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Title 26 — Internal Revenue CodeRelease 119-73

§4961 Abatement of Second Tier Taxes Where There Is Correction

Title 26 › Subtitle Subtitle D— Miscellaneous Excise Taxes › Chapter 42— PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS › Subchapter E— Abatement of First and Second Tier Taxes in Certain Cases › § 4961

Last updated Apr 6, 2026|Official source

Summary

Certain tax penalties on foundations, charities, and similar organizations come in two tiers, and the harsher second-tier tax goes away if the problem is fixed in time. If the taxable event is corrected during the correction period, the second-tier tax is not assessed, and if it was already assessed or collected, it is canceled or refunded. After a court finally rules that the tax is owed, the court can hold a follow-up proceeding, started within 90 days after the correction period ends, to decide whether the fix was made in time. You can also pause collection: pay the first-tier tax in full within 90 days of the second-tier assessment and file a refund claim, and the IRS cannot collect the second-tier tax until the court case is resolved, unless collection is in jeopardy.

Full Legal Text

Title 26, §4961

Internal Revenue Code — Source: USLM XML via OLRC

(a)If any taxable event is corrected during the correction period for such event, then any second tier tax imposed with respect to such event (including interest, additions to the tax, and additional amounts) shall not be assessed, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment.
(b)If the determination by a court that the taxpayer is liable for a second tier tax has become final, such court shall have jurisdiction to conduct any necessary supplemental proceeding to determine whether the taxable event was corrected during the correction period. Such a supplemental proceeding may be begun only during the period which ends on the 90th day after the last day of the correction period. Where such a supplemental proceeding has begun, the reference in the second sentence of section 6213(a) to a final decision of the Tax Court shall be treated as including a final decision in such supplemental proceeding.
(c)(1)If, not later than 90 days after the day on which the second tier tax is assessed, the first tier tax is paid in full and a claim for refund of the amount so paid is filed, no levy or proceeding in court for the collection of the second tier tax shall be made, begun, or prosecuted until a final resolution of a proceeding begun as provided in paragraph (2) (and of any supplemental proceeding with respect thereto under subsection (b)). Notwithstanding section 7421(a), the collection by levy or proceeding may be enjoined during the time such prohibition is in force by a proceeding in the proper court.
(2)If, within 90 days after the day on which his claim for refund is denied, the person against whom the second tier tax was assessed fails to begin a proceeding described in section 7422 for the determination of his liability for such tax, paragraph (1) shall cease to apply with respect to such tax, effective on the day following the close of the 90-day period referred to in this paragraph.
(3)The running of the period of limitations provided in section 6502 on the collection by levy or by a proceeding in court with respect to any second tier tax described in paragraph (1) shall be suspended for the period during which the Secretary is prohibited from collecting by levy or a proceeding in court.
(4)If the Secretary makes a finding that the collection of the second tier tax is in jeopardy, nothing in this subsection shall prevent the immediate collection of such tax.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2018—Subsec. (c)(1). Pub. L. 115–141 substituted “United States Court of Federal Claims” for “United States Claims Court” in heading. 1986—Subsec. (c)(1). Pub. L. 99–514 substituted “United States Claims Court” for “Court of Claims” in heading.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 96–596, § 2(d), Dec. 24, 1980, 94 Stat. 3474, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “(1) First tier taxes.—The

Amendments

made by this section [enacting this section and section 4962 of this title and amending sections 4941 to 4945, 4951, 4952, 4971, 4975, 6213, 6214, 6503, and 7422 of this title] with respect to any first tier tax shall take effect as if included in the Internal Revenue Code of 1986 [formerly I.R.C. 1954] when such tax was first imposed. “(2) Second tier taxes.—The

Amendments

made by this section with respect to any second tier tax shall apply only with respect to taxes assessed after the date of the enactment of this Act [Dec. 24, 1980]. Nothing in the preceding sentence shall be construed to permit the assessment of a tax in a case to which, on the date of the enactment of this Act, the doctrine of res judicata applies. “(3) First and second tier tax.—For purposes of this subsection, the terms ‘first tier tax’ and ‘second tier tax’ have the respective meanings given to such terms by section 4962 of the Internal Revenue Code of 1986.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 4961

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73