Part VII-B - Activities for Which Form 4720 May Be Required

The purpose of these questions is to determine if there is any initial excise tax due under sections 170(f)(10), 4941-4945, and section 4955. If the answer is Yes to question 1b, 1c, 2b, 3b, 4a, 4b, 5b, or 6b, complete and file Form 4720, unless an exception applies.

Line 1 - Self-dealing. The activities listed in 1a(1)-(6) are considered self-dealing under section 4941 unless one of the exceptions applies. See Pub. 578.

The terms disqualified person and foundation manager are defined in General Instruction C.

Line 1b. If you answered Yes to any of the questions in 1a, you should answer Yes to 1b unless all of the acts engaged in were excepted acts. Excepted acts are described in Regulations sections 53.4941(d)-3 and 4 or appear in Notices published in the Internal Revenue Bulletin, relating to disaster assistance.

Line 2 - Taxes on failure to distribute income. If you answer No to question 2b, attach a statement explaining:

1. All the facts regarding the incorrect valuation of assets and
2. The actions taken (or planned) to comply with section 4942(a)(2)(B), (C), and (D) and the related regulations.

Line 3a. A private foundation is not treated as having excess business holdings in any enterprise if, together with related foundations, it owns 2% or less of the voting stock and 2% or less in value of all outstanding shares of all classes of stock. (See disqualified person under General Instruction C.) A similar exception applies to a beneficial or profits interest in any business enterprise that is a trust or partnership.

For more information about excess business holdings, see Pub. 578 and the instructions for Form 4720.

Line 4 - Taxes on investments that jeopardize charitable purposes. In general, an investment that jeopardizes any of the charitable purposes of a private foundation is one for which a foundation manager did not exercise ordinary business care to provide for the long- and short-term financial needs of the foundation in carrying out its charitable purposes. For more details, see Pub. 578 and the regulations under section 4944.

Line 5 - Taxes on taxable expenditures and political expenditures. In general, payments made for the activities described on lines 5a(1)-(5) are taxable expenditures. See Pub. 578 for exceptions.

A grant by a private foundation to a public charity is not a taxable expenditure if the private foundation does not earmark the grant for any of the activities described in lines 5a(1)-(5), and there is no oral or written agreement by which the grantor foundation may cause the grantee to engage in any such prohibited activity or to select the grant recipient.

Grants made to exempt operating foundations (as defined in section 4940(d)(2) and the instructions to Part VI) are not subject to the expenditure responsibility provisions of section 4945.

Under section 4955, a section 501(c)(3) organization must pay an excise tax for any amount paid or incurred on behalf of or opposing any candidate for public office. The organization must pay an additional excise tax if it does not correct the expenditure timely.

A manager of a section 501(c)(3) organization who knowingly agrees to a political expenditure must pay an excise tax unless the agreement is not willful and there is reasonable cause. A manager who does not agree to a correction of the political expenditure may have to pay an additional excise tax.

A section 501(c)(3) organization will lose its exempt status if it engages in political activity.

A political expenditure that is treated as an expenditure under section 4955 is not treated as a taxable expenditure under section 4945.

For purposes of the section 4955 tax, when an organization promotes a candidate for public office (or is used or controlled by a candidate or prospective candidate), amounts paid or incurred for the following purposes are political expenditures:

1. Remuneration to the individual (or candidate or prospective candidate) for speeches or other services.
2. Travel expenses of the individual.
3. Expenses of conducting polls, surveys, or other studies, or preparing papers or other material for use by the individual.
4. Expenses of advertising, publicity, and fundraising for such individual.
5. Any other expense that has the primary effect of promoting public recognition or otherwise primarily accruing to the benefit of the individual.

See the regulations under section 4945 for more information.

Line 5b. If you answered Yes to any of the questions in 5a, you should answer Yes to 5b unless all of the transactions engaged in were excepted transactions. Excepted transactions are described in Regulations section 53.4945 or appear in Notices published in the Internal Revenue Bulletin, relating to disaster assistance.

Line 6b. Check Yes if, in connection with any transfer of funds to a private foundation, the foundation directly or indirectly pays premiums on any personal benefit contract, or there is an understanding or expectation that any person will directly or indirectly pay these premiums.

Report the premiums it paid and the premiums paid by others, but treated as paid by the private foundation, on Form 8870 and pay the excise tax (which is equal to premiums paid) on Form 4720.

