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Title 26 — Internal Revenue CodeRelease 119-73

§4963 Definitions

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 › § 4963

Last updated Apr 6, 2026|Official source

Summary

When a private foundation, charity, or retirement plan breaks certain tax rules, the IRS charges penalty taxes in two rounds. The "first tier tax" is the initial penalty for the violation, and the "second tier tax" is a much bigger penalty that kicks in if the problem isn't fixed. A "taxable event" is the act, or failure to act, that triggers these penalties. To "correct" the problem generally means undoing it: for example, distributing all the income a foundation failed to pay out, selling off excess business holdings, or pulling an investment out of jeopardy. The "correction period" is the window for fixing things. It starts when the violation happens and runs until 90 days after the IRS mails a notice of the second-tier penalty, with extra time added while the IRS is barred from assessing the tax or when it agrees more time is needed.

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