What tax applies to excessive investment income according to private foundation rules?

The tax that applies to excessive investment income according to private foundation rules is correctly identified. Private foundations are subject to specific regulations regarding their investment income and holdings. Excessive investment income refers to income that exceeds a certain allowable threshold.

The tax on excess business holdings is relevant here because private foundations are limited in the amount of stock they can own in any business enterprise. If a foundation holds more than this prescribed limit, it may be subject to an excise tax on the value of the excess holdings. This regulation is designed to ensure that foundations do not unduly control or influence business entities, preserving their charitable status and intentions.

In contrast, the other options do not accurately address the tax on excessive investment income in the context of private foundations. For example, the tax on self-dealing pertains to transactions between a private foundation and its disqualified persons rather than to excessive investment income directly. The tax on investment income generally applies to the passive income a foundation earns, but it does not specifically target the excessiveness of that income. Therefore, the tax on excess business holdings is the most accurate response regarding the implications of excessive investment income for private foundations.