§4951 Taxes on self-dealing

Summary

Imposes a tax when a disqualified person does self-dealing with a trust that is tax-exempt under section 501(c)(21). The person who did the self-dealing must pay 10 percent of the amount involved for each year (or part of a year) in the taxable period. A trustee who knowingly joins the self-dealing pays 2½ percent per year unless the trustee’s participation was not willful and was for a good reason. If the problem is not fixed in the taxable period, the disqualified person owes an additional tax equal to 100 percent of the amount involved. If a trustee refused to agree to the correction, that trustee owes 50 percent. When more than one person is responsible, they can be held together for the whole amount. “Self-dealing” covers five kinds of transactions: sales, exchanges, or leases of property; loans or credit; providing goods, services, or facilities; payments of compensation or reimbursements; and transfers or use of the trust’s income or assets. Short exceptions: a transfer subject to a lien can count as a sale; free goods or services used only for the trust’s exempt purpose are not self-dealing; and reasonable, necessary, non‑excessive pay for personal services is not self-dealing. The taxable period runs from the date of the act until the earliest of a mailed notice of deficiency under section 6212, the tax being assessed, or the correction being completed. “Amount involved” is the greater of money or fair market value given or received (for services, only the excess pay). “Correction” means undoing the deal as much as possible and leaving the trust no worse off than if the person had followed strict fiduciary rules. “Disqualified person” includes contributors, trustees, anyone with more than 10 percent ownership, officers/directors/employees of a contributor, close family, and entities more than 35 percent owned or controlled by those people. Payments for the specific purposes listed in 501(c)(21)(A)(i)(I) or (IV) are not treated as self-dealing.