Specific Instructions

Complete columns (a) and (b) of Schedule C if sections 4943(c)(4), 4943(c)(3) (using the principles of 4943(c)(4)), or 4943(c)(5) apply.

Complete column (a) and column (c) (if applicable) if sections 4943(c)(2) or 4943(c)(3) (using the principles of 4943(c)(2)) apply.

Complete Schedule C for that day during the tax year when the foundation's excess holdings in the enterprise were largest.

Line 1.   Enter in column (a) the percentage of voting stock the foundation holds in the business enterprise.

If the foundation is using the rules or principles for determining present holdings under section 4943(c)(4)(A) or (D), enter in column (b) the percentage of value the foundation holds in all outstanding shares of all classes of stock.

Do not include in either column (a) or (b) stock treated as held by disqualified persons:

1. Under section 4943(c)(6) or Regulations sections 53.4943-6 and 53.4943-10(d) or
2. During the first phase if the first phase is still in effect (see Regulations sections 53.4943-4(a), (b), and (c)).

Line 2.   If the foundation is using the rules or principles for determining present holdings under section 4943(c)(4), refer to that section and Regulations section 53.4943-4(d) to determine which entries to record in columns (a) and (b). Enter in column (a) the excess of the substituted combined voting level over the disqualified person voting level. Enter in column (b) the excess of the substituted combined value level over the disqualified person value level.

If the foundation is using the rules or principles for determining permitted holdings under section 4943(c)(2), refer to that section to determine which entries to record in column (a). Enter in column (a) the percentage, using the general rule (section 4943(c)(2)(A)) or the 35% rule (see section 4943(c)(2)(B)), if applicable, of permitted holdings the foundation may have in the enterprise's voting stock. If the foundation determines the permitted holdings under section 4943(c)(2)(B), attach a statement showing effective control by a third party.

Line 3.   Enter the value of any stock, interest, etc., in the business enterprise that the foundation is required to dispose of so the foundation's holdings in the enterprise are permitted. See section 4943 and related regulations.

A private foundation using the section 4943(c)(4) rules has excess holdings if line 1 is more than line 2 in either column (a) or column (b). Do not include in column (b) the value of any voting stock included in column (a).

A private foundation using the section 4943(c)(2) rules has excess holdings if line 1 is more than line 2 in column (a) or if the private foundation holds nonvoting stock and all disqualified persons together own more than 20% (or 35%, if applicable) of the enterprise's voting stock, interest, etc. In the latter case, enter in column (c) the value of all nonvoting stock the foundation holds.

Line 4.   Enter the value of excess holdings disposed of under the 90-day rule in Regulations section 53.4943-2(a)(1)(ii). If other conditions preclude imposition of tax on excess business holdings, include the value of the nontaxable amount on this line and attach an explanation.

Schedule D - Initial Taxes on Investments That Jeopardize Charitable Purpose

General Instructions

Requirement.   Complete Schedule D if you answered Yes to Form 990-PF, Part VII-B, question 4a or b, or Form 5227, Part VI-B, question 4a or b. Report each investment separately. Paying tax and filing a Form 4720 are required for each year or part of a year in the taxable period that applies to the investments that jeopardize the foundation's charitable purpose. Generally, the taxable period begins with the date of the investment and ends with the date corrective action is completed, a notice of deficiency is mailed, or the initial tax is assessed, whichever comes first. Therefore, in addition to investments made in 2002, include all investments subject to tax that were made before 2002 if those investments were not removed from jeopardy before 2002 and the initial tax was not assessed before 2002.

Taxable Investments.   An investment to be taxed on this schedule is an investment by a private foundation that jeopardizes the carrying out of its exempt purposes (i.e., if it is determined that the foundation managers, in making the investment, did not exercise ordinary business care and prudence, under prevailing facts and circumstances, in providing for the long- and short-term financial needs of the foundation to carry out its exempt purposes). See Regulations section 53.4944-1(a)(2). An investment is not taxed on this schedule if it is a program-related investment; that is, one whose primary purpose is one or more of those described in section 170(c)(2)(B) (religious, charitable, educational, etc.). A significant purpose of such an investment cannot be the production of income or the appreciation of property. See section 4944(c) and Regulations section 53.4944-3.

