[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2316 Introduced in House (IH)]

  1st Session
                                H. R. 2316

 To amend the Internal Revenue Code of 1986 to impose an excise tax on 
      amounts of private excess benefits from certain charitable 
                 organizations, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 12, 1995

Mr. Stark (for himself and Mr. Houghton) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to impose an excise tax on 
      amounts of private excess benefits from certain charitable 
                 organizations, and for other purposes.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Exempt 
Organization Reform Act of 1995''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
SEC. 2. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE ORGANIZATIONS TO 
              MEET CERTAIN QUALIFICATION REQUIREMENTS.

    (a) In General.--Chapter 42 (relating to private foundations and 
certain other tax-exempt organizations) is amended by redesignating 
subchapter D as subchapter E and by inserting after subchapter C the 
following new subchapter:

  ``Subchapter D--Failure By Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements
                              ``Sec. 4958. Taxes on excess benefit 
                                        transactions.
``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 any 
        organization manager who participates 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 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.
                    ``(B) Loans and certain private inurement 
                included.--The term `excess benefit transaction' 
                includes--
                            ``(i) any loan of money or other extension 
                        of credit by an applicable tax-exempt 
                        organization to or for the use of a 
                        disqualified person described in subsection 
                        (f)(1)(A)(i), and
                            ``(ii) 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 gross or net 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.
            ``(2) Excess benefit.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `excess benefit' means the 
                excess referred to in paragraph (1)(A).
                    ``(B) Loans and private inurement included.--The 
                term `excess benefit' means--
                            ``(i) in the case of a loan or extension of 
                        credit described in paragraph (1)(B)(i), the 
                        amount of the loan or the credit extended, and
                            ``(ii) in the case of a transaction 
                        described in paragraph (1)(B)(ii), the amount 
                        of the inurement.
    ``(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 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). 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--
                            ``(i) an organization manager, or
                            ``(ii) an individual (other than an 
                        organization manager) 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, establishing 
        safeguards to prevent future such excess benefit, and where 
        fully undoing the excess benefit is not possible, such 
        additional corrective action as is prescribed by the Secretary 
        by regulations.
    ``(g) Treatment of Previously Exempt Organizations.--
            ``(1) In general.--For purposes of this section, the status 
        of any organization as an applicable tax-exempt organization 
        shall be terminated only if--
                    ``(A)(i) such organization notifies the Secretary 
                (at such time and in such manner as the Secretary may 
                by regulations prescribe) of its intent to accomplish 
                such termination, or
                    ``(ii) there is a final determination by the 
                Secretary that such status has terminated, and
                    ``(B)(i) such organization pays the tax imposed by 
                paragraph (2) (or any portion not abated pursuant to 
                paragraph (3)), or
                    ``(ii) the entire amount of such tax is abated 
                pursuant to paragraph (3).
            ``(2) Imposition of tax.--There is hereby imposed on each 
        organization referred to in paragraph (1) a tax equal to the 
        lesser of--
                    ``(A) the amount which the organization 
                substantiates by adequate records or other 
                corroborating evidence as the aggregate tax benefit 
                resulting from its exemption from tax under section 
                501(a), or
                    ``(B) the value of the net assets of such 
                organization.
            ``(3) Abatement of tax.--The Secretary may abate the unpaid 
        portion of the assessment of any tax imposed by paragraph (2), 
        or any liability in respect thereof, if the applicable tax-
        exempt organization distributes all of its net assets to 1 or 
        more organizations each of which has been in existence, and 
        described in section 501(c)(3), for a continuous period of at 
        least 60 calendar months. If the distributing organization is 
        described in section 501(c)(4), the preceding sentence shall be 
        applied by treating the reference to section 501(c)(3) as 
        including a reference to section 501(c)(4).
            ``(4) Certain rules made applicable.--Rules similar to the 
        rules of subsections (d), (e), and (f) of section 507 shall 
        apply for purposes of this subsection.''
    (b) Application of Private Inurement Rule to Tax-Exempt 
Organizations Described in Section 501(c)(4).--Paragraph (4) of section 
501(c) is amended by inserting ``(A)'' after ``(4)'' and by adding at 
the end the following:
            ``(B) Subparagraph (A) shall not apply to an entity unless 
        no part of the net earnings of such entity inures to the 
        benefit of any private shareholder or individual.''
    (c) Technical and Conforming Amendments.--
            (1) Subsection (e) of section 4955 is amended--
                    (A) by striking ``Section 4945'' in the heading and 
                inserting ``Sections 4945 and 4958'', and
                    (B) by inserting before the period ``or an excess 
                benefit for purposes of section 4958''.
            (2) Subsections (a), (b), and (c) of section 4963 are each 
        amended by inserting ``4958,'' after ``4955,''.
            (3) Subsection (e) of section 6213 is amended by inserting 
        ``4958 (relating to private excess benefit),'' before ``4971''.
            (4) Paragraphs (2) and (3) of section 7422(g) are each 
        amended by inserting ``4958,'' after ``4955,''.
            (5) Subsection (b) of section 7454 is amended by inserting 
        ``or whether an organization manager (as defined in section 
        4958(f)(2)) has `knowingly' participated in an excess benefit 
        transaction (as defined in section 4958(c)),'' after ``section 
        4912(b),''.
            (6) The table of subchapters for chapter 42 is amended by 
        striking the last item and inserting the following:

