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Part 7. Rulings and Agreements

Chapter 26. Private Foundations Manual

Section 7. Termination of Private Foundation Status

7.26.7  Termination of Private Foundation Status

7.26.7.1  (10-20-1998)
Overview

  1. This section discusses termination of private foundation status and covers the following topics:

    • General rules for terminating private foundation status

    • Termination by distributing net assets to public charities

    • Termination by operation as a public charity

    • Transfering assets from one private foundation to another

    • Tax implications under IRC 507(c)

    • Digests of Published Rulings

7.26.7.1.1  (10-20-1998)
Technical Overview

  1. Once an organization is classified as a private foundation, by virtue of not meeting the requirements of IRC 509(a)(1) through (4), it is subject to the regulatory provisions of Chapter 42 and to the supervision that results from its administrative enforcement. Congress, however, did not believe that the private foundation provisions and supervision were necessary for those IRC 501(c)(3) organizations that were not private foundations by reason of being described in IRC 509(a)(1), (2) or (3). These organizations were already subject to broad public supervision due to their dependency on public support, their operation in the public interest, or their control by a publicly supported organization.

  2. Once an organization is a private foundation, it can only terminate its private foundation status by demonstrating that regulatory supervision is no longer necessary. The only way an organization can terminate its private foundation status is to comply with the requirements of IRC 507, i.e., by showing that its assets are subject to public supervision, either through transfer of its assets to an IRC 509(a)(1) charity, by operation as an IRC 509(a)(1), (2) or (3) charity, or by payment of the IRC 507 tax.

7.26.7.1.2  (10-20-1998)
Presumption and Continuance of Private Foundation Status

  1. IRC 508(b) sets up a presumption of private foundation status. Any organization which does not demonstrate that it falls within the definition of a publicly supported organization will be treated as a private foundation. Thus, an organization described in IRC 501(c)(3) is presumed to be a private foundation unless it rebuts that presumption by demonstrating that it is described in IRC 509(a)(1) through (4).

  2. An organization may be presumed to be a private foundation when in fact it is not.

    • For example, if an organization is presumed to be a private foundation because it failed to notify the Service, it is not precluded from later rebutting that presumption. If it proves that it was never a private foundation, it does not have to terminate under IRC 507. Private foundation status is only terminated once it has attached to an organization in fact, and the status only attaches if in fact the organization is not described in IRC 509(a)(1) through (4).

  3. Once an organization described in IRC 501(c)(3) fails to meet the description of any of the IRC 509(a)(1) through (4) subsections, however, private foundation status attaches. An organization which is a private foundation on October 9, 1969, or becomes one on any subsequent date, can therefore terminate that status only by one of the methods described in IRC 507. The rule is once: a private foundation always a private foundation, unless status is terminated under IRC 507.

7.26.7.1.3  (10-20-1998)
Relationship of Private Foundation Status With Exempt Status

  1. Private foundation status exists independent of exempt status. Private foundation status may exist where an organization described in IRC 501(c)(3)—

    1. has not applied for exemption,

    2. has had its exempt status revoked, or

    3. where it has applied for exemption under sections other than IRC 501(c)(3).

  2. For Non-Exempt Charitable and Split Interest Trusts, IRC 4947 provides that the trusts will be treated as organizations described in IRC 501(c)(3). Such organizations are, therefore, subject to the provisions of IRC 509, and, therefore the provisions of Chapter 42. IRC 507 is applicable to a non-exempt charitable trust which is a private foundation. IRC 507 is also generally applicable to split-interest trusts.

  3. If an organization which is a private foundation ceases to be described in IRC 501(c)(3), it will not lose its private foundation status. It will become a taxable private foundation. A taxable private foundation is still subject to Chapter 42 and must meet the requirements of IRC 507 if it wishes to terminate its private foundation status.

  4. An organization cannot avoid private foundation status by reason of the fact that its activities are such that the organization could qualify under a section of the Code other than IRC 501(c)(3), where it no longer qualifies under IRC 501(c)(3).

    • For example, if a social welfare organization, therefore, qualifies under both IRC 501(c)(3) and (4) and is a private foundation, it cannot avoid private foundation status by then claiming exemption solely under IRC 501(c)(4).

7.26.7.2  (10-20-1998)
Termination of Private Foundation Status

  1. IRC 507 covers three areas that result in termination of private foundation status and one very important area in which private foundation status is not terminated.

    1. IRC 507(a) Termination

    2. IRC 507(b)(1) Termination

    3. IRC 507(b)(2) Termination

7.26.7.2.1  (10-20-1998)
IRC 507(a) Termination

  1. Under this section, a private foundation may be involuntarily terminated for repeated or flagrant violations of Chapter 42 provisions. Private foundation status can also be voluntarily terminated under this section. The common result is the tax imposed under IRC 507(c).

7.26.7.2.2  (10-20-1998)
IRC 507(b)(1) Terminations

  1. There are two kinds of termination of private foundation status described in IRC 507(b):

    1. Distribution of net assets to certain public charities.

    2. Operation as a public charity.

  2. Private foundations terminating private foundation status under IRC 507(b) are not subject to IRC 507(c) tax.

7.26.7.2.2.1  (10-20-1998)
IRC 507(b) (1) (A) Terminations — Distributions of Net Assets to Public Charities

  1. A foundation may terminate its private foundation status if it distributes its net assets to one or more public charities. To accomplish the termination in this manner:

    1. it must not have committed any act or failure to act giving rise to liability for tax under Chapter 42;

    2. it must distribute all of its right, title, and interest in and to all of its net assets;

    3. the organization(s) to which it distributes must be public charities as described in IRC 170(b)(1)(A)(i)-(vi); and

    4. the public charities must have been so described for a continuous period of at least 60 months.

7.26.7.2.2.2  (10-20-1998)
IRC 507(b)(1)(B) Terminations — Operation as a Public Charity

  1. A foundation may terminate its private foundation status by operating as a public charity for the designated period of time (60 months).

7.26.7.2.2.3  (10-20-1998)
IRC 507(b)(2) Transfers

  1. A transferor private foundation may transfer all its assets to one or more private foundations who will, subject to the appropriate requirements in the regulations, "inherit" the characteristics of the transferor private foundation. The transferor private foundation may then go out of existence by a voluntary IRC 507(a) termination by " paying" an IRC 507(c) tax of zero because the transferor has zero assets at the date of termination.

7.26.7.2.2.4  (10-20-1998)
Status After Termination

  1. An organization whose status as a private foundation is terminated under IRC 507 is treated as an organization created on the day after the date of such termination.