Initial Taxes on Foundation.   The initial tax is 5% of the amount invested for each year or part of a year in the taxable period.

Initial Taxes on Foundation Managers.   When a tax is imposed on a jeopardy investment of the foundation, the tax will be 5% of the investment for each year or part of a year in the taxable period, up to $5,000 for any one investment. It is imposed on all foundation managers who took part in the act, knowing that it was such an act, except for foundation managers whose participation was not willful and was due to reasonable cause. Any foundation manager who took part in making the investment must pay the tax.

Specific Instructions

Part I.   Complete this part for all taxable investments.

Part II.   Enter in column (a) the names of all foundation managers who took part in making the investments listed in Part I. See Initial Taxes on Foundation Managers above.

If more than one foundation manager is listed in column (a), each is individually liable for the entire amount of tax in connection with the investment. However, the foundation managers who are liable for the tax may prorate payment among themselves. Enter in column (c) the tax each foundation manager will pay.

Carry the total amount in column (d) for each foundation manager to page 1, Part II-A, column (d).

Schedule E - Initial Taxes on Taxable Expenditures

General Instructions

Requirement.   Complete Schedule E if you answered Yes to Form 990-PF, Part VII-B, question 5b, or Form 5227, Part VI-B, question 5b. Complete Parts I and II of Schedule E only for expenditures that are subject to tax.

Note:   Also, see Schedule F, Initial Taxes on Political Expenditures.

Taxable Expenditures.   With certain exceptions, this means any amount a private foundation pays or incurs:

1. To carry on propaganda or otherwise influence any legislation through -
   1. An attempt to influence general public opinion or any segment of it and
   2. Communication with any member or employee of a legislative body, or with any other government official or employee who may take part in formulating legislation;
2. To influence the outcome of any specific public election, or to conduct, directly or indirectly, any voter registration drive;
3. As a grant to an individual for travel, study, or other purposes;
4. As a grant to an organization not described in section 509(a)(1), (2), or (3) or that is not an exempt operating foundation (as defined in section 4940(d)(2)); or
5. For any purpose other than religious, charitable, scientific, literary, educational, or public purposes, or the prevention of cruelty to children or animals.

Exceptions.   Section 4945(d)(4)(B) provides an exception to taxable expenditures that applies to certain grants to organizations when the granting foundation exercises expenditure responsibility described in section 4945(h). Pub. 578 has additional information on special rules and exceptions to the definition of taxable expenditures given above.

Initial Tax on Foundation.   An initial tax of 10% of each taxable expenditure is imposed on the foundation.

Initial Tax on Foundation Managers.   When a tax is imposed on a taxable expenditure of the foundation, a tax of 2½% of the expenditure will be imposed on any foundation manager who agreed to the expenditure and who knew that it was a taxable expenditure. Foundation managers whose participation was not willful and was due to reasonable cause are not liable for the tax. Any foundation manager who took part in the expenditure and is liable for the tax must pay the tax. The maximum total amount of tax on all foundation managers for any one taxable expenditure is $5,000. If more than one foundation manager is liable for tax on a taxable expenditure, all those foundation managers are jointly and severally liable for the tax.

Specific Instructions

Part I.   Complete this part for all taxable expenditures. Enter in column (f) the number designation from Form 990-PF, Part VII-B, question 5a, or Form 5227, Part VI-B, question 5a, that applies to the act; for example, 5a(1).

Part II.   Enter in column (a) the names of all foundation managers who agreed to make the taxable expenditure. See Initial Tax on Foundation Managers on page 6. If more than one foundation manager is listed in column (a), each is individually liable for the entire tax in connection with the expenditure. However, the foundation managers who are liable for the tax may prorate the payment among themselves. Enter in column (c) the tax each foundation manager will pay.

