Sanctions on charities for self-dealing and certain other activities.
On Nov. 22, 1993l Rep. Pete Stark (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 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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|Publication:||The Tax Adviser|
|Article Type:||Brief Article|
|Date:||Apr 1, 1994|
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