article: SECTION 1. EXCISE TAXES ON ACTS OF SELF-DEALING AND PRIVATE INUREMENT BY CERTAIN TAX-EXEMPT ORGANIZATIONS. (a) In General.--Chapter 42 of the Internal Revenue Code of 1986 (relating to private foundations and certain other tax-exempt organizations) is amended by redesignating subchapter D as subchapter E and by inserting after subchapter C the following new subchapter: ``Subchapter D--Acts of Self-Dealing and Private Inurement by Certain Exempt Organizations ``Sec. 4958. Taxes on certain acts of self-dealing. ``Sec. 4959. Taxes on private inurement. ``Sec. 4960. Other definitions. ``SEC. 4958. TAXES ON CERTAIN ACTS OF SELF-DEALING. ``(a) Initial Taxes.-- ``(1) On self-dealer.--There is hereby imposed a tax on each act of self-dealing between a disqualified person and an applicable tax-exempt organization. The amount of such tax shall be 5 percent of the amount involved with respect to the act of self-dealing for each year (or part thereof) in the taxable period. The tax imposed by this paragraph shall be paid by any disqualified person (other than an organization manager acting only as such) who participates in the act of self- dealing. ``(2) On organization manager.--In any case in which a tax is imposed by paragraph (1), there is hereby imposed on the participation of any organization manager in any act of self- dealing between a disqualified person and an applicable tax- exempt organization, knowing that it is such an act, a tax equal to 2.5 percent of the amount involved with respect to such act of self-dealing for each year (or part thereof) in the taxable period, unless such participation is not willful and is due to reasonable cause. The tax imposed by this paragraph shall be paid by any organization manager who participated in the act of self-dealing. ``(b) Additional Taxes.-- ``(1) On self-dealer.--In any case in which an initial tax is imposed by subsection (a)(1) on any act of self-dealing between a disqualified person and an applicable tax-exempt organization and such act is not corrected within the taxable period, there is hereby imposed a tax equal to 200 percent of the amount involved. The tax imposed by this paragraph shall be paid by any disqualified person (other than an organization manager acting only as such) who participated in the act of self-dealing. ``(2) On organization manager.--In any case in which an additional tax is imposed by paragraph (1), if an organization manager refused to agree to part or all of the correction, there is hereby imposed a tax equal to 50 percent of the amount involved. The tax imposed by this paragraph shall be paid by any organization manager who refused to agree to part or all of the correction. ``(c) Special Rules.-- ``(1) Joint and several liability.--If more than one person is liable under any paragraph of subsection (a) or (b) with respect to any one act of self-dealing, all such persons shall be jointly and severally liable under such paragraph with respect to such act. ``(2) $10,0000 limit for management.--With respect to any one act of self-dealing, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $10,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $10,000. ``(d) Self-Dealing.--For purposes of this section-- ``(1) In general.--Except as provided by paragraph (2), the term `self-dealing' means any direct or indirect-- ``(A) transfer, lease, or license of property between an applicable tax-exempt organization and a disqualified person, and ``(B) lending of money or other extension of credit between an applicable tax-exempt organization and a disqualified person. ``(2) Exceptions.--The term `self-dealing' shall not include-- ``(A) the lending of money by a disqualified person to an applicable tax-exempt organization if the loan is without interest or other charge (determined without regard to section 7872) and if the proceeds of the loan are used exclusively for exempt purposes, ``(B) the furnishing of goods or facilities by a disqualified person to an applicable tax-exempt organization if the furnishing is without charge and if the goods or facilities so furnished are used exclusively for exempt purposes, and ``(C) any transfer, lease, or license of property if-- ``(i) such transfer, lease, or license (as the case may be) is by a disqualified person in the ordinary course of such disqualified person's trade or business and such transaction is on a basis comparable to the basis on which similar transactions are made in the ordinary course of such trade or business with other parties, or ``(ii) such transfer, lease, or license (as the case may be) is by an applicable tax-exempt organization in the ordinary course of its activities and such transaction is made on a basis comparable to the basis on which similar transactions are made in the ordinary course of such activities with other parties. ``(3) Exempt purpose.