Teal, Inc., is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal. Which of the following statements is correct?
A) An excise tax in the form of an initial tax at the rate of 10% may be imposed on Teal.
B) An excise tax in the form of an initial tax at the rate of 5% may be imposed on the foundation manager.
C) An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D) An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.

Question

Quizplus · Accepted Answer

According to the rules governing private foundations, if a private foundation fails to distribute an adequate amount of income for its exempt purpose, an excise tax in the form of an additional tax at the rate of 100% may be imposed on the foundation. So, option C is correct. Option A and B are incorrect since they mention initial taxes, whereas the excise tax imposed in such cases is an additional tax. Option D is also incorrect since the tax is imposed on the foundation, not on the foundation manager.

Teal, Inc, Is a Private Foundation Which Failed to Distribute an an Adequate