§4948 — Title 26 Internal Revenue Code | U.S. Code

Summary

A foreign private foundation pays a tax of 4 percent on its gross investment income from U.S. sources, instead of the excise tax that applies to U.S. foundations. If a foreign foundation gets substantially all of its support (other than investment income) from outside the United States, most of the other private foundation rules do not apply to it. But such a foreign organization loses its tax exemption if it engages in a prohibited transaction after December 31, 1969 — an act that would trigger penalty taxes if it were a U.S. organization. The loss starts in the year the IRS notifies the organization, with notice published in the Federal Register. Starting with the second tax year after that notice, the organization can ask for its exemption back if it convinces the IRS it will not knowingly do it again. While it is not exempt, gifts and bequests made to it after the notice cannot be deducted.

Title 26, §4948

Internal Revenue Code — Source: USLM XML via OLRC

(a)In lieu of the tax imposed by section 4940, there is hereby imposed for each taxable year on the gross investment income (within the meaning of section 4940(c)(2)) derived from sources within the United States (within the meaning of section 861) by every foreign organization which is a private foundation for the taxable year a tax equal to 4 percent of such income.

(b)section 507 (relating to termination of private foundation status), section 508 (relating to special rules with respect to section 501(c)(3) organizations), and this chapter (other than this section) shall not apply to any foreign organization which has received substantially all of its support (other than gross investment income) from sources outside the United States.

(c)(1)A foreign organization described in subsection (b) shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction after December 31, 1969.

(2)For purposes of this subsection, the term “prohibited transaction” means any act or failure to act (other than with respect to section 4942(e)) which would subject a foreign organization described in subsection (b), or a disqualified person (as defined in section 4946) with respect thereto, to liability for a penalty under section 6684 or a tax under section 507 if such foreign organization were a domestic organization.

(3)(A)Except as provided in subparagraph (B), a foreign organization described in subsection (b) shall be denied exemption from taxation under section 501(a) by reason of paragraph (1) for all taxable years beginning with the taxable year during which it is notified by the Secretary that it has engaged in a prohibited transaction. The Secretary shall publish such notice in the Federal Register on the day on which he so notifies such foreign organization.

(B)Under regulations prescribed by the Secretary, any foreign organization described in subsection (b) which is denied exemption from taxation under section 501(a) by reason of paragraph (1) may, with respect to the second taxable year following the taxable year in which notice is given under subparagraph (A) (or any taxable year thereafter), file claim for exemption from taxation under section 501(a). If the Secretary is satisfied that such organization will not knowingly again engage in a prohibited transaction, such organization shall not, with respect to taxable years beginning with the taxable year with respect to which such claim is filed, be denied exemption from taxation under section 501(a) by reason of any prohibited transaction which was engaged in before the date on which such notice was given under subparagraph (A).

(4)No gift or bequest shall be allowed as a deduction under section 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, if made—

(A)to a foreign organization described in subsection (b) after the date on which the Secretary publishes notice under paragraph (3)(A) that he has notified such organization that it has engaged in a prohibited transaction, and

(B)in a taxable year of such organization for which it is not exempt from taxation under section 501(a) by reason of paragraph (1).

Notes & Related Subsidiaries

Editorial Notes

Amendments

2004—Subsec. (c)(4). Pub. L. 108–357 struck out “556(b)(2),” after “545(b)(2),” in introductory provisions. 1976—Subsec. (c). Pub. L. 94–455 struck out “or his delegate” after “Secretary” wherever appearing.

Statutory Notes and Related Subsidiaries

Effective Date

of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004

Amendments

note under section 1 of this title.

§4948 Application of Taxes and Denial of Exemption with Respect to Certain Foreign Organizations

Summary

Title 26, §4948

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Citations & Metadata