7.26.7.3  (10-20-1998)
Terminations Under IRC 507(a)

  1. The status of an organization as a private foundation will be terminated only if,

    1. the organization notifies the Service of its intent to accomplish such termination, or

    2. with respect to the organization there have been either willful repeated acts (or failures to act), or a willful or flagrant act (or failure to act), giving rise to tax liability under Chapter 42; and the Service notifies the organization that it is therefore liable for IRC 507(c) taxes.

  2. If tax liability is incurred, the organization either pays the IRC 507(c) tax, less any amount abated under IRC 507(g), if any, or has the entire amount abated under IRC 507(g). See Reg. 1.507–1(a).

7.26.7.3.1  (10-20-1998)
Voluntary IRC 507(a)(1) Terminations

  1. A statement of intent to voluntarily terminate private foundation status must set forth in detail the computation and amount of tax imposed under IRC 507(c).

    1. Full payment of the tax must be made when the statement is filed, less any amount that is the subject of an abatement request under IRC 507(g).

    2. If a request for abatement is denied, the tax due must be paid in full upon notification of the denial. See Reg. 1.507–1(b)(1).

  2. An IRC 507(a)(1) termination does not relieve a private foundation, or any disqualified person, of tax liability under Chapter 42 for acts or failures to act prior to termination or for any additional taxes imposed for failures to correct such acts or failures to act. See Reg. 1.507–1(b)(2).

  3. After an IRC 507(a)(1) termination, an organization wishing to be treated as described in IRC 501(c)(3) must apply for recognition of exemption under IRC 501(c)(3) in accordance with IRC 508(a). See Reg. 1.507–1(b)(3).

  4. For purposes of the disallowance of charitable deductions under IRC 508(d), the Service will give public notice that it has received from a private foundation a notice of intent to terminate its status under IRC 507(a)(1). See Reg. 1.507–1(b)(5).

  5. A transfer of assets described in IRC 507(b)(2) to one or more other private foundations (or one or more other private foundations and one or more IRC 509(a)(1), (2), (3), or (4) organizations) will not be a voluntary termination under IRC 507(a)(1). See Reg. 1.507–1(b)(6).

  6. Neither a transfer of all of the assets of a private foundation nor a significant disposition of its assets will be deemed to result in a termination of the transferor’s private foundation status under IRC 507(a)(1) unless the transferor elects to terminate pursuant to IRC 507(a)(1) or unless IRC 507(a)(2) is applicable. See Reg. 1.507–1(b)(7).

  7. If a transfer of all the assets of a private foundation or a significant disposition of its assets (Reg. 1.507-3(c)(2)) results in Chapter 42 tax liability, or Chapter 42 tax liability was incurred prior to the transfer by the transferor, transferee liability may be applied against the transferee organization for payment of such liability. Any Chapter 42 tax liability incurred for failure to correct a past Chapter 42 tax liability will be deemed incurred on the date on which the act or failure to act giving rise to the initial tax liability occurred. See Reg. 1.507–1(b)(8).

  8. A private foundation which transfers all of its net assets must file the annual information return required by IRC 6033 for the taxable year in which the transfer occurs. However, neither return is required for any taxable year following the taxable year in which the last of any such transfers occurred, if the organization has neither legal nor equitable title to any assets or engages in no activity during the subsequent years. See Reg. 1.507–1(b)(9).

7.26.7.3.2  (10-20-1998)
Involuntary IRC 507(a) (2) Terminations

  1. For purposes of involuntary terminations under IRC 507(a)(2):

    1. The term "willful repeated acts (or failures to act)" means at least two acts or failures to act both of which are voluntary, conscious, and intentional (see Reg. 1.507–1(c)(1));

    2. A "willful and flagrant act (or failure to act)" is one which is voluntarily, consciously, and knowingly committed in violation of any provision of Chapter 42 (other than IRC 4940 or 4948 (a)) and which would appear to be a gross violation to a reasonable person (see Reg. 1.507–1(c)(2));

    3. An act (or failure to act) may be treated as an act by the private foundation for purposes of IRC 507(a)(2) even though tax is imposed upon one or more foundation managers and not upon the foundation (see Reg. 1.507(c)(3));

    4. A failure to correct an act or acts (or failure or failures to act) which gave rise to Chapter 42 tax liability by the close of the correction period may be a willful and flagrant act (or failure to act) (see Reg. 1.507(c)(4)); and

    5. For an act (or failure to act) to be willful a motive to avoid the restrictions of the law or the incurrence of any tax is not necessary; however, there must be knowledge on behalf of the foundation or a manager that an act (or failure to act) is one of self-dealing, a taxable expenditure, or other act (or failure to act) to which Chapter 42 applies (see Regs. 1.507–1(c)(5) and 53.4945–1(a)(2)(iii)).

7.26.7.4  (10-20-1998)
Distribution of All Net Assets to Public Charities

  1. Under IRC 507(b)(1)(A) a private foundation may terminate its status without incurring the tax imposed by IRC 507(c) provided:

    1. There have not been either willful, repeated acts (or failures to act) or a willful and flagrant act (or failure to act) giving rise to liability for tax under Chapter 42; and

    2. The organization distributes all of its net assets to one or more organizations described in IRC 170(b)(1)(A)(i) through (vi), each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding such distribution. See Reg. 1.507–2(a)(1).

7.26.7.4.1  (10-20-1998)
Notice Not Required

  1. In order to terminate its private foundation status by distributing all of its net assets in compliance with the requirements of IRC 507(b)(1)(A), the organization is not required to file the notification described under IRC 507(a). The private foundation may, therefore, carry out the distributions without giving advance notice to the Service of its intent to terminate. See Reg. 1.507–2(a)(1).

7.26.7.4.2  (10-20-1998)
No Termination Tax

  1. The IRC 507(c) termination tax is not imposed on organizations terminating under IRC 507(b)(1)(A); therefore, no abatement of such tax under IRC 507(g) is required. See Reg. 1 .507–2(a)(1).

7.26.7.4.3  (10-20-1998)
Organizations Qualifying as Distributees

  1. The distribution of net assets must be to one or more organizations described in IRC 170(b)(1)(A)(i) through (vi), in effect IRC 509(a)(1) organizations. IRC 509(a)(1) excludes these organizations from the definition of private foundations. Briefly, the types of organizations that generally qualify as distributees are:

    • Churches or conventions or associations of churches--IRC 170(b)(1)(A)(i);

    • Schools—IRC 170(b)(1)(A)(ii);

    • Hospitals—IRC 170(b)(1)(A)(iii);

    • Medical research organizations operated in conjunction with a hospital—IRC 170(b)(1)(A)(iii);

    • Organizations receiving substantial public support or governmental support (exclusive of income received from the exercise or performance of their exempt function) and operated for the benefit of a college or university owned or operated by a governmental unit—IRC 170(b)(1)(A)(iv);

    • Governmental units described in IRC 170(c)(1)—IRC 170(b)(1)(A)(v); and

    • Organizations that normally receive a substantial part of their support (exclusive of income received from the exercise or performance of their exempt function) from the public or the government—IRC 170(b)(l)(A)(vi).