Carry the total amount in column (d) for each foundation manager to page 1, Part II-A, column (e).

Schedule F - Initial Taxes on Political Expenditures

General Instructions

Requirement.   Complete Schedule F if you answered Yes to question 5a(2) and 5b of Form 990-PF, Part VII-B. Complete Schedule F if you entered an amount of political expenditure in question 81a, Part VI of Form 990, or in question 37a, Part V, of Form 990-EZ.

Political Expenditures.   These include any amount paid or incurred by a section 501(c)(3) organization that participates or intervenes in (including the publication or distribution of statements) any political campaign on behalf of, or in opposition to, any candidate for public office. The tax is imposed even if the political expenditure gives rise to a revocation of the organization's section 501(c)(3) status.

These taxes apply in the case of both public charities and private foundations. When tax is imposed under this provision in the case of a private foundation, however, the expenditure in question will not be treated as a taxable expenditure under section 4945.

For an organization formed primarily to promote the candidacy or prospective candidacy of an individual for public office (or that is effectively controlled by a candidate or prospective candidate and is used primarily for such purposes), amounts paid or incurred for any of the following purposes are deemed political expenditures:

1. Remuneration to the 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; and
5. Any other expense which has the primary effect of promoting public recognition or otherwise primarily accruing to the benefit of the individual.

Initial Tax on Organization or Foundation.   The initial tax on the organization or foundation is 10% of the amount involved.

Initial Tax on Organization Managers or Foundation Managers.   An initial tax of 2½% of the amount involved (up to $5,000 of tax on any one expenditure) is imposed on any manager who agrees to an expenditure, knowing that it is a political expenditure, unless the agreement is not willful and is due to reasonable cause.

Any manager who agreed to the expenditure must pay the tax.

Specific Instructions

Part I.   Complete this part for all political expenditures.

Part II.   Enter in column (a) the names of all managers who took part in making the political expenditures listed in Part I. See Initial Tax on Organization Managers or Foundation Managers above.

If more than one manager is listed in column (a), each is individually liable for the entire amount of tax on the expenditure. However, the managers who are liable for the tax may prorate payment among themselves. Enter in column (c) the tax each manager will pay.

Carry the total amount in column (d) for each manager to page 1, Part II-A, column (f).

Schedule G - Tax on Excess Lobbying Expenditures

Requirement.   Schedule G must be completed by eligible section 501(c)(3) organizations that elected to be subject to the limitations on lobbying expenditures under section 501(h) and that made excess lobbying expenditures as defined in section 4911(b).

Except as noted below, follow the line instructions on Schedule G.

Affiliated Groups.   If you are a nonelecting member of an affiliated group, you are not required to file Form 4720.

If you are an electing member of an affiliated group and are filing a separate return, enter on line 1 the amount from Schedule A (Form 990 or 990-EZ), Part VI-A, column (b), line 43. Enter on line 2 the amount from Schedule A (Form 990 or 990-EZ), Part VI-A, column (b), line 44.

If you are an electing member of an affiliated group and are included in a group return, enter on line 1 your share of the excess grassroots lobbying expenditures of the affiliated group, and on line 2 your share of the excess lobbying expenditures of the affiliated group. Take these amounts from the schedule of excess lobbying expenditures that must be attached to Schedule A (Form 990 or 990-EZ). See the instructions for Schedule A (Form 990 or 990-EZ), Part VI-A, for a discussion of the lobbying provisions, including how to figure the taxable amount.

Schedule H - Taxes on Disqualifying Lobbying Expenditures

General Instructions

Requirement.   Schedule H must be completed by certain organizations whose section 501(c)(3) status is revoked because of excess lobbying activities.

Exceptions.   These taxes are not imposed on a private foundation (whose lobbying expenditures may be subject to the tax on taxable expenditures). These taxes also are not imposed on any organization for which a section 501(h) election was in effect at the time of the lobbying expenditures or that was not eligible to make a section 501(h) election.

