26 U.S.C. § 507 : US Code - Section 507: Termination of private foundation status

Search 26 U.S.C. § 507 : US Code - Section 507: Termination of private foundation status

(a) General rule
Except as provided in subsection (b), the status of any
organization as a private foundation shall be terminated only if -
(1) such organization notifies the Secretary (at such time and
in such manner as the Secretary may by regulations prescribe) of
its intent to accomplish such termination, or
(2)(A) with respect to such organization, there have 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
(B) the Secretary notifies such organization that, by reason of
subparagraph (A), such organization is liable for the tax imposed
by subsection (c),
and either such organization pays the tax imposed by subsection (c)
(or any portion not abated under subsection (g)) or the entire
amount of such tax is abated under subsection (g).
(b) Special rules
(1) Transfer to, or operation as, public charity
The status as a private foundation of any organization, with
respect to which 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, shall be
terminated if -
(A) such organization distributes all of its net assets to
one or more organizations described in section 170(b)(1)(A)
(other than in clauses (vii) and (viii)) each of which has been
in existence and so described for a continuous period of at
least 60 calendar months immediately preceding such
distribution, or
(B)(i) such organization meets the requirements of paragraph
(1), (2), or (3) of section 509(a) by the end of the 12-month
period beginning with its first taxable year which begins after
December 31, 1969, or for a continuous period of 60 calendar
months beginning with the first day of any taxable year which
begins after December 31, 1969,
(ii) such organization notifies the Secretary (in such manner
as the Secretary may by regulations prescribe) before the
commencement of such 12-month or 60-month period (or before the
90th day after the day on which regulations first prescribed
under this subsection become final) that it is terminating its
private foundation status, and
(iii) such organization establishes to the satisfaction of
the Secretary (in such manner as the Secretary may by
regulations prescribe) immediately after the expiration of such
12-month or 60-month period that such organization has complied
with clause (i).
If an organization gives notice under subparagraph (B)(ii) of the
commencement of a 60-month period and such organization fails to
meet the requirements of paragraph (1), (2), or (3) of section
509(a) for the entire 60-month period, this part and chapter 42
shall not apply to such organization for any taxable year within
such 60-month period for which it does meet such requirements.
(2) 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 shall not be treated as a newly created organization.
(c) Imposition of tax
There is hereby imposed on each organization which is referred to
in subsection (a) a tax equal to the lower of -
(1) the amount which the private foundation substantiates by
adequate records or other corroborating evidence as the aggregate
tax benefit resulting from the section 501(c)(3) status of such
foundation, or
(2) the value of the net assets of such foundation.
(d) Aggregate tax benefit
(1) In general
For purposes of subsection (c), the aggregate tax benefit
resulting from the section 501(c)(3) status of any private
foundation is the sum of -
(A) the aggregate increases in tax under chapters 1, 11, and
12 (or the corresponding provisions of prior law) which would
have been imposed with respect to all substantial contributors
to the foundation if deductions for all contributions made by
such contributors to the foundation after February 28, 1913,
had been disallowed, and
(B) the aggregate increases in tax under chapter 1 (or the
corresponding provisions of prior law) which would have been
imposed with respect to the income of the private foundation
for taxable years beginning after December 31, 1912, if (i) it
had not been exempt from tax under section 501(a) (or the
corresponding provisions of prior law), and (ii) in the case of
a trust, deductions under section 642(c) (or the corresponding
provisions of prior law) had been limited to 20 percent of the
taxable income of the trust (computed without the benefit of
section 642(c) but with the benefit of section 170(b)(1)(A)),
and
(C) interest on the increases in tax determined under
subparagraphs (A) and (B) from the first date on which each
such increase would have been due and payable to the date on
which the organization ceases to be a private foundation.
(2) Substantial contributor
(A) Definition
For purposes of paragraph (1), the term "substantial
contributor" means any person who contributed or bequeathed an
aggregate amount of more than $5,000 to the private foundation,
if such amount is more than 2 percent of the total
contributions and bequests received by the foundation before
the close of the taxable year of the foundation in which the
contribution or bequest is received by the foundation from such
person. In the case of a trust, the term "substantial
contributor" also means the creator of the trust.
(B) Special rules
For purposes of subparagraph (A) -
(i) each contribution or bequest shall be valued at fair
market value on the date it was received,
(ii) in the case of a foundation which is in existence on
October 9, 1969, all contributions and bequests received on
or before such date shall be treated (except for purposes of
clause (i)) as if received on such date,
(iii) an individual shall be treated as making all
contributions and bequests made by his spouse, and
(iv) any person who is a substantial contributor on any
date shall remain a substantial contributor for all
subsequent periods.
(C) Person ceases to be substantial contributor in certain
cases
(i) In general
A person shall cease to be treated as a substantial
contributor with respect to any private foundation as of the
close of any taxable year of such foundation if -
(I) during the 10-year period ending at the close of such
taxable year such person (and all related persons) have not
made any contribution to such private foundation,
(II) at no time during such 10-year period was such
person (or any related person) a foundation manager of such
private foundation, and
(III) the aggregate contributions made by such person
(and related persons) are determined by the Secretary to be
insignificant when compared to the aggregate amount of
contributions to such foundation by one other person.
For purposes of subclause (III), appreciation on
contributions while held by the foundation shall be taken
into account.
(ii) Related person
For purposes of clause (i), the term "related person"
means, with respect to any person, any other person who would
be a disqualified person (within the meaning of section 4946)
by reason of his relationship to such person. In the case of
a contributor which is a corporation, the term also includes
any officer or director of such corporation.
(3) Regulations
For purposes of this section, the determination as to whether
and to what extent there would have been any increase in tax
shall be made in accordance with regulations prescribed by the
Secretary.
(e) Value of assets
For purposes of subsection (c), the value of the net assets 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.
(f) Liability in case of transfers of assets from private
foundation
For purposes of determining liability for the tax imposed by
subsection (c) in the case of assets transferred by the private
foundation, such tax shall 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.
(g) Abatement of taxes
The Secretary may abate the unpaid portion of the assessment of
any tax imposed by subsection (c), or any liability in respect
thereof, if -
(1) the private foundation distributes all of its net assets to
one or more organizations described in section 170(b)(1)(A)
(other than in clauses (vii) and (viii)) each of which has been
in existence and so described for a continuous period of at least
60 calendar months, or
(2) following the notification prescribed in section 6104(c) to
the appropriate State officer, such State officer within one year
notifies the Secretary, in such manner as the Secretary may by
regulations prescribe, that corrective action has been initiated
pursuant to State law to insure that the assets of such private
foundation are preserved for such charitable or other purposes
specified in section 501(c)(3) as may be ordered or approved by a
court of competent jurisdiction, and upon completion of the
corrective action, the Secretary receives certification from the
appropriate State officer that such action has resulted in such
preservation of assets.