Excess Business Holdings and Jeopardizing Investments: IRC §§ 4943 and 4944

§ 16.1 Excess Business Holdings

*(a) Definition of Business Enterprise

(b) Corporate Holdings

(c) Partnerships, Trusts, and Proprietorships

§ 16.3 Program-Related Investments

§ 16.4 Penalty Taxes

*(a) When the Manager Knows

§ 16.1 Excess Business Holdings

(a) Definition of Business Enterprise

*p. 429. Add after second complete paragraph:

In a complex non-tax case involving a violation of the Pension Benefit Guaranty Corporation standards, a private equity fund was found to be conducting a business owned by an employer pension plan that acquired controlling interests in struggling companies. The IRS used an “investment plus” theory to analyze the services provided to the companies in which the fund invested, creating an active business interest.1 The decision also stated that the donation of shares of the fund by a private foundation would not result in a jeopardizing investment.2

p. 429. Add new citation to footnote 10:

Language in Priv. Ltr. Rul. 8927031 was updated in Priv. Ltr. Rul. 8930047 because the IRS said it could be misconstrued.

(b) Corporate Holdings

p. 430. Add to footnote 14:

Priv. Ltr. Rul. 201303012.

(c) Partnerships, Trusts, and Proprietorships

p. 431. Add at end of subsection:

A foundation that invests in hedge funds, private equity, real estate, and similar investment vehicles must determine whether a fund is a business enterprise rather than a passive investment vehicle not ...

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