EO Statutory — Internal Revenue Manual Part 4. Examining

Internal Revenue Service

Department of the Treasury

TE/GE Exempt Organizations Examinations [Enter Mandatory Review Manager’s Address]

Date: [Insert date]

Taxpayer Identification Number: [Insert TIN] Form Number: 4720-A Person to Contact: [Insert name/ID number] Contact Hours:

[Insert disqualified person's name] [Insert disqualified person's street address] [Insert city, state, and zip code]

Telephone Number: [Insert phone number] [Insert fax number] (Fax) LAST DAY TO FILE A PETITION IN THE UNITED STATES TAX COURT: [Insert date]

CERTIFIED MAIL

Tax Year(s) Ended:

First Tier (Initial) Tax Deficiency I.R.C. 4941(a)(1):

12/31/2013 12/31/2014 12/31/2015

$300.00 $900.00 $1,500.00

Dear [Sir or Madam],

NOTICE OF DEFICIENCY

We have determined that there is a deficiency (increase) in your excise tax as shown above. This letter is a NOTICE OF DEFICIENCY sent to you as required by law. The enclosed statements show how we figured the deficiency.

The second tier tax deficiency shown above will be eliminated if correction is made by the end of the correction period, which ends 90 days after the mailing of this letter plus the total period of any extensions that may apply. You may request this office to grant an extension of the correction period for the time reasonable and necessary for you to bring about correction of the act giving rise to the first tier tax. However, an extension can be granted only if warranted by the facts and requested before the correction period would otherwise end. A statement as to the actions required for correction is enclosed.

If you want to contest this deficiency in court before making any payment, you must file a petition with the United States Tax Court for a redetermination of the deficiency. Your petition must be filed with the Court within 90 days from the mailing date of this letter (150 days if addressed to you outside of the United States), plus the time (if any) during which this office has extended the correction period as a result of your request. The petition should be filed with the United States Tax Court, 400 Second Street N.W., Washington, D.C. 20217, and the copy of this letter should be attached to your petition. The time in which you must file a petition with the Court (90 or 150 days, as the case may be, plus any extension of the correction period that may be granted) is fixed by law and the court cannot consider your case if your petition is filed late. Filing a petition will extend the correction period until after the Tax Court has decided whether the second tier tax was properly imposed.

If your petition involves a dispute of not more than $50,000 for any one taxable period (or, if there is no taxable period, taxable event) a simplified procedure is provided by the Tax Court for small tax cases. You can get information about this procedure, as well as a petition form you can use, by writing to the Clerk of the United States Tax Court at 400 Second Street N.W., Washington D.C. 20217. You should do this promptly if you intend to file a petition with the Tax Court.

If you decide not to file a petition with the Tax Court, please sign and return the enclosed waiver form. This will permit us to assess the deficiency quickly and will limit the accumulation of interest. The enclosed envelope is for your convenience. If you decide not to sign and return the statement and you do not timely petition the Tax Court, the law requires us to assess and bill you for the deficiency after 90 days from the mailing date of this letter (150 days if this letter is addressed to you outside the United States). The time for making the assessment is extended by any extension of the correction period that may be granted.

You have the right to contact the office of Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer Advocate cannot correct a legally correct tax determination or extend the time fixed by law that you have to file a petition in a United States court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels get prompt and proper handling. You may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at the address and telephone number shown below:

Taxpayer Advocate Service [1st Line Address] [2nd Line Address] [City, State Zip] [Phone Number]

If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely,

[Commissioner's Name] Commissioner By

[Name of Designated Official] Designated Official

Enclosures: Statements (Form 4883 and Explanation of Items) Copy of this letter Waiver (Form 4089) Envelope

Exempt Organizations Excise Tax Audit Changes

(Chapter 41, Chapter 42, and Section 170(f)(10(F) Excise Taxes)

Name of Taxpayer

Employer ID No.

Schedule or Exhibit

[Insert name]

[Insert SSN]

Name of Exempt Organization (if different from taxpayer)

[Insert name of private foundation]

Taxable Years Ended

12/31/2013

12/31/2014

12/31/2015

Internal Revenue Code Section for Proposed Adjustment

4941(a)

Adjustments

Self-dealing: Amount involved

3,000.00

9,000.00

15,000.00

Total adjustments

3,000.00

9,000.00

15,000.00

Amount reported on return or as previously adjusted

Total amount as corrected

3,000.00

9,000.00

15,000.00

Applicable tax rate %

10%

Initial tax liability as corrected (line 4 x line 5)

300.00

900.00

1,500.00

Initial tax liability reported

Increase (or decrease) in tax

300.00

900.00

1,500.00

Additional tax (minimum)

Penalties (Code section ________)

Explanation of Adjustments

See attached Explanation of Items

Form

4883

(Rev. 1-2004)

Catalog Number 42083F

Department of the Treasury-Internal Revenue Service www.irs.gov

Addendum to Form 4883 Explanation of Adjustments [Name of Taxpayer] [EIN of Taxpayer]

On July 1, 2013, XYZ Foundation, a private foundation pursuant to I.R.C. section 509, made a loan to you in the amount of $100,000 at an annual interest rate of 6%. Interest on the loan was paid timely. The loan was repaid on December 31, 2015. As a substantial contributor to the Foundation and a foundation manager, you are a disqualified person with respect to the Foundation.

