The United States Tax Court issued a rare Internal Code section 4958 intermediate sanctions decision last month. In Jagannath v. Commissioner (Docket No. 18629-22), the court sorted through the available evidence to conclude that a $590,000 purported loan by a section 501(c)(3) tax-exempt nonprofit to a disregarded entity owned by the nonprofit’s president was an excess benefit transaction. It found the president’s unsupported self-serving testimony insufficient to prove otherwise and also that the president had abandoned or conceded any argument that the nonprofit had received consideration in exchange.
Because the president failed to correct the excess benefit transaction within the applicable taxable period, the court affirmed the imposition by the IRS of both the first and second tier section 4958 taxes, totaling $1,327,500. The court also affirmed the imposition of section 6651(a)(1) failure-to file and section 6651(a)(2) failure-to-pay additions to tax. The president had previously conceded application of the section 4958 manager’s tax in the amount of $20,000.