Internal Revenue Code · 26 U.S.C.
§ 4940. Excise tax based on investment income
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 4940
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- December 30, 1969 by Pub. L. 91–172
- Last amended
- December 20, 2019 by Pub. L. 116–94
- Amendments
- 8 dated changes in the source credit
- Length
- 4 subsections · 1,117 words · about 5 min to read
- Defines
- 5 terms
- Cross-references
- cites 13; cited by 8 Code sections and 25 other regulations
- Regulations
- 1 issued under this section
There is hereby imposed on each private foundation which is exempt from taxation under section 501(a) for the taxable year, with respect to the carrying on of its activities, a tax equal to 1.39 percent of the net investment income of such foundation for the taxable year.
For purposes of subsection (a), the net investment income is the amount by which (A) the sum of the gross investment income and the capital gain net income exceeds (B) the deductions allowed by paragraph (3). Except to the extent inconsistent with the provisions of this section, net investment income shall be determined under the principles of subtitle A.
For purposes of paragraph (1), the term “gross investment income” means the gross amount of income from interest, dividends, rents, payments with respect to securities loans (as defined in section 512(a)(5)), and royalties, but not including any such income to the extent included in computing the tax imposed by section 511. Such term shall also include income from sources similar to those in the preceding sentence.
For purposes of paragraph (1), there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred for the production or collection of gross investment income or for the management, conservation, or maintenance of property held for the production of such income, determined with the modifications set forth in subparagraph (B).
For purposes of this section, net investment income shall be determined by applying section 103 (relating to State and local bonds) and section 265 (relating to expenses and interest relating to tax-exempt income).
No tax shall be imposed by this section on any private foundation which is an exempt operating foundation for the taxable year.
A private foundation is publicly supported for a taxable year if it meets the requirements of section 170(b)(1)(A)(vi) or 509(a)(2) for such taxable year.
The term “substantial contributor” means a person who is described in section 507(d)(2).
The rules of paragraphs (3) and (4) of section 4946(a) shall apply for purposes of subparagraph (B)(ii).
(Added Pub. L. 91–172, title I, § 101(b), Dec. 30, 1969, 83 Stat. 498; amended Pub. L. 94–455, title XIX, § 1901(b)(33)(N), Oct. 4, 1976, 90 Stat. 1802; Pub. L. 95–345, § 2(a)(4), Aug. 15, 1978, 92 Stat. 481; Pub. L. 95–600, title V, § 520(a), Nov. 6, 1978, 92 Stat. 2884; Pub. L. 98–369, div. A, title III, §§ 302(a), 303(a), July 18, 1984, 98 Stat. 779, 781; Pub. L. 99–514, title XIII, § 1301(j)(6), title XVIII, § 1832, Oct. 22, 1986, 100 Stat. 2658, 2851; Pub. L. 109–280, title XII, § 1221(a)(1), (b), Aug. 17, 2006, 120 Stat. 1089; Pub. L. 110–172, § 3(f), Dec. 29, 2007, 121 Stat. 2475; Pub. L. 116–94, div. Q, title II, § 206(a), (b), Dec. 20, 2019, 133 Stat. 3246.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 4940
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 13 other sections
- § 501(a) Exemption from tax on corporations, certain trusts, etc.
- § 511 Imposition of tax on unrelated business income of charitable, etc., organizations
- § 512(a)(5) Unrelated business taxable income
- § 167 Depreciation
- § 611 Allowance of deduction for depletion
- § 613 Percentage depletion
- § 1031 Exchange of real property held for productive use or investment
- § 103 Interest on State and local bonds
- § 265 Expenses and interest relating to tax-exempt income
- § 4942(j)(3) Taxes on failure to distribute income
- § 170(b)(1)(A)(vi) Charitable, etc., contributions and gifts
- § 507(d)(2) Termination of private foundation status
- § 4946(d) Definitions and special rules
Cited by 8 Code sections
- § 41(e)(6)(D)(iv) Credit for increasing research activities
- § 664(c)(2)(C) Charitable remainder trusts
- § 4942(d)(2) Taxes on failure to distribute income
- § 4945(d)(4)(A)(iii) Taxes on taxable expenditures
- § 4948(a) Application of taxes and denial of exemption with respect to certain foreign organizations
- § 4968(f)(1) Excise tax based on investment income of private colleges and universities
- § 6212(c)(1) Notice of deficiency
- § 6501(l)(1) Limitations on assessment and collection
Cited in 25 regulations not issued under it
- § 1.41-5A Basic research for taxable years beginning before January 1, 1987.
- § 1.170A-4 Reduction in amount of charitable contributions of certain appreciated property.
- § 1.170A-9 Definition of section 170(b)(1)(A) organization.
- § 1.250(a)-1 Deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).
- § 1.507-1 General rule.
- § 1.507-2 Special rules; transfer to, or operation as, public charity.
- § 1.507-3 Special rules; transferee foundations.
- § 1.509(a)-3 Broadly, publicly supported organizations.
- § 1.965-3 Section 965(c) deductions.
- § 1.1441-1 Requirement for the deduction and withholding of tax on payments to foreign persons.
- § 1.1443-1 Foreign tax-exempt organizations.
- § 1.6302-1 Deposit rules for corporation income and estimated income taxes and certain taxes of tax-exempt organizations.
- § 53.4942(a)-2 Computation of undistributed income.
- § 53.4942(b)-1 Operating foundations.
- § 53.4945-5 Grants to organizations.
- § 53.4945-6 Expenditures for noncharitable purposes.
- § 53.4947-1 Application of tax.
- § 53.4948-1 Application of taxes and denial of exemption with respect to certain foreign organizations.
- § 53.4963-1 Definitions.
- § 53.4968-2 Net investment income.
- § 53.6011-1 General requirement of return, statement or list.
- § 301.6212-1 Notice of deficiency.
- § 301.6501(e)-1 Omission from return.
- § 301.6501(n)-1 Special rules for chapter 42 and similar taxes.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 116–94Parts changed in 2019: (a) (e)
- Amended by Pub. L. 110–172Parts changed in 2007: (c)(4)(A)
- Amended by Pub. L. 109–280Parts changed in 2006: (c)(2) (c)(4)(A) (c)(4)(C) (c)(4)(D)
- Amended by Pub. L. 99–514Parts changed in 1986: (c)(5) (e)(2)
- Amended by Pub. L. 98–369Parts changed in 1984: (d) (e)
- Amended by Pub. L. 95–600Parts changed in 1978: (a) (c)(2)
- Amended by Pub. L. 95–345
- Amended by Pub. L. 94–455Parts changed in 1976: (c)
- Added by Pub. L. 91–172
Where it sits in the Code
- Subtitle D Miscellaneous Excise Taxes
- Chapter 42 PRIVATE FOUNDATIONS; AND CERTAIN OTHER TAX-EXEMPT ORGANIZATIONS
- Subchapter A Private Foundations
Nearby sections
- § 4940 Excise tax based on investment income
- § 4941 Taxes on self-dealing
- § 4942 Taxes on failure to distribute income
- § 4943 Taxes on excess business holdings
- § 4944 Taxes on investments which jeopardize charitable purpose
Official notes
The Law Revision Counsel's notes for this section (amendments, effective dates and related laws) are long, so they have their own page.