--For purposes of paragraph (2), the term `exempt purpose' means-- ``(A) in the case of an organization described in section 501(c)(3), any purpose specified in section 501(c)(3), and ``(B) in the case of an organization described in section 501(c)(4), any purposes specified in section 501(c)(4). ``(e) Other Definitions.--For purposes of this section-- ``(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 self-dealing occurs and ending on the earliest of-- ``(A) the date of mailing a notice of deficiency under section 6212 with respect to the tax imposed by subsection (a)(1), ``(B) the date on which the tax imposed by subsection (a)(1) is assessed, or ``(C) 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 fair market value of other property given, or the amount of money and fair market value of other property received. In the case of a lease or license, the amount involved is the fair market value of the leased or licensed property. For purposes of this paragraph-- ``(A) in the case of the taxes imposed by subsection (a), fair market value 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), fair market value shall be the highest fair market value during the taxable period. ``(3) Correction.--The terms `correction' and `correct' mean, with respect to any act of self-dealing transaction, undoing the transaction to the extent possible, but in any case place the applicable tax-exempt organization in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards. ``SEC. 4959. TAXES ON PRIVATE INUREMENT. ``(a) Initial Taxes.-- ``(1) On the organization.--There is hereby imposed on any taxable inurement a tax equal to 10 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the organization with respect to which such inurement occurred. ``(2) On the management.--There is hereby imposed on the participation of any organization manager of an organization in any taxable inurement which occurs with respect to such organization, knowing that it is taxable inurement, a tax equal to 2\1/2\ percent of the amount thereof, unless such participation is not willful and is due to reasonable cause. The tax imposed by this paragraph shall be paid by the organization manager who participated in the taxable inurement. ``(3) On the beneficiary.--There is hereby imposed on any taxable inurement a tax equal to 5 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the beneficiary of such inurement. ``(b) Additional Taxes.-- ``(1) On the organization.--In any case in which an initial tax is imposed by subsection (a)(1) on any taxable inurement and such inurement is not corrected within the taxable period, there is hereby imposed a tax equal to 100 percent of the amount of the taxable inurement. The tax imposed by this paragraph shall be paid by the organization with respect to which such inurement occurred. ``(2) On the management.--In any case in which an additional tax is imposed by paragraph (1), if an organization manager refused to agree to part or all of the correction, there is hereby imposed a tax equal to 50 percent of the amount of the taxable inurement. The tax imposed by this paragraph shall be paid by any organization manager who refused to agree to part or all of the correction. ``(3) On the beneficiary.--In any case in which an additional tax is imposed by paragraph (1), there is hereby imposed a tax equal to 200 percent of the amount of the taxable inurement. The tax imposed by this paragraph shall be paid by the beneficiary of such inurement. ``(c) Taxable Inurement.--For purposes of this section, the term `taxable inurement' means any direct or indirect inurement of any part of the net earnings of an applicable tax-exempt organization to the benefit of any disqualified person. Such term shall not include any act of self-dealing on which tax is imposed under section 4958. ``(d) Special Rules.--For purposes of this section-- ``(1) Joint and several liability.--If more than one person is liable under any paragraph of subsection (a) or (b) with respect to any one taxable inurement, all such persons shall be jointly and severally liable under such paragraph with respect to such inurement. ``(2) Limit for management.--With respect to any 1 taxable inurement, the maximum amount of the tax imposed by subsection (a)(2) shall not exceed $10,000, and the maximum amount of the tax imposed by subsection (b)(2) shall not exceed $10,000. ``(e) Other Definitions.--For purposes of this section-- ``(1) Taxable period.