[Federal Register Volume 62, Number 1 (Thursday, January 2, 1997)]
[Rules and Regulations]
[Pages 25-26]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32376]


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DEPARTMENT OF THE TREASURY
26 CFR Part 53

[TD 8705]
RIN 1545-AU65


Requirement of Return and Time for Filing

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations 
providing that disqualified persons and organization managers liable 
for Internal Revenue Code section 4958 excise taxes are required to 
file Form 4720. The regulations also specify the filing date for 
returns for the period to which the new excise taxes applied 
retroactively. These excise taxes are imposed on excess benefit 
transactions between disqualified persons, as statutorily defined, and 
sections 501(c)(3) and (4) organizations, except for private 
foundations.

DATES: These regulations are effective January 2, 1997.
    For dates of applicability, see Sec. 53.6071-1T(f) of these 
regulations.

FOR FURTHER INFORMATION CONTACT: Phyllis Haney, (202) 622-4290 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Foundation and Similar 
Excise Taxes regulations (26 CFR part 53) under sections 6011 and 6071. 
These regulations provide guidance relating to the requirement of a 
return to accompany payment of section 4958 excise taxes and the time 
for filing that return. These rules were first published in Notice 96-
46 (1996-39 I.R.B. 7) (September 23, 1996).
    Taxpayer Bill of Rights 2, Public Law 104-168, 110 Stat. 1452 
(TBOR2), enacted July 30, 1996, added section 4958 to the Code. As 
described more fully below, section 4958 imposes excise taxes on excess 
benefit transactions. Section 4958 taxes apply retroactively to excess 
benefit transactions occurring on or after September 14, 1995. The 
taxes do not, however, apply to any benefit arising from a transaction 
pursuant to any written contract which was binding on September 13, 
1995, and at all times thereafter before such transaction occurred.
    An ``excess benefit transaction'' subject to tax under section 4958 
is any transaction in which an economic benefit is provided by an 
organization described in section 501(c)(3) (except for a private 
foundation) or 501(c)(4) 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 the benefit. A ``disqualified person'' 
is any person who was, at any time during the 5-year period ending on 
the date of the excess benefit transaction, in a position to exercise 
substantial influence over the affairs of the organization. 
Disqualified persons also include family members and certain entities 
in which at least 35 percent of the control or beneficial interest are 
held by persons described in the preceding sentence. An ``organization 
manager'' is any officer, director, trustee, or any individual having 
powers or responsibilities similar to those of any officer, director, 
or trustee.
    Section 4958 imposes three taxes. The first tax is equal to 25 
percent of the excess benefit amount, and is to be paid by any 
disqualified person who engages in an excess benefit transaction. The 
second tax is equal to 200 percent of the excess benefit amount, and is 
to be paid by any disqualified person if the excess benefit transaction 
is not corrected within the taxable period. The third tax is equal to 
10 percent of the excess benefit amount, and is to be paid by any 
organization manager who knowingly participates in an excess benefit 
transaction. The maximum amount of this third tax with respect to any 
one excess benefit transaction may not exceed $10,000. These 
regulations prescribe Form 4720 for calculating and paying the first 
and third taxes described above.
    TBOR2 also amended section 6033(b) to require section 501(c)(3) 
organizations to report the amounts of the taxes paid under section 
4958 with respect to excess benefit transactions involving the 
organization, as well as any other information the Secretary may 
require concerning those transactions. Section 6033(f) also was amended 
to impose the same reporting requirements on section 501(c)(4) 
organizations. Those amendments to section 6033 only apply to 
organizations' returns for taxable years beginning after July 30, 1996. 
These and other TBOR2 amendments to the reporting requirements for 
section 501(c)(3) and (4) organizations are reflected on IRS Forms 990 
and 990-EZ beginning with the 1996 versions.

Explanation of Provisions

    The regulations provide that disqualified persons and organization 
managers, as defined in sections 4958(f)(1) and (2), who are liable for 
section 4958 excise taxes on excess benefit transactions, as defined in 
section 4958(c)(1), are required to file a return on Form 4720. The 
general rule is that returns will be due on or before the 15th day of 
the fifth month following the close of the disqualified person's or 
organization manager's taxable year. The regulations also provide that 
returns on Form 4720 for taxable years ending after September 13, 1995, 
and on or before July 30, 1996, will be due on or before December 15, 
1996. See Notice 96-46 (1996-39 I.R.B. 7) (September 23, 1996).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations, and because the regulation does 
not impose a collection of information on small entities, the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Pursuant to section 7805(f) of the Internal Revenue Code, these 
temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business.

Drafting Information

    The principal author of these regulations is Phyllis Haney, Office 
of Associate Chief Counsel (Employee Benefits and Exempt 
Organizations). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 53

    Excise taxes, Foundations, Investments, Lobbying, Reporting and 
recordkeeping requirements.

[[Page 26]]

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 53 is amended as follows:

PART 53--FOUNDATION AND SIMILAR EXCISE TAXES

    Paragraph 1. The authority citation for part 53 continues to read 
as follows:

    Authority: 26 U.S.C. 7805.

Sec. 53.6011-1  [Amended]

    Par. 2. In Sec. 53.6011-1, paragraph (b) is amended by:
    1. Removing from the first sentence, the language ``or 4955(a),'' 
and adding ``, 4955(a), or 4958(a),'' in its place.
    2. Removing from the last sentence, the language ``or 4955(a),'' 
and adding ``, 4955(a), or 4958(a),'' in its place.
    Par. 3. Section 53.6071-1T is added to read as follows:


Sec. 53.6071-1T  Time for filing returns (temporary).

    (a) through (e) [Reserved]. For further guidance see Sec. 53.6071-
1(a) through (e).
    (f) Taxes imposed on excess benefit transactions engaged in by 
organizations described in sections 501(c)(3) (except private 
foundations) and 501(c)(4)--(1) General rule. A Form 4720 required by 
Sec. 53.6011-1(b) for a disqualified person or organization manager 
liable for tax imposed by section 4958(a) shall be filed by that person 
on or before the 15th day of the fifth month following the close of 
such person's taxable year.
    (2) Special rule for taxable years ending after September 13, 1995, 
and on or before July 30, 1996. A Form 4720 required by Sec. 53.6011-
1(b) for a disqualified person or organization manager liable for tax 
imposed by section 4958(a) on an excess benefit transaction occurring 
in such person's taxable year ending after September 13, 1995, and on 
or before July 30, 1996, is due on or before December 15, 1996.

    Dated: December 10, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-32376 Filed 12-31-96; 8:45 am]
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