I.R.C. 4941(d)(1)(B) provides that the lending of money or other extension of credit between a private foundation and a disqualified person is an act of self-dealing. Where the transaction relates to the lending of money or other extension of credit, the transaction is an act of self-dealing on the day the transaction occurs plus an act of self-dealing on the first day of each taxable year or portion of a taxable year which is within the taxable period and which begins after the taxable year in which the transaction occurs. See Treas. Reg. 53.4941(e)-1(e)(1). The taxable period begins with the date on which the act of self-dealing occurs and ends on the earliest of (a) the mailing date of a notice of deficiency; (b) the date on which tax is assessed; or (c) the date on which correction of the act of self-dealing is completed. See I.R.C. 4941(e).

I.R.C. 4941(a)(1) imposes a 10% excise tax on the amount involved in the act of self-dealing for each year (or part thereof) in the taxable period. The amounts involved are determined using the greater of interest paid or fair market interest rate on day the act occurs. The tax is imposed on disqualified persons who participate in the act of self-dealing. Appendix 1 shows how we calculated the amount involved.

Accordingly, you are liable for excise taxes under I.R.C. 4941(a)(1) in the amounts of $300.00, $900.00 and $1,500.00 for the taxable years ended December 31, 2013, December 31, 2014 and December 31, 2015, respectively (the taxable period).

[Taxpayer name] [EIN] [Taxable years]

Appendix I

Date of Act

Loan Amount

Interest Rate Paid

FMV Interest Rate

Time in Years

Amount Involved

Total Amounts Involved

7/1/2013

$100,000

1/2

$3,000

1/1/2014

$100,000

$6,000

$9,000

1/1/2015

$100,000

$6,000

$15,000

Amount of tax (10% of amount involved with respect to each act of self-dealing for each year in taxable period) is calculated as follows:

Act Date/Taxable Period Beginning Date

2013

2014

2015

Total

7/1/2014

$300

$900

1/1/2015

$600

$1,200

1/1/2016

$600

Totals:

$300

$900

$1,500

$2,700

Form

4089

Department of the Treasury - Internal Revenue Service

Symbols

(Rev. January 1983)

Notice of Deficiency - Waiver

SE:T:EO:E:FSL:ET:MR

Name, SSN or EIN, and address of Taxpayer(s)

[Insert name of taxpayer]

[Insert SSN]

[Insert street address]

[Insert city, state, and ZIP code]

Kind of Tax

Copy to Authorized Representative

4720-A

Tax Year Ended

Deficiency

Increase in Tax

Penalties

December 31, 2013

$300.00

December 31, 2014

$900.00

December 31, 2015

$1,500.00

See the attached explanation for the above deficiencies

I consent to the immediate assessment and collection of the deficiencies (increase in tax and penalties) shown above, plus any interest provided by law.

Your Signature

(Date signed)

Spouse’s Signature, If a Joint Return Was Filed

(Date signed)

Taxpayer’s Representatives Sign Here

(Date signed)

Corporate Name:

Corporate Officers Sign Here

(Date signed)

Note:

Who Must Sign

If you consent to the assessment of the amounts shown in this waiver, please sign and return it in order to limit the accumulation of interest and expedite our bill to you. Your consent will not prevent you from filing a claim for refund (after you have paid the tax) if you later believe you are entitled to a refund. It will not prevent us from later determining, if necessary that you owe additional tax; nor will it extend the time provided by law for either action. If you later file a claim and the Internal Revenue Service disallows it, you may file suit for refund in a district court or in the United States Claims Court, but you may not file a petition with the United States Tax Court.

If this waiver is for any year(s) for which you filed a joint return, both you and your spouse must sign the original and duplicate of this form. Sign your name exactly as it appears on the return. If you are acting under power of attorney for your spouse, you may sign as agent for him or her. For any agent or attorney acting under a power of attorney, a power of attorney must be sent with this form if not previously filed. For a person acting in a fiduciary capacity (executor, administrator, trustee), file Form 56, Notice Concerning Fiduciary Relationship, with this form if not previously filed. For a corporation, enter the name of the corporation followed by the signature and title of the officer(s) authorized to sign.

If you agree, please sign one copy and return it; keep the other copy for your records.

Cat. No. 22650Y

www.irs.gov

Form

4089

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