--The term `taxable period' means, with respect to any taxable inurement, the period beginning with the date on which the inurement occurs and ending on the earliest of-- ``(A) the date of mailing a notice of deficiency under section 6212 with respect to the tax imposed by subsection (a)(1), or ``(B) the date on which the tax imposed by subsection (a)(1) is assessed. ``(2) Correction.--The terms `correction' and `correct' mean, with respect to any taxable inurement, undoing the inurement to the extent possible, establishing safeguards to prevent future taxable inurement, and where fully undoing the inurement is not possible, such additional corrective action as is prescribed by the Secretary by regulations. ``SEC. 4960. OTHER DEFINITIONS. ``(a) Applicable Tax-Exempt Organization.--For purposes of this subchapter, the term `applicable tax-exempt organization' means any organization which (without regard to any act of self-dealing or taxable inurement) would be described in paragraph (3) or (4) of section 501(c) and exempt from tax under section 501(a). Such term shall not include any private foundation. ``(b) Disqualified Person.--For purposes of this subchapter, the term `disqualified person' means, with respect to any transaction-- ``(1) any person who was an organization manager at any time during the 5-year period ending on the date of such transaction, ``(2) any member of a family (as defined in section 4946(d)) of any person described in paragraph (1), and ``(3) any 35-percent controlled entity of persons described in paragraph (1) or (2). ``(c) Organization Manager.--For purposes of this subchapter, the term `organization manager' means, with respect to any applicable tax- exempt organization, any officer, director, or trustee of such organization (or any individual having powers or responsibilities similar to those of officers, directors, or trustees of the organization). Such term includes any person performing substantial medical services as a physician for the applicable tax-exempt organization pursuant to an employment or other contractual relationship. ``(d) 35-Percent Controlled Entity.--For purposes of this section-- ``(1) 35-percent controlled entity.--The term `35-percent controlled entity' means-- ``(A) a corporation in which persons described in paragraph (1) or (2) of subsection (b) own more than 35 percent of the combined voting power, ``(B) a partnership in which such persons own more than 35 percent of the profits interest, and ``(C) a trust or estate in which such persons own more than 35 percent of the beneficial interest. ``(2) Constructive ownership rules.--Rules similar to the rules of paragraphs (3) and (4) of section 4946(a) shall apply for purposes of this subsection.'' (b) Application of Private Inurement Rule to Tax-Exempt Civic Leagues.--Paragraph (4) of section 501(c) of such Code is amended to read as follows: ``(4)(A) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare and no part of the net earnings of which inures to the benefit of any private shareholder or individual. ``(B) Local associations of employees-- ``(i) the membership of which is limited to the employees of a designated person or persons in a particular municipality, and ``(ii) which is operated exclusively for charitable, educational, or recreational purposes.'' (c) Technical and Conforming Amendments.-- (1) Subsection (e) of section 4955 of such Code is amended-- (A) by striking ``Section 4945'' in the heading and inserting ``Sections 4945 and 4959'', and (B) by inserting before the period ``or a taxable inurement for purposes of section 4959''. (2) Subsections (a), (b), and (c) of section 4963 of such Code are each amended by inserting ``4958, 4959,'' after ``4955,''. (3) Subsection (e) of section 6213 of such Code is amended by inserting ``4958 (relating to acts of self-dealing), 4959 (relating to private inurement),'' before ``4971''. (4) The table of subchapters for chapter 42 of such Code is amended by striking the last item and inserting the following: ``Subchapter D. Acts of self-dealing and private inurement by certain exempt organizations. ``Subchapter E. Abatement of first and second tier taxes in certain cases.'' (d) Effective Date.--The amendments made by this section shall apply to transactions occurring on or after January 1, 1994.
summary: Amends the Internal Revenue Code to impose an excise tax on: (1) each act of self-dealing between a disqualified person and a tax-exempt organization; and (2) any direct or indirect inurement of net earnings of a tax-exempt organization to the benefit of any disqualified person. Describes a disqualified person as: (1) any organization manager; (2) any family member of an organization manager; or (3) any 35-percent controlled entity of such persons.