Section 4941 Excise Taxes on Private-Foundation Self-Dealing

Section 4941 framework

Internal Revenue Code Section 4941 imposes excise tax on certain self-dealing acts between a private foundation and disqualified persons.

The applicable rate and potential limit depend on the person's role, including whether the person is a disqualified person, a foundation manager acting only as a manager, or both a self-dealer and a foundation manager.

Initial taxes

Practically, preparers should evaluate the person's capacity and conduct separately: acting only as a manager is excluded from the disqualified-person initial tax, while knowing managerial participation can result in the manager-level initial tax, subject to the stated exception.

• A disqualified person generally owes an initial tax equal to 10% of the amount involved for each year or partial year in the taxable period. This tax does not apply to a foundation manager acting only in that capacity.
• A foundation manager who knowingly participates owes an initial tax equal to 5% of the amount involved for each year or partial year in the taxable period, unless the participation was not willful and was due to reasonable cause.

Additional taxes and correction

Practically, the timing of correction directly affects additional-tax exposure, and a manager's refusal to agree to correction can create separate liability when the additional tax is imposed on the disqualified person.

• A participating disqualified person, other than a foundation manager acting only as a manager, is subject to an additional tax equal to 200% of the amount involved if the self-dealing act is not corrected within the taxable period.
• The additional tax is not assessed—or is abated if it has already been assessed—when the act is corrected during the correction period.
• When the additional tax is imposed on the disqualified person, a foundation manager who refuses to agree to some or all of the correction is subject to a 50% excise tax on the amount involved.

Liability limits and shared liability

Practically, the foundation-manager limits should not be treated as limits on self-dealer liability. Joint and several liability also means that liability is shared among all parties liable for the applicable initial and additional taxes.

• For any one act of self-dealing, a foundation manager's maximum initial tax is $20,000, and the manager's maximum additional tax is also $20,000.
• A self-dealer's liability is not capped, including when the self-dealer is also a foundation manager.
• If multiple persons are liable for initial or additional taxes arising from an act of self-dealing, all liable parties are jointly and severally liable for those taxes.