A person’s aggregate contributions and bequests with respect to an organization shall be determined as of the last day of its taxable year. That amount is compared with the organization’s total contributions and bequests received up to such date in determining whether it exceeded the $5,000–2 percent limit. See Regs. 1.507–6(b)(1).

Generally, all contributions or bequests made before October 9, 1969, are deemed to have been made on October 9, 1969. However, when an organization’s support patterns in years prior to 1969 are material to an IRC 509(a)(2) determination, gifts in such years are counted in the year they were actually made. For that purpose only, a contributor may be classified as a substantial contributor in years prior to 1969. Regs. 1.507–6(b)(1) further provides that in order for a person to be a substantial contributor for purposes of IRC 509(a)(2) before October 9, 1969, the aggregate of his or her contributions and bequests must have exceeded the $5,000–2 percent limit both on the ending date of the organization’s taxable years in question and the organization’s year that includes October 9, 1969. Thus, if a person’s gifts exceeded the $5,000–2 percent limit as of one or more of the organization’s taxable years before October 9, 1969, but was less than the $5,000–2 percent limit as of the ending date of the year which included October 9, 1969, the person would not be a substantial contributor.

A person is considered to be a substantial contributor with respect to a foundation from the first day the amounts the foundation received from him or her exceeded the $5,000–2 percent limit. This is so even though determination of the percentage of total contributions and bequests is not made until the end of the foundation’s taxable year. See Regs. 1.507–6(b)(1).

These rules are illustrated by the following example: On January 1, 1968, A, an individual, gave $4,500 to M, a private foundation on a calendar year basis. On June 1, 1969, A gave M the further sum of $1,500. The total amount of contributions received by M throughout its existence as of December 31, 1968, was $100,000. The total amount of contributions received through December 3, 1969, was $250,000. A did not become a substantial contributor to M in 1968. As of June 1, 1969, A is a substantial contributor to M for purposes of IRC 509(a)(2). For all other purposes, A is a substantial contributor as of October 9, 1969.

However, assume in the foregoing example that the total of M’s contribution and bequests received were as follows: December 31, 1967 — $230,000; December 31, 1968— $250,000; December 31, 1969— $350,000. Assume further that A gave M $4,500 on December 1, 1967; $1,500 on June 1, 1968; and made no gifts in 1969. Under such circumstances, A would not be a substantial contributor for any purpose.

With one exception, once a person becomes a substantial contributor with respect to a private foundation he or she remains a substantial contributor even though he or she might not be so classified if the determination were made at some later date. The aggregate contributions and bequests of a person to a foundation may become less than 2 percent of the total received by the foundation by reason of additional contributions and bequests made by other persons, yet such person remains a substantial contributor with respect to the foundation. See Regs. 1.507–6(b)(1).

This quality of persistence is illustrated by the following example: On September 16, 1970, C, an individual, gave $10,000 to P, a private foundation on a calendar year basis. Throughout its existence, and through December 31, 1970, the close of its taxable year, P had received a total of $100,000 in contributions and bequests. On January 3, 1971, P received two bequests totalling $1 million. C is a substantial contributor as of September 16, 1970, and therefore remains one even though he or she no longer meets the 2 percent test on a later date after the end of the taxable year of the foundation in which he or she first became a substantial contributor.

Regs. 1.507–6(c)(1) provides a very broad definition of "contribution." It says that for purposes of IRC 507(d)(2) the term shall have the same meaning as it does in IRC 170(c). The term thus includes bequests, legacies, devises, and transfers within the meaning of IRC 2055 or IRC 2106(a)(2).

It follows that any payment of money or transfer of property without adequate consideration shall be considered a "contribution" for IRC 507 purposes both in determining what are the contributions of a person with respect to a private foundation and what are the total contributions of the foundation.

Where payment is made or property transferred as consideration for admissions, sales of merchandise, performance of services, or furnishing of facilities to the donor, the qualification of all or any part of such payment or transfer as a contribution under IRC 170(c) shall determine whether and to what extent such payment or transfer constitutes a "contribution" under IRC 507(d)(2).

For purposes of certain Code provisions specified in Regs. 1.507–6(a)(2), the term "substantial contributor" does not include an organization described in IRC 509(a)(1), (2), or (3), or a wholly owned subsidiary of such organization. Those Code provisions are: IRC 170(b)(1)(E)(iii), IRC 507(d)(1), IRC 508(d), IRC 509(a)(1) and (3), and Chapter 42 of the Code. See Regs. 1.507–6(a)(2).

