Part VIII. Statements Regarding Activities for Which Form 4720 May Be Required

Complete Part VIII to determine whether the trust has complied with the applicable chapter 42 rules relating to private foundations and whether the trust, trustee, disqualified persons, or some combination of these may be liable for certain foundation excise taxes. These excise taxes include:

• The section 4941 tax on self-dealing between the trust and “disqualified persons,”

The split-interest trust pays these taxes on Form 4720. For a detailed explanation of each of these taxes, see the Instructions for Form 4720.

The excise taxes on private foundations don't apply to any amounts:

1. Payable under the terms of the trust to income beneficiaries, unless a deduction was allowed under section 170(f)(2)(B), 2055(e)(2)(B), or 2522(c)(2)(B);

2. In trust for which a charitable contribution deduction was not allowed under any section listed in section 4947(a) (2)(B), if the amounts are segregated from amounts for which a deduction was allowable; or

3. Transferred in trust before May 27, 1969.

Line 1. The activities listed on lines 1a(1) through (6) are considered self-dealing under section 4941 unless one of the exceptions described in section 4941(d)(2)(D), (E), (F), or (G) applies. You may also access information about self-dealing at IRS.gov/Charities/Foundations/index.html by clicking on the link for Life Cycle of a Private Foundation.

The terms “disqualified person” and “foundation manager” are defined under Definitions, earlier.

• The section 4943 tax on excess business holdings,

• The section 4944 tax on investments that jeopardize the trust's charitable purposes, and

• The section 4945 tax on taxable expenditures.

Instructions for Form 5227 9

Line 1b. If you answered “Yes” to any of the questions on line 1a, you should answer “Yes” to line 1b unless all of the acts engaged in were “excepted” acts. Excepted acts are described in Regulations sections 53.4941(d)-3 and -4 or appear in Notices published in the Internal Revenue Bulletin, relating to disaster assistance. At the time this form went to print, there were no Notices currently in effect relating to disaster assistance for “excepted” acts to self-dealing.

Line 2. Under section 4947(b)(3)(A), a split-interest trust isn't subject to the excess business holdings tax (section 4943) or tax on investments that jeopardize the trust's charitable purpose (section 4944) if all the income interest (and none of the remainder interest) of the trust is devoted solely to one or more of the charitable purposes described in section 170(c)(2)(B). In addition, all amounts in the trust for which a charitable contribution deduction was allowed under section 170 (for individual taxpayers) or a similar section for personal holding companies, foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes) cannot have a total value of more than 60% of the total FMV of all amounts in the trust. For the purposes of section 4947(b)(3)(A), the term “income interest” includes the right to receive an annuity or unitrust payment, as described in Regulations section 53.4947-2(b)(2)(i).

Under section 4947(b)(3)(B), a split-interest trust isn't subject to the section 4943 or 4944 taxes if a deduction was allowed under section 170 (and related provisions for other entities) for amounts payable under the terms of the trust to every remainder beneficiary but not to any income beneficiary. For the purposes of section 4947(b)(3)(B), the term “income beneficiary” includes the recipient entitled to receive an annuity or unitrust payment under a CRT, as well as the donor entitled to payments from a pooled income fund. The term “remainder beneficiary” includes the charitable organization entitled to the remainder interest under a CRT or a pooled income fund.

Line 3. In general, excess business holdings are the amount of stock or other interest in a business enterprise that the trust must dispose of to a person other than a disqualified person in order for the trust's remaining holdings in the enterprise to be permitted holdings.

In general, the combined permitted holdings of a trust and all disqualified persons may not be more than 20% of the voting power (or beneficial or profits interest, in the case of a trust or a partnership) in any business enterprise.

In general, a business enterprise means the active conduct of a trade or business, including any activity that is regularly conducted to produce income from selling goods or performing services that is an unrelated trade or business under section 513.

The term “business enterprise” does not include:

1. A functionally related business, defined in section 4942(j)(4); or
2. A trade or business if at least 95% of its gross income is derived from passive sources.

See section 4943(d)(3)(B) for additional items that are included in gross income from passive sources.

Line 3a. A private foundation isn't treated as having excess business holdings in any enterprise if, together with related foundations, it owns 2% or less of the voting stock and 2% or less in value of all outstanding shares of all classes of stock.

A similar exception applies to a beneficial or profits interest in any business enterprise that is a trust or partnership.

Line 4. In general, an investment which jeopardizes any of the charitable purposes of a trust is one in which a foundation manager did not exercise ordinary business care in making the investment to provide for the long- and short-term financial needs of the trust in carrying out its charitable purposes.

For more information on investments that jeopardize charitable purposes, see Regulations section 53.4944-1.

Line 5. Grants by a trust to a public charity aren't taxable expenditures if the grants aren't earmarked for use for any of the activities described on lines 5a(1) through (5) and there is no oral or written agreement by which the trust may cause the public charity to engage in any such prohibited activity or to select the grant grantee.

Grants made to exempt operating foundations (as defined in section 4940(d)(2)) aren't subject to the expenditure responsibility provisions of section 4945. If the trust made grants to such organizations, you don't have to file Form 4720 for those grants. See the section 4945 regulations for more information.

Line 5b. If you answered “Yes” to any of the questions on line 5a, you should answer “Yes” to line 5b unless all of the transactions engaged in were “excepted” transactions. Excepted transactions are described in Regulations section 53.4945 or appear in Notices published in the Internal Revenue Bulletin, relating to disaster assistance. At the time this form went to print, there were no Notices currently in effect relating to disaster assistance for “excepted” transactions to taxable expenditures.

Line 6a. A personal benefit contract is, in general, any life insurance, annuity, or endowment contract that benefits, directly or indirectly, a transferor, a transferor's family member, or a transferor designee that isn't an organization described in section 170(c).

Line 6b. Enter the total of all premiums paid by the split-interest trust on any personal benefit contract if the payment of premiums is in connection with a transfer for which a deduction isn't allowed under section 170(f)(10)(A). Also, if there is an understanding or expectation that any person will directly or indirectly pay any premium on a personal benefit contract for the transferor, include those premium payments in the amount entered on this line. For more information, see the instructions for Form 8870.

Line 7. If a CRT has any unrelated business taxable income (within the meaning of section 512 and related regulations) for 2025, the trust is liable for a tax under section 664(c)(2), which is treated as a chapter 42 excise tax. The amount of the excise tax is equal to the amount of the trust's unrelated business taxable income. If the trust has any unrelated business taxable income, answer “Yes” and file Form 4720, in addition to Form 5227, to report the trust's unrelated business taxable income and the tax due.