Section 4958. They must enter — 0224 Publ 5835 (PDF)

Taxes owed as a disqualified person, from Schedule I, Part II, column (d), and
- Tax owed as an organization manager who knowingly participated in a

transaction that was an excess benefit transaction, from Schedule I, Part III, column (d).

(3) The disqualified person or organization manager calculates the excise taxes on

Schedule I, Initial Taxes on Excess Benefit Transactions (Section 4958) on pages 5 and 6 of the Form 4720.

(4) In Part I of Schedule I, Excess Benefit Transactions and Tax Computation, the

person:

a. Enters the date of each transaction in column (b),

b. If, when the return is filed, the disqualified person has corrected, in whole or

part, any acts or transactions resulting in liability for tax under Chapter 42, they will answer “Yes,” in column (c) and provide the following information separately for each transaction:

A detailed description of any correction made
The date of each correction
For partial correction, an explanation stating why complete correction

hasn’t been made

c. For any acts or transactions, the disqualified persons have not corrected,

they must check “No” in column (c) and provide the following information separately for each transaction:

Detailed explanation of why correction hasn't been made
Explanation of what steps are being taken to make the correction.

d. Lists each transaction in column (d),

e. Enters the amount of the excess benefit in column (e),

f. Enters the tax on the excess benefit for disqualified persons, computed in

Part II, in column (f) and

g. Enters the tax on the excess benefit for organization managers, computed in

Part III, in column (g).

(5) In Part II, Summary of Tax Liability of Disqualified Persons and Proration of

Payments, of the Schedule I, the disqualified person liable for initial taxes under Section 4958(a)(1) enters:

a. The names of all disqualified person involved in the transaction,

b. The transaction number from the list of transactions in Schedule I, Part I,

c. The tax to be paid by each disqualified person, and

Note: If more than one disqualified person took part in an excess benefit transaction, each is individually liable for the entire tax on the transaction. But the disqualified persons who are liable for the tax may prorate the payment among themselves.

d. The total of the tax liability from column (c) for each disqualified person.

(6) In Schedule I, Part III, Summary of Tax Liability of 501(c)(3), (c)(4) & (c)(29)

Organization Managers and Proration of Payments, the organization manager who knowingly took part in the excess benefit transactions listed in Schedule I, Part I enters:

a. The names of all organization managers who took part in the transaction,

b. The transaction number from the list of transactions in Schedule I, Part I,

c. The tax to be paid by each organization manager,

Note: If more than one manager knowingly took part in an excess benefit transaction, each is individually liable for the entire tax in connection with the transaction. But the managers liable for the tax may prorate the payment among themselves.

d. The total of the tax liability reported in column (c) for each organization manager.

B. Exhibit 2: Excess Benefit Transactions Lead Sheet¶

This lead sheet can be used to assist in working cases that may involve excess benefit transactions under Section 4958. The lead sheet, M. Excess Benefit Transactions Lead Sheet, can be found on the Exempt Organizations Resources Knowledge Base on the Resources and Job Aids shelf in the Compliance Tools Book, Lead Sheets Chapter and Technical Lead Sheets page under the Other Related Resources box on the right of the page.

Excess Benefit Transaction Lead Sheet

5. Apply the protections and semi-safe harbor rules of Section 4958
6. Compute the applicable taxes: a. IRC 4958(a)(1) 1st Tier 25% Tax b. IRC 4958(a)(2) Organization Manager 10% tax c. IRC 4958(b) 2nd Tier 200% tax d. IRC 4958(d)(1) Joint and Severally Liable
7. Identify all organization managers that may be jointly and severally liable for the Section 4958(a)(2) tax. See Section 4958(d)(1) and Treas. Reg. 53.4958-1(d)(8).
8. Consider the maximum aggregate amount of 10% tax (i.e., $20,000) that may be imposed on all organization managers who knowingly participated in an EBT for each EBT. See Section 4958(d)(2).
9. Determine the taxable period of the EBT. See Section 4958(f)(5) and Treas. Reg. 53.4958-1(c)(2)(ii).
10. Determine whether participation by an organization manager is due to reasonable cause. a. Document organization manager’s activities concerning the EBT b. Determine if organization manager exercised ordinary business care and prudence. See Treas. Reg. 53.4958-1(d)(6).
11. Consider the “exceptions” to Section 4958: a. Fixed payments under an “initial contract” b. Certain “disregarded benefits” c. Certain payments under ERISA d. Existing Binding Contracts prior to September 13, 1995 e. Existing Arrangements with Supporting Organizations Prior to August 17, 2006
12. Verify that the value of economic benefits for purposes of Section 4958, the value of property, including the right to use the property, is its fair market value. See Treas. Reg. 53.4958-4(b)(1)(i).
13. Determine the_reasonableness of compensation_. Consider all economic benefits provided by the ATEO in exchange for the performance of services included, except for disregarded economic benefits under Treas. Reg. 53.4958-4(b)(1)(ii)(B).
14. Review written contemporaneous evidence that may be used to demonstrate that the appropriate decision-making body, or an officer authorized to approve compensation, approved a transfer as compensation (for e.g., employment contracts).

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