  2. In addition, a distributee organization must have been in existence and must have been so described for a continuous period of at least 60 calendar months immediately preceding the distribution. See Reg. 1.507–2(a)(1).

    1. However, a distributee organization in existence less than 60 months prior to receiving distribution will qualify as a proper distributee where it was formed from the consolidation of two public charities each of which would have been in existence for 60 months at the time of distribution had they not been consolidated. See Rev. Rul. 75–289, 1975–2 C.B. 215.

    2. For the effect of transfers to organizations not described in IRC 170(b)(1)(A)(i) through (vi), see IRM 7.26.7.4.5 (concerning distribution of net assests).

  3. An organization that qualifies under IRC 170(b)(1)(A)(i) through (vi) is not precluded from being a qualified distributee merely because it also appears to meet the description of an IRC 170(b)(1)(A)(vii) or (viii) organization. See Reg. 1.507–2(a)(3).

  4. If within a period of three years from the date of transfer, the transferee organization becomes a private foundation, the transfer may be considered a transfer under IRC 507(b)(2). See Reg. 1.507–3(e).

7.26.7.4.4  (10-20-1998)
Reliance on Distributee’s Ruling Letter

  1. An organization seeking to terminate its private foundation status under IRC 507(b)(1)(A) may, with respect to distributions made after December 29, 1972, rely on a final ruling or determination letter issued to a potential distributee organization that such distributee is described in IRC 170(b)(1)(A)(i) thru (vi) until public notice is given of revocation of the distributee’s classification or public notice is given that grantors may be affected pending verification of the continued foundation status classification of the distributee except where the distributor or grantor:

    1. had knowledge that the distributee’ s foundation classification letter was revoked, or

    2. was in part responsible for, or was aware of, the act, the failure to act, or the substantial and material change on the part of the organization which gave rise to the revocation of the distributee’s determination letter.

7.26.7.4.5  (10-20-1998)
Distribution of Net Assets

  1. In order to terminate its private foundation status under IRC 507(b)(1)(A), an organization is required to distribute all of its right, title, and interest in and to all of its net assets to one or more IRC 509(a)(1) organizations in existence and so described for a continuous period of at least 60 calendar months preceding the distribution. See Reg. 1.507–2(a)(7).

  2. For the effect of restrictions and conditions upon distribution of net assets. See Reg. 1.507–2(a)(8).

  3. If a private foundation transfers all of its net assets, but less than all of its net assets to one or more 60-month IRC 509(a)(1) organizations, the foundation will not have terminated its private foundation status. If such a foundation subsequently receives a grant, the grant will be considered to have been made to a private foundation. See Reg. 1.507–1 (b)(7).

  4. Neither IRC 507(b)(1)(A) nor the regulations establish a fixed period of time within which the distribution of all of the organization’s net assets must be completed. The distributing organization will be treated, however, as a private foundation for all purposes until the distribution is completed. See Reg. 1.507–2(a)(4).

  5. Termination is effective on the date on which the distributing foundation has distributed all of its net assets to qualified distributees. Pending the complete distribution of assets to qualified distributees, the foundation remains subject to the provisions of Chapter 42, except for IRC 4940 tax when the transitional period relating to medical research organizations and community trusts is applicable.

  6. An organization that remains in existence after terminating its private foundation status under IRC 507(b)(1)(A) must, unless specifically excepted by IRC 508(c), file an Application for Recognition of Exemption to be treated as an organization described in IRC 501(c)(3). See Rev. Rul. 74–490, 1974–2 C.B. 171.

7.26.7.4.6  (10-20-1998)
Transfer of All Right Title and Interest

  1. To effectuate a transfer of "all of its right, title, and interest in and to all of its net assets" within the meaning of IRC 507(b)(1)(A), a transferor private foundation may not impose any material restriction or condition that prevents the transferee organization (the public charity) from freely and effectively employing the transferred assets, or derived income, in furtherance of its exempt purposes. Whether a particular condition or restriction imposed upon a transfer is "material " must be determined from all of the facts and circumstances of the transfer.

  2. Significant facts and circumstances to consider include Whether the:

    1. transferee is the owner in fee of the transferred assets;

    2. transferred assets will be held and administered in a manner consistent with its exempt purposes;

    3. governing body of the transferee has ultimate authority and control over the transferred assets and income derived from them; and

    4. governing body of the public charity is organized and operated independently from the transferor. Relevant considerations in determining the independence of the transferee’s governing body include: whether the transferor or disqualified persons select members of the governing body of the transferee; whether the members of the governing body of the transferee are selected by public officials acting in their capacities as such; and, the length of time each member of the governing may serve as such.

  3. Reg. 1.507–2(a)(8)(iii) provides that the following factors will not be considered "material" restrictions or conditions:

    1. The fund is given the transferor’s name or similar designation or a name that memorializes the creator of the foundation or his family.

    2. The income or assets of the fund are to be used for a designated purpose or a particular IRC 509(a)(1), (2), or (3) organization and the use is consistent with the transferee’s exempt purpose.

    3. The transferred assets are administered in a separate or identifiable fund, some or all of the principal of which is not to be distributed for a specified period as, for example, a fund to endow a chair at a university. The transferee must be the legal and equitable owner of the fund and the governing body must exercise ultimate and direct authority and control over the fund.

    4. The transferor requires that the transferred property be retained by the transferee if the retention is important to the achievement of exempt purposes because of peculiar features of the property, as, for example, the transfer of a woodland preserve to be maintained as an arboretum for the benefit of the community.

  4. Reg. 1.507–2(a)(8)(iv) sets out certain factors that will be considered "material" restrictions or conditions.

    1. The transferor, a disqualified person with respect to it or a person or committee designated by such a person, reserves the right to name the persons to which the transferee must distribute or to direct the timing of such distributions (other than as discussed in 2(b) above), as, for example, by power of appointment. For a listing of some specific factors that indicate whether the reservation of such a right exists, see Reg. 1.507–2(a)(8)(iv)(A)(2)–(3).

