Sanctions on charities for self-dealing and certain other activities.Sec. 501(c)(3) organizations are classified as either private foundations or public charities. Under current law, excise taxes excise taxes, governmental levies on specific goods produced and consumed inside a country. They differ from tariffs, which usually apply only to foreign-made goods, and from sales taxes, which typically apply to all commodities other than those specifically exempted. may bc imposed on private foundations, their managers and certain disqualified dis·qual·i·fy tr.v. dis·qual·i·fied, dis·qual·i·fy·ing, dis·qual·i·fies 1. a. To render unqualified or unfit. b. To declare unqualified or ineligible. 2. persons for engaging in certain "self-dealing" and "taxable expenditure" transactions. Current law does not generally provide for similar excise taxes on Sec. 501(c)(3) public charities or Sec. 501(c)(4) organizations that engage in self-dealing or transactions that result in private inurement in·ure also en·ure tr.v. in·ured, in·ur·ing, in·ures To habituate to something undesirable, especially by prolonged subjection; accustom: . The only sanction sanction, in law and ethics, any inducement to individuals or groups to follow or refrain from following a particular course of conduct. All societies impose sanctions on their members in order to encourage approved behavior. presently available to the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. is revocation The recall of some power or authority that has been granted. Revocation by the act of a party is intentional and voluntary, such as when a person cancels a Power of Attorney that he has given or a will that he has written. of the organization's exempt status, which in most circumstances is a disproportionate sanction for the prohibited transaction. On Nov. 22, 1993l Rep. Pete Stark Fortney Hillman "Pete" Stark, Jr. (born November 11, 1931) is an American politician from the state of California. A Democrat, he has been a member of the U.S. House of Representatives since 1973, in three different districts (due to redistricting). (D-Cal.) introduced HR 3697, the Exempt Organization Reform Act of 1993, which would impose intermediatc sanctions on Sec. 501(c)(3) public charities and Sec. 501(c)(4) organizations. These sanctions are in the form of two-tier excise taxes. One would be on "disqualified persons" for "selfdealing"; the other would be for private inurement. The bill defines a disqualified person as an organizational manager for a five-year period prior to the prohibited transaction, certain family members, officers, directors or trustees, as well as persons performing substantial medical services, such as physicians. An initial tax of 5% of the amount involved would be imposed on disqualified persons participating in a self-dealing transaction. An initial tax of 2.5% (up to $10,000) would be imposed on organizational managers who knowingly participated in the selfdealing. Eor transactions not "corrected," there would be second tier taxes of up to 200% of the amount involved on the disqualified person and 50% (up to $10,000) for participating managers. In cases of private inurement, the organization would be subject to a first tier penalty of 10% of the taxable inurement, 5% could be imposed on beneficiaries of the inurement and a 2.5% penalty on organizational managers (up to $10,000). The second tier tax would be up to 100% on the organizational manager, 200% on the beneficiary and 50% of the taxable inurement amount on a manager who refuses to "correct" within a specified time. Note that these rules parallel the private foundation excise tax Excise Tax 1. An indirect tax charged on the sale of a particular good. 2. A penalty tax applied to ineligible transactions in retirement accounts. This penalty is assessed by and paid to the IRS. Notes: 1. provisions for penalties on self-dealing. Exempt organizations should become familiar with these provisions; any new legislation will likely mirror those rules. From Janet Buehler, J.D., Washington, D.C. |
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