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Explanation of Section 4965 Excise Tax on Tax Exempt Entities |
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On February 7, 2007, the IRS released Notice 2007-18, which addresses how provisions of new section 4965 will be applied. This section, enacted by the Tax Increase Prevention Reconciliation Act of 2005 (TIPRA), establishes new excise taxes for tax-exempt entities and their managers who are parties to certain prohibited tax shelter transactions. The tax on the entity is based on the net income of the organization and the date that the entity became a party to the transaction. The tax applies in that year and in subsequent years in which the entity is a party.
The Notice provides definitions of the applicable types of transactions as well as who is considered a "party" to these transactions. It also indicates how net income is calculated for purposes of assessing the tax. Public comments are requested on the further implementation of this section.
To see Notice 2007-18, click here.
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