                              ``Subchapter D. Failure by certain 
                                        charitable organizations to 
                                        meet certain qualification 
                                        requirements.
                              ``Subchapter E. Abatement of first and 
                                        second tier taxes in certain 
                                        cases.''
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section (other 
        than subsection (b)) shall apply to excess benefit transactions 
        occurring on or after September 6, 1995.
            (2) Binding contracts for personal services.--The 
        amendments referred to in paragraph (1) shall not apply to any 
        transaction pursuant to any written contract for the 
        performance of personal services which was binding on September 
        6, 1995, and at all times thereafter before such transaction 
        occurred.
            (3) Application of private inurement rule to tax-exempt 
        organizations described in section 501(c)(4).--
                    (A) In general.--The amendment made by subsection 
                (b) shall apply to inurement occurring on or after 
                September 6, 1995.
                    (B) Binding contracts.--The amendment made by 
                subsection (b) shall not apply to any inurement 
                occurring before July 1, 1996, pursuant to a written 
                contract which was binding on September 6, 1995, and at 
                all times thereafter before such inurement occurred.

SEC. 3. REPORTING OF CERTAIN EXCISE TAXES.

    (a) Reporting by Organizations Described in Section 501(c)(3).--
Subsection (b) of section 6033 (relating to certain organizations 
described in section 501(c)(3)) is amended by striking ``and'' at the 
end of paragraph (9), by redesignating paragraph (10) as paragraph 
(12), and by inserting after paragraph (9) the following new 
paragraphs:
            ``(10) the respective amounts (if any) of the taxes paid by 
        the organization during the taxable year under the following 
        provisions:
                    ``(A) section 4911 (relating to tax on excess 
                expenditures to influence legislation),
                    ``(B) section 4912 (relating to tax on 
                disqualifying lobbying expenditures of certain 
                organizations),
                    ``(C) section 4955 (relating to taxes on political 
                expenditures of section 501(c)(3) organizations),
                    ``(D) section 4958 (relating to taxes on private 
                excess benefit from certain charitable organizations),
            ``(11) such information as the Secretary may require with 
        respect to any excess benefit transaction (as defined in 
        section 4958), and''.
    (b) Organizations Described in Section 501(c)(4).--Section 6033 is 
amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Certain Organizations Described in Section 501(c)(4).--Every 
organization described in section
 501(c)(4) which is subject to the requirements of subsection (a) shall 
include on the return required under subsection (a) the information 
referred to in paragraphs (10) and (11) of subsection (b) with respect 
to such organization.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns for taxable years beginning after the date of the 
enactment of this Act.

SEC. 4. EXEMPT ORGANIZATIONS REQUIRED TO PROVIDE COPY OF RETURN.

