Excise Taxes on Excess Benefit Transactions

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 53 and 301 [REG-246256-96] RIN
1545-AY65

TITLE: Excise Taxes on Excess Benefit Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to
temporary regulations.

SUMMARY: In the Rules and Regulations section of this issue of the
Federal Register, the IRS is issuing temporary regulations relating
to the excise taxes on excess benefit transactions under section
4958 of the Internal Revenue Code (Code), as well as certain
amendments and additions to existing Income Tax Regulations affected
by section 4958. Section 4958 was enacted in section 1311 of the
Taxpayer Bill of Rights 2. Section 4958 generally is effective for
transactions occurring on or after September 14, 1995.

Section 4958 imposes excise taxes on transactions that provide
excess economic benefits to disqualified persons of public charities
and social welfare organizations (referred to as applicable tax-
exempt organizations). Disqualified persons who benefit from an
excess benefit transaction with an applicable tax-exempt
organization are liable for a tax of 25 percent of the excess
benefit. Such persons are also liable for a tax of 200 percent of
the excess benefit if the excess benefit is not corrected by a
certain date. Additionally, organization managers who participate in
an.excess benefit transaction knowingly, willfully, and without
reasonable cause, are liable for a tax of 10 percent of the excess
benefit. The tax for which participating organization managers are
liable cannot exceed $10,000 for any one excess benefit transaction.

DATES: Written comments and requests for a public hearing must be
received by April 10, 2001. In addition to any comments addressing
substantive issues of the proposed regulations, the IRS and Treasury
specifically request comments on the clarity of the proposed rule
and how it may be made easier to understand.

ADDRESSES: Send submissions to: CC:M&SP:RU (REG-246256-96), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to: CC:M&SP:RU
(REG-246256-96), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue NW., Washington, DC. Alternatively, taxpayers
may submit comments electronically via the Internet by selecting the
"Tax Regs" option on the IRS Home Page, or by submitting comments
directly to the IRS Internet site at
http://www.irs.gov/prod/tax_regs/comments.html. A public hearing
will be scheduled if requested.

FOR FURTHER INFORMATION CONTACT: Concerning submissions, Guy
Traynor, (202) 622-7180; concerning the regulations, Phyllis D.
Haney, (202) 622-4290 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these proposed
regulations have been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number 1545-1623, in conjunction with
the notice of proposed rulemaking published August 4, 1998, 63 FR
41486, REG-246256-96, Failure by Certain Charitable Organizations to
Meet Certain Qualification Requirements; Taxes on Excess Benefit
Transactions.

An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Budget.

Books and records relating to the collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required.

An initial regulatory flexibility analysis was prepared as required
for the collection of information under 5 U.S.C. 603 in the notice
of proposed rulemaking, REG-246256-96, Failure by Certain Charitable
Organizations to Meet Certain Qualification Requirements; Taxes on
Excess Benefit Transactions, published August 4, 1998, at 63 FR
41486. The initial analysis was submitted to the Chief Counsel
for.Advocacy of the Small Business Administration pursuant to
section 7805(f) of the Code for comment on its impact on business.
The initial analysis continues to apply to this proposed rule.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking will be submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on its impact on
business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments (a signed original and
eight (8) copies) that are submitted timely to the IRS. The IRS and
Treasury specifically request comments on the clarity of the
proposed rule and how it may be made easier to understand. All
comments will be available for public inspection and copying. A
public hearing may be scheduled if requested in writing by a person
who timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place will be published in
the Federal Register.

Drafting Information

The principal author of these regulations is Phyllis D. Haney,
Office of Division Counsel/Associate Chief Counsel (Tax-Exempt and
Government Entities). However, other personnel from the IRS and
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 53

Excise taxes, Foundations, Investments, Lobbying, Reporting and
recordkeeping requirements, Trusts and trustees.

CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.

Accordingly, 26 CFR Parts 53 and 301 are proposed to be amended as
follows:

PART 53--FOUNDATION AND SIMILAR EXCISE TAXES

Paragraph 1. The authority citation for part 53 continues to read as
follows: Authority: 26 U.S.C. 7805.

Par. 2. Sections 53.4958-0 through 53.4958-8 are added to read as
follows: [The text of proposed §§53.4958-0 through
53.4958-8 is the same as the text of §53.4958-0T through
53.4958-8T published elsewhere in this issue of the Federal Register
].

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

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