    2. The terms of the transfer agreement require the public charity to take or withhold action with respect to the transferred assets which furthers none of the transferee’s exempt purposes and would, if performed by the transferor, subject it to tax under Chapter 42 of IRC.

    3. The transferee assumes or takes assets subject to leases, contractual agreements or other liabilities of the transferor for purposes inconsistent with those of the transferee, other than the payment of the transferor’s Chapter 42 taxes incurred prior to the transfer to the extent of the value of the assets transferred.

    4. The transferee is required by any express or implied agreement or restriction to retain assets transferred to it by the transferor.

    5. An agreement is entered into giving the transferor or a disqualified person with respect to it the right of first refusal with respect to transferred property unless acquired by the transferor subject to a right of first refusal prior to October 9, 1969.

    6. An agreement is entered into between the transferee and the transferor establishing an irrevocable relationship with respect to maintenance or management of the assets transferred such as with banks or brokerage firms.

7.26.7.5  (10-20-1998)
Termination by Operation as a Public Charity

  1. Under IRC 507(b)(1)(B) a private foundation may voluntarily terminate its private foundation status without incurring the tax imposed by IRC 507(c), if:

    1. there have not been either willful, repeated acts (or failures to act) or a willful and flagrant act (or failure to act) giving rise to liability for tax under Chapter 42;

    2. such organization meets the requirements of IRC 509(a)(1), (2), or (3) for a continuous period of 60 calendar months beginning with the first day of any taxable year which begins after December 31, 1969;

    3. such organization notifies the Service (in such manner as prescribed by regulations) before the commencement of such 12-month or 60-month period (or before March 29, 1973) that it is terminating its private foundation status; and

    4. such organization establishes to the satisfaction of the Service (in such manner as the prescribed by regulations), immediately after the expiration of such 12-month or 60-month period, that such organization has complied with the requirements of IRC 509(a)(1), (2), or (3) for the prescribed period.

7.26.7.5.1  (10-20-1998)
General Requirements

  1. In order to accomplish an IRC 507(b)(1)(B) termination of its private foundation status, an organization must change its organizational structure, its operations, the sources of its support, or any combination of the foregoing, to the extent necessary to meet the requirements of IRC 509(a)(1), (2), or (3) for a continuous period of 60 calendar months beginning with the first day of any taxable year which begins after December 31, 1969.

  2. To establish a successful termination, an organization must within 90 days after the expiration of the 12-month or 60-month period, file such information with the Service as is necessary to make a determination as to the organization’s status as an organization described under IRC 509(a)(1), (2), or (3).

    1. Failure to supply, within the time required, all of the information required to make such a determination will not alone constitute a failure to satisfy the requirements of IRC 507(b)(1)(B).

    2. When information filed timely is incomplete, and additional information as requested by the Service is filed within the allowed time period, the original submission will be considered timely.

7.26.7.5.1.1  (10-20-1998)
Effect of 60-Month Period Termination

  1. An organization which has terminated its private foundation status under IRC 507(b)(1)(B) is not subject to the special rules set forth in IRC 508(a) and (b).

7.26.7.5.2  (10-20-1998)
Notification Requirement

  1. Generally, a private foundation is required to notify the Service of its intention to terminate before the beginning of the 60-month period that it is terminating its private foundation status. Regs. 1.507–2(b)(1)(ii).

  2. Such notification should contain the following information:

    • name and address of the private foundation;

    • its intention to terminate its private foundation status;

    • whether the 60-month period applies;

    • Code section under which it seeks classification (IRC 509(a)(1), (2), or (3));

    • if IRC 509(a)(1) is applicable, the clause of IRC 170(b)(1)(A) involved;

    • date its regular taxable year begins; and,

    • date of commencement of the 12-month or 60-month period.

7.26.7.5.2.1  (04-01-2003)
Extension of Time to Assess Deficiencies

  1. When a private foundation files a notification of its intent to begin a 60-month termination and does not request an advance ruling, it may also elect to extend the period of limitation within which it may be assessed for IRC 4940 tax by filing Form 872–B.

  2. By consenting to such an extension, the organization can avoid having to pay IRC 4940 tax and having to file a claim for refund of the tax if it successfully accomplishes a 60-month IRC 507(b)(1)(B) termination.

7.26.7.5.3  (10-20-1998)
Conversion to IRC 509(a)(1) Organizations

  1. By definition, IRC 509(a)(1) organizations include only those organizations that are described in IRC 170(b)(1)(A)(i) through (vi).

7.26.7.5.3.1  (10-20-1998)
Conversion to IRC 170(b)(1)(A)(vi) Organization

  1. IRC 170(b)(1)(A)(vi) describes religious, charitable, educational, scientific, literary, etc., organizations that "normally" receive a substantial part of their support (exclusive of income received from related activities) from a governmental unit or from direct or indirect contributions from the general public. Generally, private foundations wishing to effect IRC 507(b)(1)(B) terminations by converting to a publicly-supported organization must satisfy either one of two public support tests described in Reg. 1.170A–9(e). Both tests involve mathematical computations to determine the degree of public financial support.

7.26.7.5.3.2  (10-20-1998)
Conversion to IRC 170(b)(1)(A)(vi) Organization with Regular 60-Month

  1. An organization attempting to terminate its private foundation status by qualifying as an IRC 170(b)(1)(A)(vi) (publicly supported) organization for the 60-month period will qualify only if:

    1. the total amount of support received from governmental units or from direct or indirect contributions from the general public during a continuous period of 60 calendar months equals one-third or more of its total support for the period, or

    2. the organization meets the "facts and circumstances" test provided in the regulations under IRC 170(b)(1)(A), for a continuous period of 60 calendar months. See Reg. 1.507–2(d)(1)(i) and (ii).

7.26.7.5.3.3  (10-20-1998)
Conversion to IRC 170(b)(1)(A) (iv) Organization

  1. IRC 170(b)(1)(A)(iv) describes organizations receiving substantial public support or substantial governmental support that are operated for the benefit of a college or university owned or operated by a governmental unit. See Reg. 1.507–2(c)(1)(iii).

7.26.7.5.3.4  (10-20-1998)
Conversion to IRC 170(b)(1)(A)(iv) Organization with Regular 60-Month Period Rule

  1. An organization must meet the organizational and operational requirements and must "normally" meet the support requirements of IRC 170(b)(1)(A)(iv) on or before commencement of the 60-month period and continuously thereafter for at least 60 calendar months. See Regs. 1.507–2(d)(1)(i) and 1.507–2(d)(2).

7.26.7.5.4  (10-20-1998)
Conversions to Other 509(a)(1) Organizations

  1. A private foundation may terminate its status as a private foundation if it changes its organizational structure or its operations, or both, so that it qualifies as an organization described in IRC 170(b)(1)(A)(i), (ii), (iii), or (v) continuously for the 60 calendar month period.