For more information, see Form 8870 and Notice 2000-24, 2000-17 I.R.B. 952 (April 24, 2000).

Part VIII - Information About Officers, Directors, Trustees, Foundation Managers, Highly Paid Employees, and Contractors

Line 1 - List of officers, directors, trustees, etc. List the names, addresses, and other information requested for those who were officers, directors, and trustees (or any person who had responsibilities or powers similar to those of officers, directors, or trustees) of the foundation at any time during the year. Each must be listed whether or not they receive any compensation from the foundation. Give the preferred address at which officers, etc., want the Internal Revenue Service to contact them.

Also include on this list, any officers or directors (or any person who had responsibilities or powers similar to those of officers or directors) of a disregarded entity owned by the foundation who are not officers, directors, etc., of the foundation.

If the foundation (or disregarded entity) pays any other person, such as a management services company, for the services provided by any of the foundation's officers, directors, or trustees (or any person who had responsibilities or powers similar to those of officers, directors, or trustees), report the compensation and other items on Part VIII as if you had paid the officers, etc., directly.

Show all forms of compensation earned by each listed officer, etc. In addition to completing Part VIII, if you want to explain the compensation of one or more officers, directors, and trustees, you may provide an attachment describing the person's entire 2001 compensation package.

Enter zero in columns (c), (d), and (e) if no compensation was paid. Attach a schedule if more space is needed.

Column (b). A numerical estimate of the average hours per week devoted to the position is required for the answer to be considered complete.

Phrases such as as needed or as required are unacceptable entries for column (b).

Column (c). Enter salary, fees, bonuses, and severance payments received by each person listed. Include current year payments of amounts reported or reportable as deferred compensation in any prior year.

Column (d). Include all forms of deferred compensation and future severance payments (whether or not funded or vested, and whether or not the deferred compensation plan is a qualified plan under section 401(a)). Include payments to welfare benefit plans (employee welfare benefit plans covered by Part I of Title 1 of ERISA, providing benefits such as medical, dental, life insurance, apprenticeship and training, scholarship funds, severance pay, disability, etc.) on behalf of the officers, etc. Reasonable estimates may be used if precise cost figures are not readily available.

Unless the amounts are reported in column (c), report, as deferred compensation in column (d), salaries and other compensation earned during the period covered by the return, but not yet paid by the date the foundation files its return.

Column (e). Enter both taxable and nontaxable fringe benefits, expense account and other allowances (other than de minimis fringe benefits described in section 132(e)). See Pub. 525 for more information. Examples of allowances include amounts for which the recipient did not account to the organization or allowances that were more than the payee spent on serving the organization. Include payments made in connection with indemnification arrangements, the value of the personal use of housing, automobiles, or other assets owned or leased by the organization (or provided for the organization's use without charge).

Line 2 - Compensation of five highest-paid employees. Fill in the information requested for the five employees (if any) of the foundation (or disregarded entity that the foundation owns) who received the greatest amount of annual compensation over $50,000. Do not include employees listed on line 1. Also enter the total number of other employees who received more than $50,000 in annual compensation.

Show each listed employee's entire compensation package for the period covered by the return. Include all forms of compensation that each listed employee received in return for his or her services. See the line 1 instructions for more details on includible compensation.

Line 3 - Five highest-paid independent contractors for professional services. Fill in the information requested for the five highest-paid independent contractors (if any), whether individuals or professional service corporations or associations, to whom the organization paid more than $50,000 for the year to perform personal services of a professional nature for the organization (such as attorneys, accountants, and doctors). Also show the total number of all other independent contractors who received more than $50,000 for the year for performing professional services.

Part IX-A - Summary of Direct Charitable Activities

List the foundation's four largest programs as measured by the direct and indirect expenses attributable to each that consist of the direct active conduct of charitable activities. Whether any expenditure is for the direct active conduct of a charitable activity is determined, generally, by the definitions and special rules of section 4942(j)(3) and the related regulations, which define a private operating foundation.

Except for significant involvement grant programs, described below, do not include in Part IX-A any grants or expenses attributable to administering grant programs, such as reviewing grant applications, interviewing or testing applicants, selecting grantees, and reviewing reports relating to the use of the grant funds.

