Exempt Organizations Technical Guide›TG 62: Excise Taxes on Taxable Expenditures – IRC Section 4945
Table of Contents
Publication 5590 — Exempt Organizations Technical Guide TG 62: Excise Taxes on Taxable Expenditures under IRC 4945 · 2026-10-03 edition · updated 2026-10-04 · United States
In this part
- I. Overview
- A. Background / History
- B. Relevant Terms
- C. Law / Authority
- II. Requirements
- A. Attempting to Influence Legislation (Lobbying)
- A.1. Grassroots Lobbying
- A.2. Direct Lobbying
- A.3. Legislation Defined
- A.4. Exceptions to the Prohibition on Lobbying
- A.5. Nonpartisan Analysis, Study, or Research – Defined
- A.6. Presenting Results of Nonpartisan Analysis, Study or Research
- A.7. Examinations and Discussions of Broad Social, Economic and Similar Positions
- A.8. Providing Technical Advice or Assistance to Legislative Bodies
- A.9. Decisions Affecting the Powers and Duties of a Private Foundation
- A.10. Situations that do not Constitute Attempts to Influence Legislation or Lobbying
- A.11. Jointly Funded Projects
- A.12. Grants to Public Charities
- A.13. Certain Expenditures by Program-Related Investment Recipients
- B. Public Elections and Voter Registration Drives
- B.1. Influencing the Outcome of a Specific Election
- B.2. Permitted Voter Registration Drives
- B.3. 85% Support Test
- B.4. Advance Ruling Information
- B.5. Section 4945(d)(2) and Grants to Public Charities
- C. Section 4945(d)(3) Grants to Individuals
- C.1. Section 4945(d)(3) Grants Defined
- C.2. Grants that are not Section 4945(d)(3) Grants
- C.3. Grants to Organizations Subsequently Awarded to Individuals
- C.4. Grants to Public Charities Subsequently Awarded to Individuals
- C.5. Grants to Governmental Agencies Subsequently Awarded to Individuals
- C.6. Renewal of Grants
- C.7. Advance Approval of Section 4945(g)
- C.8. Grants Made on an Objective and Nondiscriminatory Basis
- C.9. Pool of Potential Grantees
- C.10. Selection Criteria
- C.11. Persons Making Selections
- C.12. Grants Designed to Benefit a Specific Racial or Ethnic Minority Group
- C.13. Grant Making Information – Advance Approval
- C.14. Supervision of Scholarships, Fellowships and Other Section 4945(d)(3) Grants
- C.15. Investigation of Jeopardized or Diverted Grants
- C.16. Retention of Records
- C.17. Submission of Request for Approval of Grant-Making Information
- C.18. Employer Related Scholarship Programs and Loan Programs
- C.19. Employer Related Emergency Funds Programs
- C.20. Grants Constituting Scholarship, Prize or Achieving a Specific Objective
- D. Grants to Organizations Section 4945(d)(4)
- D.1. Grants Defined
- D.2. Grants to Public Charities, Exempt Operating Foundations, and Certain Other…
- D.3. Grants to Foreign Organizations
- D.4. Earmarked Grants
- D.5. Expenditure Responsibility
- D.6. Pre-grant Inquiry Requirement Section 4945(h)(1)
- D.7. Terms of Grant Agreements
- D.8. Program-Related Investments
- D.9. Grants to Foreign Organizations
- D.10. Reporting Requirements of the Grantee Organization
- D.11. Reporting Requirements of the Grantor
- D.12. Recordkeeping Requirements of the Grantors
- D.13. Reports Received After the Close of Grantor’s Accounting Year
- D.14. Violations of Expenditure Responsibility Requirements
- D.15. Diversion of Grant by Grantee Organization
- D.16. Grantee Organization’s Failure to Submit Reports
- D.17. Grantor Violations of Section 4945(h)
- E. Expenditures for Noncharitable Purposes Section 4945(d)(5)
- E.1. Prohibited Expenditures
- E.2. Permitted Expenditures
- E.3. Grants to Public Organizations Should Not Be Earmarked for Prohibited Activities
- E.4. Grants to Noncharitable Organizations
- III. Other Considerations
- A. Sanctions Under Section 4945
- A.1. First Tier Tax on Private Foundation
- A.2. First Tier Tax on Foundation Managers
- A.3. Definition of Agreement
- A.4. Definition of Knowing
- A.5. Definition of Willful
- A.6. Due to Reasonable Cause
- A.7. Advice of Counsel
- B. Second Tier Taxes
- B.1. Second Tier Taxes on Private Foundations
- B.2. Second Tier Taxes on Foundation Managers
- B.3. Correction of Taxable Expenditures and Second Tier Taxes
- B.4. Definition and Method of Correction
- B.5. Definition of Taxable Period
- B.6. Joint and Several Liability, and Limits on Liability of Foundation Managers
- B.7. Abatement of First Tier and Second Tier Taxes
- C. Section 507 Termination and Other Sanctions
- IV. Examination Techniques
- A. Introduction
- B. Chapter 42 First Tier Excise Taxes Table
- C. One Act/Failure to Act, Multiple Violations
- D. Information Regarding Correction
- E. Correction Period
- F. Advance Approval of Proposed Correction
- G. All Chapter 42 Second Tier Excise Taxes
- H. Termination Tax
- I. Revocation
- J. Statute of Limitations
- K. Applicable Penalties
- L. Domestic Taxable Private Foundations
- M. Abatement of Excise Taxes
- N. Pre-Examination Considerations
- O. Field/Office Correspondence Exam Information
- P. Exam Case Closing Information
- V. Issue Indicators and Examination Tips
- A. Issue Indicators
- B. Examination Tips
- VI. Example Worksheets / Exhibits
- A. Section 4945 – First Tier Tax Example
- B. Section 4945 – Second Tier Tax and Penalties Example
- C. Thorne Letter
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