  2. Organizations described in IRC 170(b)(1)(A)(i), (ii), (iii), or (v) are:

    • churches or conventions or associations of churches--IRC 170(b)(1)(A)(i)

    • schools—IRC 170(b)(1)(A)(ii)

    • hospitals—IRC 170(b)(1)(A)(iii)

    • medical research organizations operated in conjunction with a hospital—IRC 170(b)(1)(A)(iii)

    • governmental units—IRC 170(b)(1)(A)(v).

  3. In order for an organization to qualify as a church, a school, a hospital, a medical research organization operated in conjunction with a hospital, or a governmental unit, it must meet the definitional requirements for such organizations set forth in Regs. 1.170A–9(a) through (d).

7.26.7.5.5  (10-20-1998)
Conversion to IRC 509(a) (2) Organization

  1. IRC 509(a)(2) defines certain types of broadly, publicly supported organizations. The rules for conversion requireoperation in such a manner that the support tests in Reg. 1.509(a)–3 of the regulations are met for a continuous period of 60 calendar months.

7.26.7.5.5.1  (10-20-1998)
60-Month Period Rule

  1. An organization will be considered an IRC 509(a)(2) organization for the purposes of a 60-month termination under IRC 507(b)(1)(B) only if the organization meets the support requirements set forth in IRC 509(a)(2)(A) and (B) for the continuous period of 60 calendar months, rather than for any shorter period set forth in the regulations under IRC 509(a)(2). See Reg. 1.507–2(d)(1)(iii).

7.26.7.5.5.2  (10-20-1998)
Conversions to IRC 509(a)(3) Organization

  1. IRC 509(a)(3) describes certain types of organizations that support one or more organizations described in IRC 509(a)(1) and (2).

7.26.7.5.5.3  (10-20-1998)
60-Month Period Rule

  1. An organization will be considered an IRC 509(a)(3) organization for the purpose of a 60-month termination under IRC 507(b)(1)(B) only if the organization satisfies the organizational and operational test and other requirements of IRC 509(a)(3) on or before the commencement of the 60-month period and continuously thereafter during such period. See Reg. 1.507–2(d) (2).

7.26.7.5.6  (10-20-1998)
IRC 507(b)(1)(B) Terminations

  1. IRC 507(a) does not apply to a termination described in IRC 507(b)(1)(B). Therefore, notification of commencing an IRC 507(b)(1)(B) terminating will not be treated as a notification described in IRC 507(a), even if the private foundation does not successfully terminate its status pursuant to IRC 507(b)(1)(B). See Reg. 1.507–2(b)(2).

  2. A private foundation which terminates its status under IRC 507(b)(1)(B) does not incur tax under IRC 507(c) and, therefore, there would be no abatement of such a tax under IRC 507(g).

7.26.7.5.6.1  (04-01-2003)
Advance Rulings or Determinations

  1. Upon filing notification that it is commencing a 60-month termination under IRC 507(b)(1)(B), a private foundation may obtain an advance ruling or determination that it can be expected to satisfy the requirements of IRC 507(b)(1)(B)(i) during the 60-month period. Issuance of the ruling or determination is discretionary. See Reg. 1.507–2(e)(1).

  2. In determining whether such an advance ruling or determination would be appropriate, the basic consideration is whether the foundation’s organizational structure (including any revisions made prior to the beginning of the 60-month period), proposed programs or activities, intended method of operation, and projected sources of support indicate that the organization is likely to satisfy the requirements of IRC 509(a)(1), (2), or (3) and Reg. 1.507–2(d) during the 60-month period. See Reg. 1.507–2(e)(2).

  3. Grantors and contributors may rely on such an advance ruling or determination for purposes of IRC 170, 545(b), 556(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522, until the advance ruling or determination is revoked by public notice, but only if the grantor or contributor was not responsible for, or aware of, the act or failure to act that resulted in the foundation’s failure to meet the requirements of IRC 509(a)(1), (2), or (3), or did not know that notice had been given to the organization that its advance ruling or determination would be revoked.

  4. A potential grantee organization may request a ruling whether a proposed grant or contribution, if accepted, will result in its failure to meet the requirements of IRC 509(a)(1), (2), or (3). The request should be filed with the Service, and issuance of a ruling is discretionary. The foundation must submit all information necessary to make a determination on the factors listed in Reg. 1.507–2(e)(2). A favorable ruling may be relied on by the grantor or contributor of the contribution for purposes of the Code sections listed in IRC 170, 545(b), 556(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522. See Reg. 1.507-2(e)(3).

  5. A foundation which obtained a favorable advance ruling or determination for a 60-month termination cannot rely on that ruling or determination if it fails to complete a successful termination under IRC 507(b)(1)(B) as an organization described in IRC 509(a)(1), (2), or (3), and is liable for IRC 4940 tax for taxable year(s) during the 60-month period. Any tax imposed during the period and not paid, will accrue interest under IRC 6601 but will not result in a penalty under IRC 6651, because failure to pay such tax during the 60-month period was due to reasonable cause. See Reg. 1.507–2(e)(4).

  6. A favorable advance ruling or determination cannot be issued if the organization does not also file with the request a consent, by using Form 872–B, under IRC 6501(c)(4) to extend the time limitation for the assessment of IRC 4940 tax deficiencies. Regs. 1.507–2(e) (5).

7.26.7.5.6.2  (10-20-1998)
Organization’s Status During Termination Period

  1. If a private foundation successfully accomplishes a valid IRC 507(b)(1)(B) termination of its private foundation status, the termination is retroactive to the beginning of the 60-month period. Thus, the terminating organization will be treated for the entire 60-month period in the same manner as an organization described in IRC 509(a)(1), (2), or (3). See Reg. 1.507–2(f)(1)(i).

7.26.7.5.6.3  (10-20-1998)
Filing Requirements during Termination Period

  1. The terminating private foundation must continue to file Form 990–PF either in the year it distributes its assets and dissolves, or during the 60-month termination period. The applicable box for the particular type of terminating private foundation on the top of Form 990–PF should be checked. See IRC 6043(b), Regs. 1.6043–3, and 1.507–2(a)(6).

  2. In the last year of a 60-month termination period, an organization files Form 990.

  3. An organization which makes an IRC 507(b)(1)(A) termination is not required to comply with the public inspection of private foundation annual reports requirements of IRC 6104(d). See Reg. 1.507–2(a)(6)(ii).