Include scholarships, grants, or other payments to individuals as part of an active program in which the foundation maintains some significant involvement. Related administrative expenses should also be included. Examples of active programs and definitions of the term significant involvement are provided in Regulations sections 53.4942(b)-1(b)(2) and 53.4942(b)-1(d).

Do not include any program-related investments (reportable in Part IX-B) in the description and expense totals, but be sure to include qualified set-asides for direct charitable activities, reported on line 3 of Part XII. Also, include in Part IX-A, amounts paid or set aside to acquire assets used in the direct active conduct of charitable activities.

Expenditures for direct charitable activities include, among others, amounts paid or set aside to:

• Acquire or maintain the operating assets of a museum, library, or historic site or to operate the facility.
• Provide goods, shelter, or clothing to indigents or disaster victims if the foundation maintains some significant involvement in the activity rather than merely making grants to the recipients.
• Conduct educational conferences and seminars.
• Operate a home for the elderly or disabled.
• Conduct scientific, historic, public policy, or other research with significance beyond the foundation's grant program that does not constitute a prohibited attempt to influence legislation.
• Publish and disseminate the results of such research, reports of educational conferences, or similar educational material.
• Support the service of foundation staff on boards or advisory committees of other charitable organizations or on public commissions or task forces.
• Provide technical advice or assistance to a governmental body, a governmental committee, or subdivision of either, in response to a written request by the governmental body, committee, or subdivision.
• Conduct performing arts performances.
• Provide technical assistance to grantees and other charitable organizations. This assistance must have significance beyond the purposes of the grants made to the grantees and must not consist merely of monitoring or advising the grantees in their use of the grant funds. Technical assistance involves the furnishing of expert advice and related assistance regarding, for example:
  1. Compliance with governmental regulations;
  2. Reducing operating costs or increasing program accomplishments;
  3. Fundraising methods; and
  4. Maintaining complete and accurate financial records.

Report both direct and indirect expenses in the expense totals. Direct expenses are those that can be specifically identified as connected with a particular activity. These include, among others, compensation and travel expenses of employees and officers directly engaged in an activity, the cost of materials and supplies utilized in conducting the activity, and fees paid to outside firms and individuals in connection with a specific activity.

Indirect (overhead) expenses are those that are not specifically identified as connected with a particular activity but that relate to the direct costs incurred in conducting the activity. Examples of indirect expenses include: occupancy expenses; supervisory and clerical compensation; repair, rental, and maintenance of equipment; expenses of other departments or cost centers (such as accounting, personnel, and payroll departments or units) that service the department or function that incurs the direct expenses of conducting an activity; and other applicable general and administrative expenses, including the compensation of top management, to the extent reasonably allocable to a particular activity.

No specific method of allocation is required. The method used, however, must be reasonable and must be used consistently.

Examples of acceptable allocation methods include:

• Compensation that is allocated on a time basis.
• Employee benefits that are allocated on the basis of direct salary expenses.
• Travel, conference, and meeting expenses that are charged directly to the activity that incurred the expense.
• Occupancy expenses that are allocated on a space-utilized basis.
• Other indirect expenses that are allocated on the basis of direct salary expenses or total direct expenses.

Part IX-B - Summary of Program-Related Investments

Program-related investment. Section 4944(c) and corresponding regulations define a program-related investment as one that is made primarily to accomplish a charitable purpose of the foundation and no substantial purpose of which is to produce investment income or a capital gain from the sale of the investment. Examples of program-related investments include educational loans to individuals and low-interest loans to other section 501(c)(3) organizations.

General instructions. Include only those investments that were reported in Part XII, line 1b, for the current year. Do not include any investments made in any prior year even if they were still held by the foundation at the end of 2001.

Investments consisting of loans to individuals (such as educational loans) are not required to be listed separately but may be grouped with other program-related investments of the same type. Loans to other section 501(c)(3) organizations and all other types of program-related investments must be listed separately on lines 1 through 3 or on an attachment.

Lines 1 and 2. List the two largest program-related investments made by the foundation in 2001, whether or not the investments were still held by the foundation at the end of the year.

Line 3. Combine all other program-related investments and enter the total on the line 3 Amount column. List the individual investments or groups of investments included (attach a schedule if necessary).

The total of lines 1 through 3 in the Amount column must equal the amount reported on line 1b of Part XII.

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