22

qualified person for personal services which are reasonable and necessary to carrying out the exempt

purpose of the private foundation shall not be an act of self-dealing if the compensation (or payment or reimbursement) is not excessive;

"(F) any transaction between a private foundation and a corporation which is a disqualified person (as defined in section 4946), pursuant to any liquidation, merger, redemption, recapitalization, or other corporate adjustment or reorganization, shall not be an act of self-dealing if all of the securities of the same class as that held by the foundation are subject to the same terms and such terms provide

for receipt by the foundation of no less than fair market value; and

"(G) only in the case of a government official (as defined in section 4946 (c)), paragraph (1)

shall not apply to

"(i) prizes and awards which are subject

to the provisions of section 74 (b), if the re

cipients of such prizes and awards are selected from the general public,

"(ii), scholarships and fellowship grants which are subject to the provisions of section 117 (a) and are to be used for study at an edu

24

1

"(e) OTHER DEFINITIONS.-For purposes of this sec

2 tion

"(1) TAXABLE PERIOD.-The term 'taxable period' means, with respect to any act of self-dealing, the

period beginning with the date on which the act of selfdealing occurs and ending on whichever of the following is the earlier: (A) the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (a) (1) under section 6212, or (B) the date on which correction of the act of self-dealing is completed.

"(2) AMOUNT INVOLVED.-The term 'amount involved' means, with respect to any act of self-dealing, the greater of the amount of money and the fair market value of the other property given or the amount of money and the fair market value of the other property received;

except that, in the case of services described in subsection

(d) (2) (E), the amount involved shall be only the

excess compensation. For purposes of the preceding sentence, the fair market value

"(A) in the case of the taxes imposed by subsection (a), shall be determined as of the date on

which the act of self-dealing occurs; and

"(B) in the case of the taxes imposed by subsection (b), shall be the highest fair market value during the correction period.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

· 15

16

17

18

19

66

25

'(3) CORRECTION.-The terms 'correction' and

'correct' mean, with respect to any act of self-dealing,

undoing the transaction to the extent possible, but in

any case placing the private foundation in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards.

"(4) CORRECTION PERIOD.-The term 'correction period' means, with respect to any act of self-dealing, the period beginning with the date on which the act of self-dealing occurs and ending 90 days after the date of mailing of a notice of deficiency with respect to the tax imposed by subsection (b) (1) under section 6212, extended by

"(A) any period in which a deficiency cannot

be assessed under section 6213 (a), and

"(B) any other period which the Secretary or

his delegate determines will be conducive to bringing about correction of the act of self-dealing.

20 ❝SEC. 4942. TAXES ON FAILURE TO DISTRIBUTE INCOME. 21 “(a) INITIAL TAX.-There is hereby imposed on the 22 undistributed income of a private foundation for any taxable

23

year, which has not been distributed before the first day of 24 the second (or any succeeding) taxable year following such 25 taxable year (if such first day falls within the taxable

26

1 period), a tax equal to 15 percent of the amount of such 2 income remaining undistributed at the beginning of such 3 second (or succeeding) taxable year. This section shall not 4 apply to a private foundation which is an operating founda5 tion (as defined in subsection (j) (3)) for the taxable year. "(b) ADDITIONAL TAX.-In any case in which an

6

7 initial tax is imposed under subsection (a) on the undis8 tributed income of a private foundation for any taxable 9 year, if any portion of such income remains undistributed 10 at the close of the correction period, there is hereby imposed a tax equal to 100 percent of the amount remaining undis12 tributed at such time.

11

13

"(c) UNDISTRIBUTED INCOME.-For purposes of this

14 section, the term 'undistributed income' means, with respect 15 to any private foundation for any taxable year as of any 16 time, the amount by which—

17

18

19

20

21

222 223

"(1) the distributable amount for such taxable year, exceeds

"(2) the qualifying distributions made before such

time out of such distributable amount.

"(d) DISTRIBUTABLE AMOUNT.-For purposes of this

22 section, the term 'distributable amount' means, with respect

23 to any foundation for any taxable year, whichever of the 24 following amounts is the higher: (1) the minimum invest

25

ment return, or (2) the adjusted net income.