    (a) General Rule.--
            (1) Subparagraph (A) of section 6104(e)(1) (relating to 
        public inspection of annual returns) is amended to read as 
        follows:
                    ``(A) In general.--During the 3-year period 
                beginning on the filing date--
                            ``(i) a copy of the annual return filed 
                        under section 6033 (relating to returns by 
                        exempt organizations) by any organization to 
                        which this paragraph applies shall be made 
                        available by such organization for inspection 
                        during regular business hours by any individual 
                        at the principal office of such organization 
                        and, if such organization regularly maintains 1 
                        or more regional or district offices having 3 
                        or more employees, at each such regional or 
                        district office, and
                            ``(ii) upon request of an individual made 
                        at such principal office or such a regional or 
                        district office, a copy of such annual return 
                        shall be provided to such individual without 
                        charge other than a reasonable fee for any 
                        reproduction and mailing costs.
                If the request under clause (ii) is made in person, 
                such copy shall be provided immediately and, if made 
                other than in person, shall be provided within 30 days. 
                If the organization determines that a request under 
                clause (ii) is part of a harassment campaign, the 
                requirement of clause (ii) shall be treated as met if 
                the organization places a copy of such return on a 
                publicly available electronic network.''
            (2) Clause (ii) of section 6104(e)(2)(A) is amended by 
        inserting before the period at the end thereof the following: 
        ``(and, upon request of an individual made at such principal 
        office or such a regional or district office, a copy of the 
        material required to be available for inspection under this 
        subparagraph shall be provided (in accordance with the last 
        sentence of paragraph (1)(A)) to such individual without charge 
        other than a reasonable fee for any reproduction and mailing 
        costs)''.
            (3) Subsection (e) of section 6104 is amended by adding at 
        the end the following new paragraph:
            ``(3) Limitation.--Paragraph (1)(A)(ii) (and the 
        corresponding provision of paragraph (2)) shall not apply to 
        any request if the Secretary determines, upon application by an 
        organization, that such request is part of a harassment 
        campaign and that compliance with such request is not in the 
        public interest.''
    (b) Advertisements Etc., Required to Disclose Availability of 
Annual Return.--
            (1) Paragraph (1) of section 6104(e) is amended by adding 
        at the end thereof the following new subparagraph:
                    ``(E) Advertisements etc., required to disclose 
                availability of annual return.--In the case of an 
                organization required by subparagraph (A) to provide a 
                copy of its annual return under section 6033 upon 
                request to individuals, each advertisement or 
                solicitation by (or on behalf of) such organization 
                shall contain an express statement (in a conspicuous 
                and easily recognizable format) that such return shall 
                be provided to individuals upon request.''
            (2) Section 6716, as added by section 5 of this Act, is 
        amended--
                    (A) by striking ``section 6116'' each place it 
                appears and inserting ``section 6116 or section 
                6104(e)(1)(E)'',
                    (B) by striking ``$1,000'' in subsection (a) and 
                inserting ``$1,000 ($100 in the case of a failure to 
                meet the requirements of 6104(e)(1)(E))'', and
                    (C) by inserting before the period at the end of 
                the section heading ``; failure of certain exempt 
                organizations to disclose availability of annual 
                return''.
            (3) Subparagraph (C) of section 6652(c)(1) is amended by 
        striking ``(e)(1)'' and inserting ``(e)(1) (other than 
        subparagraph (E))'', by striking ``$10'' and inserting ``$20'', 
        and by striking ``$5,000'' and inserting ``$10,000''.
            (4) Subparagraph (D) of section 6652(c)(1) is amended by 
        striking ``$10'' and inserting ``$20''.
            (5) The item relating to section 6716 in the table of 
        sections for part I of subchapter B of chapter 68 is amended by 
        inserting before the period ``; failure of certain exempt 
        organizations to disclose availability of annual return''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996 (or, if later, the 90th day after the date of 
the enactment of this Act).

SEC. 5. CERTAIN ORGANIZATIONS REQUIRED TO DISCLOSE NONEXEMPT STATUS.

