Title 26 — Internal Revenue CodeRelease 119-73
§4945 Taxes on taxable expenditures
Title 26 › Subtitle Subtitle D— - Miscellaneous Excise Taxes › Chapter CHAPTER 42— - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS › Subchapter Subchapter A— - Private Foundations › § 4945
Summary
Private foundations must pay a tax equal to 20% of any "taxable expenditure." If a foundation manager agreed to such spending knowing it was a taxable expenditure, that manager must pay 5% of the amount unless the agreement was not intentional and there was a good reason. If the foundation does not fix the problem during the "taxable period," the foundation must pay an additional tax equal to 100% of the expenditure. If a manager refused to agree to the fix, that manager must pay an additional 50%. More than one manager can be held together for these manager taxes. The 5% manager tax for any one expenditure can never be more than $10,000, and the 50% manager tax can never be more than $20,000. "Taxable expenditure" covers these things in simple terms: attempts to influence laws or public opinion about laws; efforts to influence an election or to run voter-registration drives (with a narrow exception for large, nonpartisan groups active in 5 or more States); grants to individuals for travel or study unless they meet approved scholarship/prize/project rules; grants to organizations unless the group is a public charity or the foundation uses special oversight procedures; and payments for purposes other than the listed charitable purposes. "Expenditure responsibility" means the foundation must try to make sure the money is used for its purpose, get full reports from the grantee, and report to the tax agency. "Correction" means recovering the money when possible or supplying required reports. The "taxable period" runs from the date of the expenditure until the tax agency mails a notice of deficiency or the tax is assessed.
Full Legal Text
Title 26, §4945
Internal Revenue Code — Source: USLM XML via OLRC
(a)(1)There is hereby imposed on each taxable expenditure (as defined in subsection (d)) a tax equal to 20 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the private foundation.
(2)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 5 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)(1)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)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)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 the making of a taxable expenditure, all such persons shall be jointly and severally liable under such paragraph with respect to such expenditure.
(2)With respect to any one taxable expenditure, 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.
(d)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—
(i)is described in paragraph (1) or (2) of section 509(a),
(ii)is an organization described in section 509(a)(3) (other than an organization described in clause (i) or (ii) of section 4942(g)(4)(A)), or
(iii)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)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),
(f)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.
(g)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)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)For purposes of this section—
(1)The terms “correction” and “correct” mean, 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)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.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
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. Codification section 1212(e) and 1244(b) of Pub. L. 109–280, which directed the amendment of section 4945 without specifying the act to be amended, were executed to this section, which is section 4945 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below.
Amendments
2014—Subsec. (f). Pub. L. 113–295 struck out “(excluding therefrom any preceding taxable year which begins before January 1, 1970)” after “taxable years of such organization” in concluding provisions. 2006—Subsec. (a)(1). Pub. L. 109–280, § 1212(e)(1)(A), substituted “20 percent” for “10 percent”. See Codification note above. Subsec. (a)(2). Pub. L. 109–280, § 1212(e)(1)(B), substituted “5 percent” for “2½ percent”. See Codification note above. Subsec. (c)(2). Pub. L. 109–280, § 1212(e)(2), substituted “$10,000,” for “$5,000,” and “$20,000.” for “$10,000.” See Codification note above. Subsec. (d)(4)(A). Pub. L. 109–280, § 1244(b), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “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”. See Codification note above. 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, § 2(a)(1)(F), substituted “taxable period” for “correction period”. Subsec. (i)(2). Pub. L. 96–596, § 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, §§ 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, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” wherever appearing.
Statutory Notes and Related Subsidiaries
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 2006 AmendmentAmendment by section 1212(e) of 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. Amendment by section 1244(b) of Pub. L. 109–280 applicable to distributions and expenditures after Aug. 17, 2006, see section 1244(c) of Pub. L. 109–280, set out as a note under section 4942 of this title.
Effective Date
of 1988 AmendmentAmendment 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 AmendmentAmendment 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 Pub. L. 98–369, div. A, title III, § 302(c)(2),
July 18, 1984, 98 Stat. 781, 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 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.
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.
Reference
Citations & Metadata
Citation
26 U.S.C. § 4945
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73