Tax on Organization.   A tax of 5% of the lobbying expenditures is imposed on the organization whose section 501(c)(3) status is revoked because of excess lobbying activities.

Tax on Organization Managers.   A tax of 5% of the lobbying expenditures is also imposed on any manager who willfully and without reasonable cause consented to the lobbying expenditures, knowing that they would likely result in the organization no longer qualifying under section 501(c)(3).

There is no limit on the amount of this tax that may be imposed against either the organization or its managers. Any organization manager who agreed to the expenditure must pay the tax.

Specific Instructions

Part I.   Complete this part for all disqualifying lobbying expenditures.

Part II.   Enter in column (a) the names of all organization managers who took part in making disqualifying lobbying expenditures listed in Part I. See Tax on Organization Managers above.

If more than one organization manager is listed in column (a), each is individually liable for the entire amount of tax in connection with the expenditure. However, the managers who are liable for the tax may prorate payment among themselves. Enter in column (c) the tax each manager will pay.

Carry the total amount in column (d) for each organization manager to page 1, Part II-A, column (g).

Schedule I - Initial Taxes on Excess Benefit Transactions

General Instructions

Requirement.   Complete Schedule I for any excess benefit transaction in which an applicable organization provides an Excess benefit to a Disqualified person.

Applicable organization.   In general, an applicable organization is any section 501(c)(3) (except a private foundation) or any 501(c)(4) organization.

Also, an applicable organization includes any organization that was a 501(c)(3) (except a private foundation) or 501(c)(4) organization at any time during a five-year period ending on the date of an excess benefit transaction (the lookback period).

Initial taxes.   Excise taxes are imposed under section 4958 on each excess benefit transaction. If an organization manager receives an excess benefit from an excess benefit transaction, the manager may be liable for the tax on disqualified persons and the tax on the organization manager. See Abatement on page 3 for information on abatement, refund, or relief from this tax.

Tax on disqualified persons.   The tax is 25% of the excess benefit and is paid by any disqualified person who improperly benefited from the excess benefit transaction.

Tax on organization managers.   If tax is imposed on a disqualified person for any excess benefit transaction, then tax is also imposed on any organization manager who knowingly participated in the excess benefit transaction. The tax is 10% of the excess, not to exceed $10,000 for each transaction.

Additional tax on the disqualified person.   If the initial tax is imposed on an excess benefit transaction and the transaction is not corrected within the taxable period, then any disqualified person involved shall be liable for an additional tax equal to 200% of the excess benefit.

This additional tax is abated (refunded if collected) if the excess benefit transaction is corrected within the correction period (defined in Question B under Specific Instructions for Page 1 on page 3).

Taxable period.   Taxable period means the period beginning with the date on which the excess benefit transaction occurs and ending on the earlier of:

1. The date a notice of deficiency was mailed to the disqualified person for the initial tax on the excess benefit transaction or
2. The date on which the initial tax on the excess benefit transaction for the disqualified person is assessed.

Excess benefit transaction.   An excess benefit transaction is any transaction in which:

1. An excess benefit is provided by the organization, directly or indirectly to, or for the use of, any disqualified person or
2. 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 the organization and violates the private inurement prohibition rules (to the extent provided in regulations).

Caution:   Until final regulations are issued regarding the special rules for revenue sharing transactions described in 2 above, these transactions will only be subject to section 4958 liability under the general rule described in 1 above.

Excess benefit.   Excess benefit means the excess of the economic benefit received from the applicable organization over the consideration given (including services) by a disqualified person.

However, an economic benefit will not be treated as compensation for services unless the applicable organization clearly indicates its intent to treat the economic benefit (when paid) as compensation for a disqualified person's services. See Regulations section 53.4958-4(c) for more information.

Exception.   Generally, section 4958 does not apply to any fixed payment made to a person under an initial contract. See Regulations section 53.4958-4(a)(3) for details.