7.26.7.5.6.4  (10-20-1998)
Failure to Meet Termination Requirements

  1. (1) If a private foundation fails to accomplish an IRC 507(b)(1)(B) termination during the 60-month period, it will be subject to IRC 507, 508, 509, and Chapter 42 for any taxable year or years within the 60-month period during which it does not satisfy the requirements of IRC 509(a)(1), (2), or (3), and will be treated as an organization described in IRC 509(a)(1), (2), or (3) for any taxable year or years in which it does satisfy those requirements, making IRC 507, 508, 509, and Chapter 42 inapplicable for that particular year(s). Grants and contributions made for any particular year will be treated according to its foundation status during that year. In determining whether an organization satisfies the requirements of IRC 509(a)(1), (2) or (3) for any taxable year in the 60-month period, the organization will be treated as if it were a new organization with its first taxable year beginning on the date of the commencement of the 60-month period. See Regs. 1.507–2(f)(2)(i) and (ii).

  2. The organization’s aggregate tax benefit will continue to be computed from the date from which such computation would have been made, but for the notice filed under IRC 507(b)(1)(B)(ii), except that any taxable year within such 60-month period for which such organization meets the requirements of IRC 509(a)(1), (2), or (3) will be excluded from such computations. See Reg. 1 507–2(f)(2)(iii).

7.26.7.5.6.5  (10-20-1998)
Transitional Rules for Organizations Operating as Public Charities

  1. An organization which terminates its private foundation status under IRC 507(b)(1)(B) will not be considered as carrying on activities subject to IRC 4940 tax during the 60-month termination period.

  2. When the organization’s termination period has not expired prior to the due date for filing an annual return under IRC 6033 or 6012 for its first taxable year after December 31, 1969 (or any other taxable year ending before February 20, 1973), the organization must do one of the following.

    1. Complete and file the annual return on time, paying any IRC tax due. If a successful termination is thereafter completed, file a claim for refund of IRC 4940 tax paid.

    2. Complete and file the annual return on time, except for the line relating to excise taxes on investment income. In lieu of paying IRC 4940 tax, it may file a statement with the annual return explaining that it has taken affirmative action to terminate its private foundation status. Such statement must specifically describe the action taken and must explain how the action will result in the termination of its private foundation status. If the organization fails to successfully terminate its private foundation status, the tax imposed under IRC 4940 will be treated as if due from the due date for its annual return, without regard to any extension of time for filing the return.

7.26.7.5.6.6  (10-20-1998)
Certain Transfer of Assets

  1. Private foundations attempting to accomplish an IRC 507(b)(1)(B) termination might dispose of certain assets by making transfers to one or more private foundations or to other types of organizations.

  2. A transfer to a private foundation during the termination period is a transfer described in IRC 507(b)(2), even though the transferor foundation thereafter successfully terminates under IRC 507(b)(1)(B).

7.26.7.6  (10-20-1998)
Transfer of Assets from one Private Foundation to one or more Private Foundations

  1. IRC 507(b)(2) provides: "Transferee foundations—For purposes of this part, in the case of a transfer of assets of any private foundation to another private foundation pursuant to any liquidation, merger, redemption, recapitalization, or other adjustment, organization, or reorganization, the transferee foundation will not be treated as a newly created organization. "

  2. Reg. 1.507–3(c)(1) provides in part that a transfer of assets described in IRC 507(b)(2) shall include any organization or reorganization described in subchapter C of Chapter 1 of the Code. It also provides that

    for purposes of IRC 507(b)(2) the terms other adjustment, organization, or reorganization shall include any partial liquidation or any other significant disposition of assets to one or more private foundations, other than transfers for full and adequate consideration or distributions out of current income. For purposes of this paragraph, a distribution out of current income shall include any distribution described in IRC 4942(h)(1)(A) and (B). (Italics added)

  3. Also, the term "reorganization" is defined in IRC 368.

7.26.7.6.1  (10-20-1998)
Filing Requirements

  1. A private foundation is required to file an information return on Form 990–PF regarding any liquidation, dissolution, IRC 507(b)(1)(A) termination, partial liquidation, or "other significant disposition of assets. " This requirement applies whether the private foundation is a corporation, association, or trust. See IRC 6043(b), Reg. 1.6043–3.

  2. The fact that a private foundation must file as required by IRC 6043(b) does not necessarily mean that it has made an IRC 507(b)(2) transfer since it is subject to those filing requirements even though the transferees are not private foundations. See Reg. 1.507–3(c)(3).

7.26.7.6.2  (10-20-1998)
Meaning of Certain Terms

  1. The meaning of the terms liquidation, merger, reorganization, redemption, recapitalization is determined by the law of the state in which the private foundation was incorporated or otherwise created. Most states have nonprofit or not-for-profit corporation statutes that are expressly applicable to charitable corporations. Among other things, the statutes usually deal with mergers or consolidations, dissolutions, and sales or other dispositions of assets of charitable corporations. If the private foundation is a trust, the charitable trust law of the state applies in determining the meaning of the terms.

  2. The tests for determining whether a transfer represents a " significant disposition of assets" are set forth in Reg. 1.507–3(c)(2).

  3. A disposition not otherwise significant in relation to the fair market value of the foundation’s net assets may be a "significant disposition" when aggregated with other dispositions to private foundations in the same year and with "related" distributions in prior taxable years. The determination whether a "significant disposition " has occurred through a series of "related distributions " will be made on the basis of "all the facts and circumstances of the particular case."

7.26.7.6.3  (10-20-1998)
Purpose and Scope of IRC 507(b)(2) Provisions

  1. IRC 507(b)(2) and the regulations thereunder also deal with the effect of partial liquidations or other significant disposition of assets made by a private foundation to one or more other private foundations. See Reg. 1.507–3(c)(1).

  2. The broad purpose of the rules contained in the regulations is to preserve the applicable restrictions contained in Chapter 42 in the case of assets that are transferred from one private foundation to another. The regulations thus provide that such transfers result in a carry-over of certain tax attributes and characteristics of the transferor organization to the transferee foundation. See Reg. 1.507–3(a)(1).

7.26.7.6.4  (10-20-1998)
Effect on Transferee Foundations of IRC 507(b)(2) Transfer

  1. A transferee private foundation succeeds to that part of the transferor’s "aggregate tax benefit" (defined in Reg. 1.507–5) that is attributable to the assets transferred, based on the transferor’s assets held just before the transfer. However, fair market value of assets held and transferred is determined at the time of the transfer. Furthermore, a transferee foundation not effectively controlled, directly or indirectly, by the same person or persons who effectively control the transferor organization cannot succeed to an aggregate tax benefit greater than the fair market value of the assets transferred, as determined at the time of the transfer. See Reg. 1.507–3(a)(2).

