PRIA Logo™
Take the PRIA Score
Title 26 — Internal Revenue CodeRelease 119-73

§4963 Definitions

Title 26 › Subtitle Subtitle D— - Miscellaneous Excise Taxes › Chapter CHAPTER 42— - PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS › Subchapter Subchapter E— - Abatement of First and Second Tier Taxes in Certain Cases › § 4963

Last updated Apr 6, 2026|Official source

Summary

Defines key words for certain penalty taxes and sets the time allowed to fix the problem. It names two kinds of taxes, what counts as a taxable event, what “correct” means in specific cases, and how to measure the correction period. “First tier tax” means the tax in subsection (a) of sections 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4966, 4967, 4971, and 4975. “Second tier tax” means the tax in subsection (b) of sections 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4971, and 4975. “Taxable event” is any act or failure to act that creates tax liability under those same sections (including 4966 and 4967 where listed). “Correct” normally means what the second tier tax rule says, but for 4942(b) it means reducing undistributed income to zero, for 4943(b) it means reducing excess business holdings to zero, and for 4944 it means removing the investment from jeopardy. The “correction period” runs from when the event happens until 90 days after a notice of deficiency is mailed under section 6212, plus any time assessment is barred under section 6213(a) and any extra reasonable time the IRS allows; for timing, an event under 4942 is treated as occurring on the first day of the taxable year with the failure, under 4943 on the first day excess holdings exist, under 4971 on the last day of the plan year with a funding shortfall, and otherwise on the actual date it happened.

Full Legal Text

Title 26, §4963

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this subchapter, the term “first tier tax” means any tax imposed by subsection (a) of section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4966, 4967, 4971, or 4975.
(b)For purposes of this subchapter, the term “second tier tax” means any tax imposed by subsection (b) of section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975.
(c)For purposes of this subchapter, the term “taxable event” means any act (or failure to act) giving rise to liability for tax under section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 4958, 4966, 4967, 4971, or 4975.
(d)For purposes of this subchapter—
(1)Except as provided in paragraph (2), the term “correct” has the same meaning as when used in the section which imposes the second tier tax.
(2)The term “correct” means—
(A)in the case of the second tier tax imposed by section 4942(b), reducing the amount of the undistributed income to zero,
(B)in the case of the second tier tax imposed by section 4943(b), reducing the amount of the excess business holdings to zero, and
(C)in the case of the second tier tax imposed by section 4944, removing the investment from jeopardy.
(e)For purposes of this subchapter—
(1)The term “correction period” means, with respect to any taxable event, the period beginning on the date on which such event occurs and ending 90 days after the date of mailing under section 6212 of a notice of deficiency with respect to the second tier tax imposed on such taxable event, extended by—
(A)any period in which a deficiency cannot be assessed under section 6213(a) (determined without regard to the last sentence of section 4961(b)), and
(B)any other period which the Secretary determines is reasonable and necessary to bring about correction of the taxable event.
(2)For purposes of paragraph (1), the taxable event shall be treated as occurring—
(A)in the case of section 4942, on the first day of the taxable year for which there was a failure to distribute income,
(B)in the case of section 4943, on the first day on which there are excess business holdings,
(C)in the case of section 4971, on the last day of the plan year in which there is an accumulated funding deficiency, and
(D)in any other case, the date on which such event occurred.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2006—Subsecs. (a), (c). Pub. L. 109–280, which directed the insertion of “4966, 4967,” after “4958,” in subsecs. (a) and (c) of section 4963, without specifying the act to be amended, was executed by making the insertion in subsecs. (a) and (c) of this section, which is section 4963 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. 1996—Subsecs. (a) to (c). Pub. L. 104–168 inserted “4958,” after “4955,”. 1987—Subsecs. (a) to (c). Pub. L. 100–203 inserted reference to section 4955 of this title.

Statutory Notes and Related Subsidiaries

Effective Date

of 2006 Amendment Pub. L. 109–280, title XII, § 1231(c), Aug. 17, 2006, 120 Stat. 1098, provided that: “The

Amendments

made by this section [enacting subchapter G of this chapter and amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 17, 2006].”

Effective Date

of 1996 AmendmentAmendment by Pub. L. 104–168 applicable to excess benefit transactions occurring on or after Sept. 14, 1995, and not applicable to any benefit arising from a transaction pursuant to any written contract which was binding on Sept. 13, 1995, and at all times thereafter before such transaction occurred, see section 1311(d)(1), (2) of Pub. L. 104–168, set out as a note under section 4955 of this title.

Effective Date

of 1987 AmendmentAmendment by Pub. L. 100–203 applicable to taxable years beginning after Dec. 22, 1987, see section 10712(d) of Pub. L. 100–203, set out as an

Effective Date

note under section 4955 of this title.

Effective Date

For

Effective Date

of section 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 a note under section 4961 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 4963

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73