[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR53.4944-2]

[Page 155-156]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 53_FOUNDATION AND SIMILAR EXCISE TAXES--Table of Contents
 
   Subpart E_Taxes on Investments Which Jeopardize Charitable Purpose
 
Sec. 53.4944-2  Additional taxes.

    (a) On the private foundation. Section 4944(b)(1) of the Code 
imposes an excise tax in any case in which an initial tax is imposed by 
section 4944(a)(1) and Sec. 53.4944-1(a) on the making of a 
jeopardizing investment by a private foundation and such investment is 
not removed from jeopardy within the taxable period (as defined in 
section 4944(e)(1)). The tax imposed under section 4944(b)(1) is to be 
paid by the private foundation and is at the rate of 25 percent of the 
amount of the investment. This tax shall be imposed upon the portion of 
the investment which has not been removed from jeopardy within the 
taxable period.
    (b) On the management. Section 4944(b)(2) of the Code imposes an 
excise tax in any case in which an additional tax is imposed by section 
4944 (b)(1) and paragraph (a) of this section and a foundation manager 
has refused to agree to part or all of the removal of the investment 
from jeopardy. The tax imposed under section 4944(b)(2) is at the rate 
of 5 percent of the amount of the investment, subject to the provisions 
of section 4944(d) and Sec. 53.4944-4. This tax is to be paid by any 
foundation manager who has refused to agree to the removal of part or 
all of the investment from jeopardy, and shall be imposed upon the 
portion of the investment which has not been removed from jeopardy 
within the taxable period.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example (1). X is a foundation manager of Y, a private foundation. 
On the advice of X, Y invests $5,000 in the common stock of corporation 
M. Assume that both X and Y are liable for the taxes imposed by section 
4944(a) on the making of the investment. Assume further that no part of 
the investment is removed from jeopardy within the taxable period and 
that X refused to agree to such removal. Y will be liable for an 
additional tax of $1,250 (i.e., $5,000x25%). X will be liable for an 
additional tax of $250 (i.e., $5,000x5%).
    Example (2). Assume the facts as stated in Example (1), except that 
X is not liable for the tax imposed by section 4944(a)(2) for his 
participation in the making of the investment, because such 
participation was not willful and was due to reasonable cause. X will 
nonetheless be liable for the tax of $250 imposed by section 4944(b)(2) 
since an additional tax has been imposed upon Y and since X refused to 
agree to the removal of the investment from jeopardy.

[[Page 156]]

    Example (3). Assume the facts as stated in Example (1), except that 
Y removes $2,000 of the investment from jeopardy within the taxable 
period, with X refusing to agree to the removal from jeopardy of the 
remaining $3,000 of such investment. Y will be liable for an additional 
tax of $750, imposed upon the portion of the investment which has not 
been removed from jeopardy within the taxable period (i.e., $3,000x25%). 
Further X will be liable for an additional tax of $150, also imposed 
upon the same portion of the investment (i.e., $3,000x5%).

[T.D. 7240, 37 FR 28747, Dec. 27, 1972, as amended by T.D. 8084, 51 FR 
16302, May 2, 1986]