(4) and (h) of this section to grants 
to private foundations described in section 101(l)(C)(3) of Pub. L. 91-
172, see section 101(l)(5) of Pub. L. 91-172, set out as a note under 
section 4940 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 508, 4947, 4955, 4963, 6213, 
7422, 7454 of this title.