Since IRC 509(a)(2) is not included among the above cited provisions, the general principle is not applicable to contributions or grants to IRC 509(a)(2) organizations. Therefore, if IRC 509(a) organizations make contributions or grants to an organization claiming non private foundation status under IRC 509(a)(2), they will become substantial contributors to such organization if their contributions exceed the $5,000–2 percent limitation. Under such circumstances their contributions or grants generally would not constitute support from permitted sources to the organization claiming non-private foundation status for purposes of the support test under IRC 509(a)(2). However, as to what constitutes support from permitted sources where the grant is from a public charity described in IRC 509(a)(1), whether such organization is a substantial contributor or not, see Regs. 1.509(a)–3(j).

The rules for constructive ownership under IRC 267(c) (other than paragraph (3) thereof) shall apply as though such ownership related to stockholdings. In applying IRC 267(c), the "family of an individual" in IRC 267(c)(4) shall be as defined in IRC 4946(d). See Regs. 53.4946–1(e)(1). See also, IRM 7.27.20.5.

"Voting power" generally corresponds to the outstanding power of corporate stock. It does not include voting power which is "obtainable but not obtained" such as the potential voting power that would result if a holder of convertible securities were to convert his or her holdings into voting stock. Of course, any potential voting power actually converted into outstanding voting power would be considered "voting power" for purposes of IRC 4946(a)(1). See Regs. 53.4946–1(a)(6). The term does not include voting power which a person controls only in a fiduciary capacity (such as a director or trustee). See Regs. 53.4946–1(a)(5).

The rules for constructive ownership of corporate stock under IRC 267(c) shall apply except that the "family of an individual" shall be as defined in IRC 4946(d). See Regs. 53.4946–1(d)(1).

Generally, the rules for constructive ownership under IRC 267(c) (other than paragraph (3) thereof) shall apply as though such ownership related to stockholdings. In the application of such rules, the "family of an individual" in IRC 267(c)(4) shall be as defined in IRC 4946(d). See Regs. 53.4946–1(e)(1).

Any profit or beneficial interest that has been counted once, whether by reason of actual or constructive ownership, shall not be counted a second time. See Regs. 53.4946–1(e)(ii).

A corporation is a disqualified person if more than 35 percent of the total combined voting power of its corporate stock is owned by persons described in IRC 4946(a)(1)(A), (B), (C), or (D). Determination of such ownership is made in the same manner as provided for the determination of ownership for persons having more than 20 percent of the voting power of a corporation.

Generally, the rules for constructive ownership under IRC 267(c) (other than paragraph (3) thereof) shall apply except that the "family of an individual" shall be as defined in IRC 4946(d). See Regs. 53.4946–1(d)(1)(i).

Any stockholdings that have been counted once, whether by reason of actual or constructive ownership, shall not be counted a second time. See Regs. 53.4946–1(d)(1)(i).

“Public office” for purposes of IRC 4946(c)(5) must be distinguished from mere public employment. Not every position in the employ of a State, a governmental subdivision thereof, a U.S. possession, or the District of Columbia, is a "public office." Under Regs. 53.4946–1(g)(2) what constitutes public office, as distinguished from mere public employment, depends upon the facts and circumstances of the case. However, the essential element is whether a significant part of the employee’s activities consist of the independent performance of policymaking functions. Another factor is whether the position in question is created and its powers defined by the Congress, a State constitution, a State legislature, or by a municipality or other governing body pursuant to authority conferred by the Congress, State constitution, or State legislature.

An example of public employees who generally are not public officials would be the members of municipal police and fire departments. However, the heads of those departments who have policymaking functions as a significant part of their activities would be public officials. Other examples of public employment not involving policymaking within the meaning of the regulations would be the professors of a State educational institution and the physicians employed at a State hospital. See Regs. 53.4946–1(g)(2)(ii).

If a person is on leave of absence without pay from his or her position or office in government as of December 31, 1969, for the purpose of working for a private foundation, he or she is not to be treated as a government official during any continuous period of employment with the foundation between December 31, 1969, and January 1, 1971. See Regs. 53.4946–1(g)(3). The rule is also applicable to persons who entered into a commitment with a foundation before December 31, 1969, to work during any period between December 31, 1969, and January 1, 1971.