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Title 26 — Internal Revenue CodeRelease 119-73

§4944 Taxes on investments which jeopardize charitable purpose

Title 26 › Subtitle Subtitle D— - Miscellaneous Excise Taxes › Chapter CHAPTER 42— - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS › Subchapter Subchapter A— - Private Foundations › § 4944

Last updated Apr 6, 2026|Official source

Summary

Private foundations must pay a tax if they put money into an investment that risks their charitable goals. The tax is 10% of the amount invested for each year (or part of a year) while the investment is risky. Any foundation manager who helped make that risky investment, and knew it was risky, must also pay 10% of the amount each year unless their involvement was not willful and was for a reasonable cause. If the foundation is taxed and the risky investment is not fixed during the taxable period, the foundation pays an extra tax of 25% of the amount. If a manager refused to agree to fixing the problem, that manager pays an extra 5%. Multiple managers can be held responsible together. The manager tax for the first rule is capped at $10,000 per investment and the manager tax for the refusal rule is capped at $20,000 per investment. The “taxable period” runs from the date of the investment until the earliest of a mailed notice of deficiency under section 6212, the tax being assessed, or the time the investment is sold or changed so its proceeds are no longer risky. Investments made mainly to carry out charitable purposes and not to earn income or grow in value are not treated as risky.

Full Legal Text

Title 26, §4944

Internal Revenue Code — Source: USLM XML via OLRC

(a)(1)If a private foundation invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes, there is hereby imposed on the making of such investment a tax equal to 10 percent of the amount so invested for each year (or part thereof) in the taxable period. The tax imposed by this paragraph shall be paid by the private foundation.
(2)In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the participation of any foundation manager in the making of the investment, knowing that it is jeopardizing the carrying out of any of the foundation’s exempt purposes, a tax equal to 10 percent of the amount so invested for each year (or part thereof) in the taxable period, unless such participation is not willful and is due to reasonable cause. The tax imposed by this paragraph shall be paid by any foundation manager who participated in the making of the investment.
(b)(1)In any case in which an initial tax is imposed by subsection (a)(1) on the making of an investment and such investment is not removed from jeopardy within the taxable period, there is hereby imposed a tax equal to 25 percent of the amount of the investment. The tax imposed by this paragraph shall be paid by the private foundation.
(2)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 removal from jeopardy, there is hereby imposed a tax equal to 5 percent of the amount of the investment. The tax imposed by this paragraph shall be paid by any foundation manager who refused to agree to part or all of the removal from jeopardy.
(c)For purposes of this section, investments, the primary purpose of which is to accomplish one or more of the purposes described in section 170(c)(2)(B), and no significant purpose of which is the production of income or the appreciation of property, shall not be considered as investments which jeopardize the carrying out of exempt purposes.
(d)For purposes of subsections (a) and (b)—
(1)If more than one person is liable under subsection (a)(2) or (b)(2) with respect to any one investment, all such persons shall be jointly and severally liable under such paragraph with respect to such investment.
(2)With respect to any one investment, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $10,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $20,000.
(e)For purposes of this section—
(1)The term “taxable period” means, with respect to any investment which jeopardizes the carrying out of exempt purposes, the period beginning with the date on which the amount is so invested and ending on the earliest of—
(A)the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (a)(1) under section 6212,
(B)the date on which the tax imposed by subsection (a)(1) is assessed, or
(C)the date on which the amount so invested is removed from jeopardy.
(2)An investment which jeopardizes the carrying out of exempt purposes shall be considered to be removed from jeopardy when such investment is sold or otherwise disposed of, and the proceeds of such sale or other disposition are not investments which jeopardize the carrying out of exempt purposes.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Codification section 1212(d) of Pub. L. 109–280, which directed the amendment of section 4944 without specifying the act to be amended, was executed to this section, which is section 4944 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below.

Amendments

2006—Subsec. (a). Pub. L. 109–280, § 1212(d)(1), substituted “10 percent” for “5 percent” in pars. (1) and (2). See Codification note above. Subsec. (d)(2). Pub. L. 109–280, § 1212(d)(2), substituted “$10,000,” for “$5,000,” and “$20,000.” for “$10,000.” See Codification note above. 1980—Subsec. (b)(1). Pub. L. 96–596, § 2(a)(1)(E), substituted “taxable period” for “correction period”. Subsec. (e)(1)(B), (C). Pub. L. 96–596, § 2(a)(2)(D), added subpar. (B) and redesignated former subpar. (B) as (C). Subsec. (e)(3). Pub. L. 96–596, § 2(a)(3)(D), struck out par. (3), which defined correction period, with respect to any investment which jeopardizes the carrying out of exempt purposes, as the period beginning with the date on which such investment is entered into 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 a deficiency cannot be assessed under section 6213(a) of this title and any other period which the Secretary determines is reasonable and necessary to bring about removal from jeopardy. 1976—Subsec. (e)(3)(B). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2006 AmendmentAmendment by Pub. L. 109–280 applicable to taxable years beginning after Aug. 17, 2006, see section 1212(f) of Pub. L. 109–280, set out as a note under section 4941 of this title.

Effective Date

of 1980 AmendmentFor

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.

Reference

Citations & Metadata

Citation

26 U.S.C. § 4944

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73