The excise tax imposed on a private foundation's excess business holdings is in effect an audit fee to defray IRS expenses.

Question

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The excise tax on a private foundation's excess business holdings is not an audit fee but rather a penalty for violating the rules governing private foundations. It is intended to discourage private foundations from holding too much ownership in a for-profit business, which could lead to a conflict of interest or an unfair advantage over competitors. The money collected from this tax is used to fund charitable causes and organizations, not to defray IRS expenses.

The Excise Tax Imposed on a Private Foundation's Excess Business