Saturday, June 24, 2017

“Group” Liability for 4943 Violation Could Be in $Millions

The most likely reason Michael Arlen Davis (MAD) has been “parking” shares with Rudolf Steiner Foundation (RSF) is to avoid the penalties created by Internal Revenue Code Section 4943.  That section creates severe economic penalties when not-for profits own in excess of 20% of an operating business.  MAD has been very careful over the years making sure that his own holdings never go above 20%.  The combined holdings of MAD and RSF, however, now stand at 33%.

So what does Section 4943 say about two entities holding more than 20%?  It seems to have anticipated MAD’s behavior – Section 4943(c) provides that the permitted holdings of any private foundation is (i) 20 percent of the voting stock, reduced by (ii) the percentage of the voting stock owned by all disqualified persons.

What is a disqualified person?  The term “disqualified person” meansa person who is (A) a substantial contributor to the foundation with that being defined as anyone any person who contributed more than $5,000 to the private foundation, if such amount is more than 2 percent of the total contributions received in that year by the foundation.  The status of being a “disqualified person” continues for 10 years.  Since Skywords Family Foundation contributed more than 2% of the total contributions received by RSF in 2011, Davis and Skywords are each a “disqualified person” until at least 2021.

Looks like a 200 percent penalty tax could possibly be in in the future for the MAD/RSF “Group”

Dayisun Tngri

READ MORE:  RSF's Likely Violation of Section 4943 Internal Revenue Code