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GiftLaw Pro Home   >  Chapter 7 - Charitable Organizations  >  7.2 Private Foundations  >  7.2.4 Excess Business Holdings  >  Basic Quiz

Basic Quiz - 7.2.4 Excess Business Holdings

1. A private foundation may not hold more than 50% of the voting stock of a business.
           
2. Private foundation "B" acquires, by bequest, 37% of nonvoting stock in a national plumbing business; therefore, "B" must dispose of at least 2% of this stock within five years of its acquisition.
           
3. If a private foundation has excess business holdings, an excise tax is imposed on the value of the excess business holdings.
           
4. Private foundation "B" holds excess business holdings and has been fined an excise tax of 5%. If "B" disregards the fine and continues to have excess business holdings, the IRS will impose an additional excise tax on the amount of the excess business holdings.
           
5. Private foundation "B" receives a gift of 40% of a business' voting stock. "B" holds the stock for a period of four years and 363 days and subsequently sells the stock. "B" will be subject to a 5% excise tax on the amount of the excess business holdings.
           
6. If a private foundation owns 18% of voting stock in a business, and a major contributor to the foundation subsequently acquires 3% of voting stock in the same business, there is no violation of the excess business holdings rule.
           
7. If a private foundation owns 20% of a business' voting stock, and a manager of the foundation acquires 40% of the business' nonvoting stock, the private foundation must divest itself of all its stock within five years or face the penalty of an excise tax.
           
8. Sec. 170(e) of the Internal Revenue Code regulates excess business holdings by private foundations.
           
9. Private foundation "B" holds 16% of a business' voting stock. At the time, no disqualified person owns any voting stock in the same business. Four and a half years later, a new manger is hired by the foundation. This new manager holds 5% of the same business' voting stock. In six months, the "B" foundation will be subject to a 5% excise tax.
           
10. If a private foundation fails to divest itself of excess business holdings after the imposition of the 10% excise tax, an additional fine of 200% of the excess business holdings will be levied against the foundation.