  2. A substantial contributor to the transferor foundation will also be treated as a substantial contributor with respect to all transferee foundations regardless of whether such a person meets the $5,000—two percent test with respect to any of the transferee foundations at any time. See Reg. 1.507–3(a)(3). This would prevent a transferor foundation from avoiding the prohibitions of Chapter 42 relating to substantial contributors (defined as disqualified persons under IRC 4946) by transferring its assets to another private foundations having different substantial contributors. Thus, a transferee foundation that has acquired "substantial contributors" by reason of an IRC 507(b)(2) transfer will be affected by the rules under IRC 4941 (self-dealing), IRC 4942 (income distributions), and IRC 4963 (excess business holdings) that relate to a private foundation and its "disqualified persons. "

  3. A transferor foundation cannot prevent the use of its assets for the payment of Chapter 42 tax liabilities by transferring such assets to another private foundation. In such a case the assets are subject to, in the hands of the transferee, any liability incurred by the transferor either prior to or as a result of the transfer, to the extent that the transferor foundation does not satisfy the liability. See Reg. 1.507–3(a)(4).

  4. An IRC 507(b)(2) transfer will be counted toward the satisfaction of the transferor’s IRC 4942 distribution requirements to the extent the assets transferred meet the requirements of IRC 4942(g). However, the recordkeeping requirements of IRC 4942(g)(3)(B) are inapplicable during any period in which the transferor has no assets. See Reg. 1.507–3(a)(5).

  5. After an IRC 507(b)(2) transfer, the applicable time period described in IRC 4943(c)(4), (5), or (6) shall include the period during which the transferor foundation held the assets transferred, and the period during which the transferee foundation holds such assets. See Reg. 1.507–3(a)(6).

  6. When the transferor foundation disposes of all of its assets, during any period in which it has no assets, IRC 4945(d)(4) and (h) shall not apply to the transferee or the transferor with respect to any "expenditure responsibility" grants made by the transferor. However, any information reporting requirements imposed by IRC 4945 would still apply for any year in which any such transfer is made. See Reg. 1.507–3(a)(7).

  7. In an IRC 507(b)(2) transfer, the transferee foundation will not be treated as:

    1. being in existence prior to January 1, 1970, with respect to the transferred assets;

    2. holding the transferred assets prior to January 1, 1970; and

    3. having engaged in, or become subject to, any transaction, lease, contract, or other obligation with respect to the transferred assets prior to January 1, 1970. See Reg. 1.507–3(a)(8)(i).

  8. In an IRC 507(b)(2) transfer, the provisions listed below (see Reg. 1.507–3(a)(8)(ii)) shall apply to the transferee foundation with respect to the assets transferred to the same extent they would apply to the transferor foundation had the transfer not been effected:

    1. IRC 4940(c)(4)(B) as to basis of property

    2. IRC 4942(f)(4) as to distributions of income,

    3. Section 101(1)(2) of the Tax Reform Act of 1969 (TRA ‘69) with respect to the provisions of IRC 4941,

    4. Section 101(1)(3)(a) of TRA ‘69 as to IRC 4942, if the transferor qualified for the application of such section just before the transfer, and at least 85% of the fair market value of the net assets of the transferee immediately after the transfer were received pursuant to the transfer,

    5. Section 101(1)(3)(B) through (E) of TRA ‘69 as to IRC 4942,

    6. Section 101(1)(5) of TRA ‘69 as to IRC 4945, and

    7. Section 101(1)(6) of TRA ‘69 as to IRC 508(e).

  9. In an IRC 507(b)(2) transfer, if the transferee foundation(s) is effectively controlled (as stated in Reg. 1.482–1(a)(3)), directly or indirectly, by the same person or persons which effectively controlled the transferor foundation, for purposes of Chapter 42 and IRC 507 through 509 such a transferee shall be treated as if it were the transferor. When the net assets are transferred to two or more foundations, then, when appropriate, each transferee shall be treated as if it were the transferor on a proportional basis, according to the fair market value of assets received and the fair market value of the net assets held by the transferor just before the transfer. See Regs. 1 .507–3(a)(9)(i) and (iii).

7.26.7.6.5  (10-20-1998)
Transfers to IRC 509(a)(1), (2), or (3) Organizations

  1. The assets transferred by a private foundation to an IRC 509(a)(1), (2), or (3) organization are no longer subject to Chapter 42, unless the transferee subsequently becomes a private foundation within 3 years of the transfer, in which case the transfer will be treated as if it were an IRC 507(b)(2) transfer at the time it was made. See Reg. 1.507–3(e).

7.26.7.6.6  (10-20-1998)
Transfers to Organizations not Described in IRC 501(c) (3) or 4947(a)(1)

  1. In general, a transfer of assets by a private foundation to an organization not described in IRC 501(c)(3) or treated as described in IRC 501(c)(3) under IRC 4947(a)(1) constitutes a taxable expenditure under IRC 4945(d)(5). If such a transfer is made and, in order to correct the taxable expenditure, later is transferred to a private foundation, IRC 507(b)(2) and Reg. 1.507–3(a) would be applicable as though the transfer had been made directly to the private foundation.

7.26.7.6.7  (10-20-1998)
Transfers Made During IRC 507(b) (1) (B) Terminations

  1. A transfer from a private foundation to one or more other private foundations, during the course of an IRC 507(b)(1)(B) termination, whether during the course of a 12-month or 60-month period, will constitute a transfer described in IRC 507(b)(2) and Reg. 1.507–3. Even though the transferor satisfies the requirements of IRC 507(b)(1)(B) thereafter, thereby successfully terminating its private foundation status, Reg. 1.507–2(e) will not apply, and such transfer will still be treated as an IRC 507(b)(2) and Reg. 1.507–3 transfer, rather than as a transfer from an organization described in IRC 509(a)(1), (2), or (3).

7.26.7.6.8  (10-20-1998)
Taxable Transfers

  1. (1) Unless a private foundation gives notice under IRC 507(a)(1) to terminate its status, a transfer of assets described in IRC 507(b)(2) will not constitute a termination of the transferor’s private foundation status. However, such transfer must satisfy the requirements of all pertinent provisions of Chapter 42 of the Code. See Reg. 1.507–3(d).

    • For example, if the transfer constitutes a taxable expenditure as defined in IRC 4945, the transferor is liable for the Chapter 42 tax that is incurred.

