B.7. Abatement of First Tier and Second Tier Taxes

(1) Section 4962 grants the IRS discretionary authority to abate certain Chapter 42

first tier taxes including taxes under Section 4945(a) for taxable events (making taxable expenditures) occurring after December 31, 1984. See Sections 4962(a) and (b). In effect, this provision gives a private foundation and its managers a chance to avoid the imposition of the first tier taxes under Section 4945(a).

(2) A private foundation or its managers may abate the first tier taxes only if they can

establish to the satisfaction of the IRS that the making of a taxable expenditure:

a. Was due to reasonable cause;

b. Was not due to willful neglect; and

c. Has been corrected within the correction period.

(3) The correction period begins with the date on which the taxable expenditure was

made and ends 90 days after the mailing of a notice of deficiency with respect to the second tier tax. See Section 4963(e)(1) and Treas. Reg. 53.4963-1(e).

(4) The correction period can be extended by the IRS if certain requirements are met.

See Section 4963(e)(1)(A) and (B) and Treas. Reg. 53.4963-1(e).

(5) Section 4961(a) permits the abatement of certain Chapter 42 second tier taxes,

including taxes under Section 4945(b). Specifically, this provision provides that if a taxable expenditure is corrected during the "correction period," the second tier tax imposed is not to be assessed, and if assessed, the assessment is to be abated, and if collected shall be credited or refunded as an overpayment. See Section 4961(a).