    (a) General Rule.--Subchapter B of chapter 61 (relating to 
miscellaneous provisions) is amended by redesignating section 6116 as 
section 6117 and by inserting after section 6115 the following new 
section:

``SEC. 6116. CERTAIN ORGANIZATIONS REQUIRED TO DISCLOSE NONEXEMPT 
              STATUS.

    ``(a) In General.--If--
            ``(1) in an advertisement or solicitation by (or on behalf 
        of) an organization, such organization is referred to as being 
        nonprofit, and
            ``(2) such organization is not exempt from tax under 
        subtitle A,
such advertisement or solicitation shall contain an express statement 
(in a conspicuous and easily recognizable format) that such 
organization is not exempt from Federal income taxes.
    ``(b) Cross Reference.--

                                ``For penalties for violation of 
subsection (a), see section 6716.''
    (b) Penalty.--Part I of subchapter B of chapter 68 is amended by 
adding at the end thereof the following new section:

``SEC. 6716. FAILURE TO DISCLOSE NONEXEMPT STATUS.

    ``(a) Imposition of Penalty.--If there is a failure to meet the 
requirements of section 6116 with respect to any advertisement or 
solicitation by (or on behalf of) an organization, such organization 
shall pay a penalty of $1,000 for each day on which such a failure 
occurred. The maximum penalty imposed under this subsection on failures 
by any organization during any calendar year shall not exceed $10,000.
    ``(b) Reasonable Cause Exemption.--No penalty shall be imposed 
under this section with respect to any failure if it is shown that such 
failure is due to reasonable cause.
    ``(c) $10,000 Limitation Not To Apply Where Intentional 
Disregard.--If any failure to which subsection (a) applies is due to 
intentional disregard of the requirements of section 6116--
            ``(1) the penalty under subsection (a) for the day on which 
        failure occurred shall be the greater of--
                    ``(A) $1,000, or
                    ``(B) 50 percent of the aggregate cost of the 
                advertisements and solicitations which occurred on such 
                day and with respect to which there was such failure,
            ``(2) the $10,000 limitation of subsection (a) shall not 
        apply to any penalty under subsection (a) for the day on which 
        such failure occurred, and
            ``(3) such penalty shall not be taken into account in 
        applying such limitation to other penalties under subsection 
        (a).
    ``(d) Day on Which Failure Occurs.--For purposes of this section, 
rules similar to the rules of section 6710(d) shall apply in 
determining the day on which any failure occurs.''
    (c) Clerical Amendments.--
            (1) The table of sections for subchapter B of chapter 61 is 
        amended by striking the item relating to section 6116 and 
        inserting the following:

                                  ``Sec. 6116. Certain organizations 
                                        required to disclose nonexempt 
                                        status.
                                  ``Sec. 6117. Cross reference.''
            (2) The table of sections of part I of subchapter B of 
        chapter 68 is amended by adding at the end thereof the 
        following new item:

                                  ``Sec. 6716. Failure to disclose 
                                        nonexempt status.''
    (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996 (or, if later, the 90th day after the date of 
the enactment of this Act).

SEC. 6. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR FAILURE TO 
              FILE COMPLETE AND TIMELY ANNUAL RETURNS.

    (a) In General.--Subparagraph (A) of section 6652(c)(1) (relating 
to annual returns under section 6033) is amended by striking ``$10'' 
and inserting ``$20'' and by striking ``$5,000'' and inserting 
``$10,000''.
    (b) Larger Penalty on Organizations Having Gross Receipts in Excess 
of $1,000,000.--Subparagraph (A) of section 6652(c)(1) is amended by 
adding at the end the following new sentence: ``In the case of an 
organization having gross receipts exceeding $1,000,000 for any year, 
with respect to the return required under section 6033 for such year, 
the first sentence of this subparagraph shall be applied by 
substituting `$100' for `$20' and, in lieu of applying the second 
sentence of this subparagraph, the maximum penalty under this 
subparagraph shall not exceed $50,000.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns for taxable years ending on or after December 31, 
1995.
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