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benefit transaction is one in which a tax-exempt organization
provides an economic benefit to one or more of the organization’s
insiders, called “disqualified persons”, if the fair market value
of the benefit exceeds the value of what the organization
receives in return. Sec. 4958(c)(1)(A); H. Rept. 104-506, supra
at 56, 1996-3 C.B. at 104. Disqualified persons include not only
those who are able to exercise substantial influence over the
tax-exempt organization, but also their family members and
entities in which those individuals have 35 percent of the voting
power. Disqualified persons are subject to the excise penalties,
whether the excess benefit transactions are accomplished
“directly or indirectly”. Sec. 4958(c).
Before the enactment of section 4958, if an organization
within its purview did not comply with the rules regarding tax
exemption, the Commissioner’s only recourse was to revoke the
organization’s exemption. The Treasury Department realized that
such a response might be inappropriate when the exempt
organization did not conform to all the applicable rules but was
nevertheless capable of functioning for a charitable purpose.
See U.S. Department of the Treasury’s Proposals to Improve
Compliance by Tax-Exempt Organizations: Hearing Before the
Subcommittee on Oversight of the House Comm. On Ways and Means,
103d Cong., 2d Sess. 17 (1994). At the urging of the Treasury
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