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U.S. Code as of:
01/19/04
Section 4958. Taxes on excess benefit transactions
(a) Initial taxes
(1) On the disqualified person
There is hereby imposed on each excess benefit transaction a
tax equal to 25 percent of the excess benefit. The tax imposed by
this paragraph shall be paid by any disqualified person referred
to in subsection (f)(1) with respect to such transaction.
(2) On the management
In any case in which a tax is imposed by paragraph (1), there
is hereby imposed on the participation of any organization
manager in the excess benefit transaction, knowing that it is
such a transaction, a tax equal to 10 percent of the excess
benefit, unless such participation is not willful and is due to
reasonable cause. The tax imposed by this paragraph shall be paid
by any organization manager who participated in the excess
benefit transaction.
(b) Additional tax on the disqualified person
In any case in which an initial tax is imposed by subsection
(a)(1) on an excess benefit transaction and the excess benefit
involved in such transaction is not corrected within the taxable
period, there is hereby imposed a tax equal to 200 percent of the
excess benefit involved. The tax imposed by this subsection shall
be paid by any disqualified person referred to in subsection (f)(1)
with respect to such transaction.
(c) Excess benefit transaction; excess benefit
For purposes of this section -
(1) Excess benefit transaction
(A) In general
The term "excess benefit transaction" means any transaction
in which an economic benefit is provided by an applicable
tax-exempt organization directly or indirectly to or for the
use of any disqualified person if the value of the economic
benefit provided exceeds the value of the consideration
(including the performance of services) received for providing
such benefit. For purposes of the preceding sentence, an
economic benefit shall not be treated as consideration for the
performance of services unless such organization clearly
indicated its intent to so treat such benefit.
(B) Excess benefit
The term "excess benefit" means the excess referred to in
subparagraph (A).
(2) Authority to include certain other private inurement
To the extent provided in regulations prescribed by the
Secretary, the term "excess benefit transaction" includes any
transaction in which the amount of any economic benefit provided
to or for the use of a disqualified person is determined in whole
or in part by the revenues of 1 or more activities of the
organization but only if such transaction results in inurement
not permitted under paragraph (3) or (4) of section 501(c), as
the case may be. In the case of any such transaction, the excess
benefit shall be the amount of the inurement not so permitted.
(d) Special rules
For purposes of this section -
(1) Joint and several liability
If more than 1 person is liable for any tax imposed by
subsection (a) or subsection (b), all such persons shall be
jointly and severally liable for such tax.
(2) Limit for management
With respect to any 1 excess benefit transaction, the maximum
amount of the tax imposed by subsection (a)(2) shall not exceed
$10,000.
(e) Applicable tax-exempt organization
For purposes of this subchapter, the term "applicable tax-exempt
organization" means -
(1) any organization which (without regard to any excess
benefit) would be described in paragraph (3) or (4) of section
501(c) and exempt from tax under section 501(a), and
(2) any organization which was described in paragraph (1) at
any time during the 5-year period ending on the date of the
transaction.
Such term shall not include a private foundation (as defined in
section 509(a)).
(f) Other definitions
For purposes of this section -
(1) Disqualified person
The term "disqualified person" means, with respect to any
transaction -
(A) any person who was, at any time during the 5-year period
ending on the date of such transaction, in a position to
exercise substantial influence over the affairs of the
organization,
(B) a member of the family of an individual described in
subparagraph (A), and
(C) a 35-percent controlled entity.
(2) Organization manager
The term "organization manager" means, with respect to any
applicable tax-exempt organization, any officer, director, or
trustee of such organization (or any individual having powers or
responsibilities similar to those of officers, directors, or
trustees of the organization).
(3) 35-percent controlled entity
(A) In general
The term "35-percent controlled entity" means -
(i) a corporation in which persons described in
subparagraph (A) or (B) of paragraph (1) own more than 35
percent of the total combined voting power,
(ii) a partnership in which such persons own more than 35
percent of the profits interest, and
(iii) a trust or estate in which such persons own more than
35 percent of the beneficial interest.
(B) Constructive ownership rules
Rules similar to the rules of paragraphs (3) and (4) of
section 4946(a) shall apply for purposes of this paragraph.
(4) Family members
The members of an individual's family shall be determined under
section 4946(d); except that such members also shall include the
brothers and sisters (whether by the whole or half blood) of the
individual and their spouses.
(5) Taxable period
The term "taxable period" means, with respect to any excess
benefit transaction, the period beginning with the date on which
the transaction occurs and ending on the earliest of -
(A) the date of mailing a notice of deficiency under section
6212 with respect to the tax imposed by subsection (a)(1), or
(B) the date on which the tax imposed by subsection (a)(1) is
assessed.
(6) Correction
The terms "correction" and "correct" mean, with respect to any
excess benefit transaction, undoing the excess benefit to the
extent possible, and taking any additional measures necessary to
place the organization in a financial position not worse than
that in which it would be if the disqualified person were dealing
under the highest fiduciary standards.
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