  2. If a transfer described in IRC 507(b)(2) constitutes a willful and flagrant violation of Chapter 42, as described in IRC 507(a)(2)(A), then the provisions of IRC 507(a)(2) dealing with involuntary terminations are applicable, rather than the provisions of IRC 507(b)(2). In that event, the transferor foundation would be subject to IRC 507(c) tax. See Regs. 1.507–3(d) and 1.507–4(b).

7.26.7.7  (10-20-1998)
Imposition of IRC 507(c) Tax

  1. IRC 507(c) imposes on a private foundation whose status as such has been terminated either voluntarily or involuntarily under IRC 507(a) a tax equal to the lower of the:

    1. aggregate tax benefit defined in IRC 507(d) resulting from the IRC 501(c)(3) status of the organization, or

    2. value of its net assets. See Reg. 1.507–4(a).

  2. IRC 507(c) tax does not apply to IRC 507(b)(1)(A) or 507(b)(2) transfers unless IRC 507(a) becomes applicable. See Reg. 1.507–4(b).

7.26.7.7.1  (10-20-1998)
Aggregate Tax Benefit Defined

  1. For purposes of IRC 507(c)(1), the aggregate tax benefit resulting from the IRC 501(c)(3) status of a private foundation is the sum of:

    1. the aggregate increases in tax under Chapters 1, 11, and 12 (or the corresponding provisions of prior law) that all substantial contributors to the foundation would have incurred if their contributions had not been deductible after February 28, 1913,

    2. the aggregate increases in tax under Chapter 1 (or the corresponding provisions of prior law) that the private foundation would have incurred for taxable years beginning after December 31, 1912, had it not been exempt from tax under IRC 50 1(a) (or the corresponding provisions of prior law); and, in the case of a trust, if deductions under IRC 642(c) (or the corresponding provision of prior law) had been limited to 20 percent of the taxable income of the trust (computed without benefit of IRC 642(c) but with the benefit of IRC 170(b)(1)(A)),

    3. the amount succeeded to from transferors under Regs. 1.507–3(a) and IRC 507(b)(2), and

    4. interest on the increases in tax determined in (a), (b), and (c) above from the first day on which each such increase would have been due and payable to the date on which the organization ceases to be a private foundation. Regs. 1.507–5(a).

  2. In computing the amount of the aggregate increases in tax, all deduction benefits attributable to a particular contribution shall be included. Regs. 1.507–5(b).

7.26.7.7.2  (10-20-1998)
Substantial Contributor

  1. For the definition of "substantial contributor" and its related rules, see Reg. 1.507–6.

7.26.7.7.3  (10-20-1998)
Valuation of Assets

  1. For purposes of IRC 507(c), the value of the net assets of a private foundation shall be determined at whichever time such value is higher:

    1. the first day on which action is taken by the organization which culminates in its ceasing to be a private foundation, or

    2. the date on which it ceases to be a private foundation. See Reg. 1.507–7(a).

  2. For terminations under IRC 507(a)(1), the date on which the private foundation gives notification of a voluntary termination is the day referred to in (1)(a). See Reg. 1.507–7(b)(1).

  3. For terminations under IRC 507(a)(2), the date referred to in (1)(a) is the date of occurrence of the willful and flagrant act (or failure to act) or the first of the series of willful repeated acts (or failures to act) giving rise to liability for tax under Chapter 42 and the imposition of tax under IRC 507(a)(2). See Reg. 1.507–7(b)(2).

  4. Fair market value of the net assets shall be determined pursuant to the provisions of Regs. 53.4942(a)–2(c)(4). See Reg. 1.507–7(c).

  5. The term "net assets" means the gross assets of a private foundation reduced by all liabilities of the foundation, including appropriate estimated and contingent liabilities (such as liability for tax imposed under Chapter 42). See Reg. 1.507–7(d).

7.26.7.7.4  (10-20-1998)
Tax Liability on Transferred Assets

  1. In determining IRC 507(c) tax liability in the case of assets transferred by a private foundation, the tax will be deemed to have been imposed on the first day on which action is taken by the organization which culminates in its ceasing to be a private foundation.

  2. If private foundation status is terminated under IRC 507(a)(2), the first day on which action is taken which culminates in its ceasing to be a private foundation will be the date—

    1. of occurrence of the willful and flagrant act (or failure to act) or the first of the series of willful repeated acts (or failures to act) giving rise to liability for Chapter 42 tax and IRC 507(a)(2) tax.

    2. on which the foundation gave the notification described in IRC 507(a)(1). See Reg. 1.507–8 for the rules under these paragraphs (1) and (2).

7.26.7.7.5  (10-20-1998)
Abatement of Taxes

  1. The Service may at his discretion abate the unpaid portion of IRC 507(c) tax imposed, if

    1. the private foundation distributes all of its net assets to one or more organizations described in IRC 170(b)(1)(A) (other than in clauses (vii) or (viii), each of which has been in existence and so described for a continuous period of at least 60 calendar months, or

    2. effective assurance is given to the Service that the assets of the organization which are dedicated to charitable purposes will, in fact, be used for charitable purposes. See Reg. 1.507–9(b) and (c) for the procedures by which effective assurance is given to the Service.

7.26.7.8  (10-20-1998)
Digests of Published Rulings

  1. Status after termination—A corporation that remains in existence after terminating its private foundation status under IRC 507(b)(1)(A) must, unless specifically excepted by IRC 508(c), file an Application for Recognition of Exemption if it wishes to be treated as an organization described in IRC 501(c)(3). Rev. Rul. 74–490, 1974–2 C.B. 171.

  2. A private foundation may terminate its private foundation status under IRC 507(b)(1)(A) by distributing its total net assets to a public charity, in existence 20 months, formed from the consolidation of two public charities each of which would have been in existence for 60 months at the time of distribution had they not been consolidated. Rev. Rul. 75–289, 1975–2 C.B. 215.

  3. Private foundation nonexempt charitable trust. A nonexempt charitable trust described in IRC 4947(a)(1) that is a private foundation must terminate its private foundation status pursuant to IRC 507 before it can be excluded from such status under IRC 509(a)(3). Rev. Rul. 76–92, 1976–1 C.B. 160.

  4. A private foundation that has commenced a 60-month termination period has received an advance ruling that it can reasonably be expected to satisfy the requirements of IRC 507(b)(1)(B)(i) by operating as a public charity during the period. A private foundation that supports only such organization and otherwise qualifies under Reg. 1.509(a)–4 may be given an advance ruling that it can reasonably be expected to operate as a IRC 509(a)(3) organization and satisfy the requirements of IRC 507(b)(1)(B)(i) during its own 60-month termination period. Rev. Rul. 78–386, 1978–2 C.B. 179.


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