Special rule.   The initial and additional taxes of this section do not apply if the transaction described in 1 under Excess benefit transaction was pursuant to a written contract in effect on September 13, 1995, and at all times after that date until the time that the transaction occurs.

However, if a written contract is materially modified, it is treated as a new contract entered into as of the date of the material modification. A material modification includes amending the contract to extend its term or to increase the compensation payable to a disqualified person.

Disqualified person.   For purposes of this section, a disqualified person means:

1. Any person (at any time during the 5-year period ending on the date of the transaction) in a position to exercise substantial influence over the affairs of the organization,
2. A family member of an individual described in 1, or
3. A 35% controlled entity.

Family members.   Family members of an individual (described in 1 above) include a disqualified person's spouse, ancestors, children, grandchildren, great grandchildren, and brothers and sisters (whether by whole or half-blood). It also includes the spouse of the children, grandchildren, great grandchildren, brothers or sisters (whether by whole or half-blood).

35% controlled entity.   The term 35% controlled entity means:

1. A corporation in which a person described in 1 or 2 under Disqualified person owns more than 35% of the total combined voting power,
2. A partnership in which such persons own more than 35% of the profits interest, or
3. A trust or estate in which such persons own more than 35% of the beneficial interest.

In determining the holdings of a business enterprise, any stock or other interest owned directly or indirectly shall apply.

Specific Instructions

Part I.   List each excess benefit transaction in Part I, column (c). Enter the date of the transaction in column (b) and the amount of the excess benefit in column (d). Compute the tax on the excess benefit for disqualified persons and enter it in column (e). Compute any tax on the excess benefit for organization managers and enter the amount in column (f).

For organization managers, the tax is the lesser of 10% of the excess benefit or $10,000. This tax is computed on each transaction.

Part II.   Enter in column (a) the names of all disqualified persons who took part in the excess benefit transactions. If more than one disqualified person took part in an excess benefit transaction, each is individually liable for the entire tax on the transaction. But the disqualified persons who are liable for the tax may prorate the payment among themselves. Enter in column (c) the tax to be paid by each disqualified person.

Carry the total amount in column (d) for each disqualified person to page 1, Part II-A, column (h).

Part III.   Enter in column (a) the names of all organization managers who knowingly took part in the excess benefit transactions listed in Part I. If more than one organization manager knowingly took part in an excess benefit transaction, each is individually liable for the entire tax in connection with the transaction. But the organization managers liable for the tax may prorate the payment among themselves. Enter in column (c) the tax to be paid by each organization manager.

Carry the total amount in column (d) for each organization manager to page 1, Part II-A, column (h).

Privacy Act and Paperwork Reduction Act Notice

We ask for the information on this form to carry out the Internal Revenue laws of the United States. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. Certain individuals who owe tax under Chapter 41 or 42 of the Internal Revenue Code, and who do not sign the Form 4720 of the foundation or organization, must file a separate Form 4720 showing the tax owed and the name of the foundation or organization for which they owe tax. Sections 6001 and 6011 of the Internal Revenue Code require you to provide the requested information if the tax applies to you. Section 6109 requires you to provide your social security or other identifying number. Routine uses of this information include disclosing it to the Department of Justice for civil and criminal litigation and to other federal agencies, as provided by law. We may disclose the information to cities, states, the District of Columbia, and U.S. Commonwealths or possessions to administer their laws. We may disclose the information to foreign governments pursuant to tax treaties. If you do not file this information, you may be subject to interest, penalties, and/or criminal prosecution.

We may also disclose this information to Federal and state agencies to enforce Federal nontax criminal laws and to combat terrorism.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	39 hr., 56 min.
Learning about the law or the form	16 hr., 31 min.
Preparing the form	23 hr., 29 min.
Copying, assembling, and sending the form to the IRS	1 hr., 36 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the tax form to this address. Instead, see Where To File on page 2.

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