26 USC 4965 - Excise tax on certain tax-exempt entities entering into prohibited tax shelter transactions

View all text of Subchapter F [§ 4965 - § 4965]

§ 4965. Excise tax on certain tax-exempt entities entering into prohibited tax shelter transactions

(a) Being a party to and approval of prohibited transactions

(1) Tax-exempt entity

(A) In general

(B) Post-transaction determination

(2) Entity manager

(b) Amount of tax

(1) EntityIn the case of a tax-exempt entity—

(A) In generalExcept as provided in subparagraph (B), the amount of the tax imposed under subsection (a)(1) with respect to any transaction for a taxable year shall be an amount equal to the product of the highest rate of tax under section 11, and the greater of—

(i) the entity’s net income (after taking into account any tax imposed by this subtitle (other than by this section) with respect to such transaction) for such taxable year which—(I) in the case of a prohibited tax shelter transaction (other than a subsequently listed transaction), is attributable to such transaction, or(II) in the case of a subsequently listed transaction, is attributable to such transaction and which is properly allocable to the period beginning on the later of the date such transaction is identified by guidance as a listed transaction by the Secretary or the first day of the taxable year, or

(ii) 75 percent of the proceeds received by the entity for the taxable year which—(I) in the case of a prohibited tax shelter transaction (other than a subsequently listed transaction), are attributable to such transaction, or(II) in the case of a subsequently listed transaction, are attributable to such transaction and which are properly allocable to the period beginning on the later of the date such transaction is identified by guidance as a listed transaction by the Secretary or the first day of the taxable year.

(B) Increase in tax for certain knowing transactionsIn the case of a tax-exempt entity which knew, or had reason to know, a transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction, the amount of the tax imposed under subsection (a)(1)(A) with respect to any transaction for a taxable year shall be the greater of—

(i) 100 percent of the entity’s net income (after taking into account any tax imposed by this subtitle (other than by this section) with respect to the prohibited tax shelter transaction) for such taxable year which is attributable to the prohibited tax shelter transaction, or

(ii) 75 percent of the proceeds received by the entity for the taxable year which are attributable to the prohibited tax shelter transaction.

This subparagraph shall not apply to any prohibited tax shelter transaction to which a tax-exempt entity became a party on or before the date of the enactment of this section.

(2) Entity manager

(1) described in section 501(c) or 501(d),

(2) described in section 170(c) (other than the United States),

(3) an Indian tribal government (within the meaning of section 7701(a)(40)),

(4) described in paragraph (1), (2), or (3) of section 4979(e),

(5) a program described in section 529,

(6) an eligible deferred compensation plan described in section 457(b) which is maintained by an employer described in section 457(e)(1)(A),

(7) an arrangement described in section 4973(a), or

(8) a program described in section 529A.

(d) Entity managerFor purposes of this section, the term “entity manager” means—

(1) in the case of an entity described in paragraph (1), (2), or (3) of subsection (c)—

(A) the person with authority or responsibility similar to that exercised by an officer, director, or trustee of an organization, and

(B) with respect to any act, the person having authority or responsibility with respect to such act, and

(2) in the case of an entity described in paragraph (4), (5), (6), or (7) of subsection (c), the person who approves or otherwise causes the entity to be a party to the prohibited tax shelter transaction.

(e) Prohibited tax shelter transaction; subsequently listed transactionFor purposes of this section—

(1) Prohibited tax shelter transaction

(A) In generalThe term “prohibited tax shelter transaction” means—

(i) any listed transaction, and

(ii) any prohibited reportable transaction.

(B) Listed transaction

(2) Subsequently listed transaction

(f) Regulatory authority

(g) Coordination with other taxes and penalties

(Added Pub. L. 109–222, title V, § 516(a)(1), May 17, 2006, 120 Stat. 368; amended Pub. L. 110–172, § 11(a)(30), Dec. 29, 2007, 121 Stat. 2487; Pub. L. 113–295, div. B, title I, § 102(e)(3), Dec. 19, 2014, 128 Stat. 4062.)