B.2. Second Tier — Publication 5590

(1) Section 4945(b)(2) imposes on any foundation manager an additional excise tax

equal to 50% of the amount of the taxable expenditure if two conditions exist:

a. The second tier tax is imposed on the foundation pursuant to Section

4945(b)(1); and

b. That foundation manager refuses to agree to correct all or part of the

expenditure.

(2) With respect to any one taxable expenditure, the maximum amount of the tax

imposed by Section 4945(b)(2) shall not exceed $20,000. See Section 4945(c)(2).

(3) This tax on foundation managers is imposed on the failure to agree to correct an

expenditure rather than the failure to correct. Hence, only those foundation managers who refused to correct the expenditure are subject to the tax. Also, the foundation managers must pay the second tier excise tax.

(4) The imposition of the Section 4945(a)(2) first tier tax on foundation managers is

not a prerequisite for the imposition of the second tier tax on foundation managers. The only conditions needed to trigger the imposition of the second tier tax are the two requirements described above.

(5) A request for correction can be made by a fellow foundation manager or the IRS.

a. If it is the latter, according to Thorne v. Commissioner, 99 T.C. 67 (1992), the

IRS must make a formal written request to the foundation manager to make the correction.

b. Otherwise, according to Thorne, the foundation manager cannot be

considered as having refused to make the correction because the IRS never specifically requested that he take such action.

(6) The written request for correction should be made within a reasonable period of

time (to allow opportunity to respond) prior to the issuance of a 30-day letter proposing a statutory notice of deficiency for the second tier tax of Section 4945(b).

Note: Internal Revenue Manual (IRM) 4.70.14, Resolving the Examination, states that the Thorne letter should be sent out to the foundation manager prior to issuance of a 30-day letter asserting the first tier and second tier taxes, as applicable; if the foundation manager does not agree to correction, then the 30day letter with the reports should assert the second tier foundation manager taxes.