
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC4958]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                 Subtitle D--Miscellaneous Excise Taxes
 
     CHAPTER 42--PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT 
                              ORGANIZATIONS
 
   Subchapter D--Failure by Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements
 
Sec. 4958. Taxes on excess benefit transactions


(a) Initial taxes

                   (1) On the disqualified person

        There is hereby imposed on each excess benefit transaction a tax 
    equal to 25 percent of the excess benefit. The tax imposed by this 
    paragraph shall be paid by any disqualified person referred to in 
    subsection (f)(1) with respect to such transaction.

                        (2) On the management

        In any case in which a tax is imposed by paragraph (1), there is 
    hereby imposed on the participation of any organization manager in 
    the excess benefit transaction, knowing that it is such a 
    transaction, a tax equal to 10 percent of the excess benefit, unless 
    such participation is not willful and is due to reasonable cause. 
    The tax imposed by this paragraph shall be paid by any organization 
    manager who participated in the excess benefit transaction.

(b) Additional tax on the disqualified person

    In any case in which an initial tax is imposed by subsection (a)(1) 
on an excess benefit transaction and the excess benefit involved in such 
transaction is not corrected within the taxable period, there is hereby 
imposed a tax equal to 200 percent of the excess benefit involved. The 
tax imposed by this subsection shall be paid by any disqualified person 
referred to in subsection (f)(1) with respect to such transaction.

(c) Excess benefit transaction; excess benefit

    For purposes of this section--

                   (1) Excess benefit transaction

        (A) In general

            The term ``excess benefit transaction'' means any 
        transaction in which an economic benefit is provided by an 
        applicable tax-exempt organization directly or indirectly to or 
        for the use of any disqualified person if the value of the 
        economic benefit provided exceeds the value of the consideration 
        (including the performance of services) received for providing 
        such benefit. For purposes of the preceding sentence, an 
        economic benefit shall not be treated as consideration for the 
        performance of services unless such organization clearly 
        indicated its intent to so treat such benefit.

        (B) Excess benefit

            The term ``excess benefit'' means the excess referred to in 
        subparagraph (A).

      (2) Authority to include certain other private inurement

        To the extent provided in regulations prescribed by the 
    Secretary, the term ``excess benefit transaction'' includes any 
    transaction in which the amount of any economic benefit provided to 
    or for the use of a disqualified person is determined in whole or in 
    part by the revenues of 1 or more activities of the organization but 
    only if such transaction results in inurement not permitted under 
    paragraph (3) or (4) of section 501(c), as the case may be. In the 
    case of any such transaction, the excess benefit shall be the amount 
    of the inurement not so permitted.

(d) Special rules

    For purposes of this section--

                   (1) Joint and several liability

        If more than 1 person is liable for any tax imposed by 
    subsection (a) or subsection (b), all such persons shall be jointly 
    and severally liable for such tax.

                      (2) Limit for management

        With respect to any 1 excess benefit transaction, the maximum 
    amount of the tax imposed by subsection (a)(2) shall not exceed 
    $10,000.

(e) Applicable tax-exempt organization

    For purposes of this subchapter, the term ``applicable tax-exempt 
organization'' means--
        (1) any organization which (without regard to any excess 
    benefit) would be described in paragraph (3) or (4) of section 
    501(c) and exempt from tax under section 501(a), and
        (2) any organization which was described in paragraph (1) at any 
    time during the 5-year period ending on the date of the transaction.

Such term shall not include a private foundation (as defined in section 
509(a)).

(f) Other definitions

    For purposes of this section--

                       (1) Disqualified person

        The term ``disqualified person'' means, with respect to any 
    transaction--
            (A) any person who was, at any time during the 5-year period 
        ending on the date of such transaction, in a position to 
        exercise substantial influence over the affairs of the 
        organization,
            (B) a member of the family of an individual described in 
        subparagraph (A), and
            (C) a 35-percent controlled entity.

                      (2) Organization manager

        The term ``organization manager'' means, with respect to any 
    applicable tax-exempt organization, any officer, director, or 
    trustee of such organization (or any individual having powers or 
    responsibilities similar to those of officers, directors, or 
    trustees of the organization).

                  (3) 35-percent controlled entity

        (A) In general

            The term ``35-percent controlled entity'' means--
                (i) a corporation in which persons described in 
            subparagraph (A) or (B) of paragraph (1) own more than 35 
            percent of the total combined voting power,
                (ii) a partnership in which such persons own more than 
            35 percent of the profits interest, and
                (iii) a trust or estate in which such persons own more 
            than 35 percent of the beneficial interest.

        (B) Constructive ownership rules

            Rules similar to the rules of paragraphs (3) and (4) of 
        section 4946(a) shall apply for purposes of this paragraph.

                         (4) Family members

        The members of an individual's family shall be determined under 
    section 4946(d); except that such members also shall include the 
    brothers and sisters (whether by the whole or half blood) of the 
    individual and their spouses.

                         (5) Taxable period

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

                           (6) Correction

        The terms ``correction'' and ``correct'' mean, with respect to 
    any excess benefit transaction, undoing the excess benefit to the 
    extent possible, and taking any additional measures necessary to 
    place the organization in a financial position not worse than that 
    in which it would be if the disqualified person were dealing under 
    the highest fiduciary standards.

(Added Pub. L. 104-168, title XIII, Sec. 1311(a), July 30, 1996, 110 
Stat. 1475.)


                             Effective Date

    Section applicable to excess benefit transactions occurring on or 
after Sept. 14, 1995, and not applicable to any benefit arising from a 
transaction pursuant to any written contract which was binding on Sept. 
13, 1995, and at all times thereafter before such transaction occurred, 
see section 1311(d)(1), (2) of Pub. L. 104-168, set out as an Effective 
Date of 1996 Amendment note under section 4955 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 4955, 4963, 6033, 6213, 
7422, 7454 of this title; title 47 section 396.
