PLR 1231015: Proposed division of a charitable lead trust will not trigger termination tax or excise taxes

Plain-English summary

A charitable lead unitrust asked whether it could divide its assets between two successor trusts with related charitable foundations as beneficiaries. The IRS ruled that the transfers would be significant dispositions under IRC § 507(b)(2), but would not terminate the trust's private foundation status or trigger the termination tax under § 507(c). The IRS also ruled that the division would not be self-dealing, a jeopardizing investment, or a taxable expenditure, and that expenditure responsibility would not be required for the transfers. The ruling matters because it permits the trust's trustees to separate assets between successor trusts while preserving the charitable and remainder interests described in the trust instrument.

Ruling snapshot

• Question: What are the private-foundation and excise-tax consequences of dividing a charitable lead unitrust's assets between two successor trusts?
• Outcome: Approved
• Key authorities: IRC §§ 507, 4941, 4944, 4945, and 4947; Treas. Reg. §§ 1.507-1, 1.507-3, 1.507-4, 53.4945-1, 53.4946-1, and 53.4947-1; Rev. Rul. 2002-28.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Release Number: 201231015 Contact Person:
Release Date: 8/3/2012
Date: May 9, 2012 Identification Number:

                                         Telephone Number:

Employer Identification Number:

UIL: 507.01-00, 4941.00-00, 4944.00-00, 4945.00-00
Legend:

Foundation =
Foundation I =
Foundation II =
Successor Trusts =

Dear

This is in response to your ruling request regarding the proper treatment of your division and
transfer of all of your net assets to Successor Trusts under §§ 507, 4941, 4944, and 4945 of the
Internal Revenue Code ("Code").

Facts:

You represent you are a charitable lead unitrust within the meaning of § 2055(e)(2)(B) and a
nonexempt split-interest trust within the meaning of § 4947(a)(2). You will be funded from a marital
trust. Your assets consist of a beneficial interest in the marital trust which will be distributed to you
in fulfillment of a bequest (the "Assets"). You have no liabilities other than any arising from your
trust agreement. Your trustees have different charitable philosophies and divergent charitable
goals, and they believe that their charitable endeavors will be more efficiently managed separately,
by dividing you into Successor Trusts, each of which will be a charitable lead unitrust within the
meaning of § 2055(e)(2)(B) and a nonexempt split-interest trust within the meaning of § 4947(a)(2).
To accomplish this objective, your trustees propose to transfer pro rata approximately two-thirds of
your net Assets to one of the Successor Trusts ("Trust I") and one-third of your net Assets to the
other Successor Trust ("Trust II"). The assets that you are to receive from the marital trust and
that you propose to transfer to the Successor Trusts constitute all of your net Assets. You will
be transferring all of your rights, title, and interest in such assets for no consideration and not
out of current income. These transfers are referred to hereafter collectively as the "Transfers."

You have three trustees, all of whom are siblings. Two of those siblings will govern Trust I and the
third sibling and his wife will govern Trust II. Your trustees propose to make the Transfers
immediately upon receipt of the distribution from the marital trust. You will obtain an order of a
state court of jurisdiction approving the Transfers and the associated restructuring. After
completion of the Transfers, you will not have any assets. Not earlier than one day after final

distribution of the net Assets, you will provide voluntary notice to the Secretary of your intention to
terminate your private foundation status under § 507(a)(1).

Your sole income beneficiary is Foundation. You must pay a fixed percentage of your net Assets
to Foundation annually for your sixteen (16) year charitable term. You have not received any
assets since your formation, nor are you expecting to receive any assets prior to your termination
other than the Assets, and you have not performed any activities since your formation other than
administrative acts such as bookkeeping, filing tax returns, and the like. Upon expiration of your
sixteen-year charitable term your residue is to be distributed to a named entity.

Your trustees also govern the marital trust and Foundation. The same two siblings governing Trust
I, and their spouses, govern Foundation I. The third sibling governing Trust II, and his spouse and
their child, govern Foundation II. Simultaneous with your division, Foundation will divide and
transfer pro rata two-thirds of its net assets to Foundation I and one-third to Foundation II, and then
terminate and dissolve; a transaction we approved in a separate private letter ruling. Foundation,
Foundation I, and Foundation II are recognized as § 501(c)(3) tax-exempt organizations classified
as private foundations under § 509(a), all with the same or similar exempt purposes. None are
operating foundations within the meaning of § 4942(j)(3).

The trust instruments for the Successor Trusts will have the same provisions as your trust
instrument, as amended with the following material changes. Two siblings will be trustees of Trust
I and the third sibling and his wife will be the trustees of Trust II. Two thirds of your corpus will fund
Trust I and one third of your corpus will fund Trust II. The charitable lead beneficiary will be
redesignated from Foundation so that Foundation I will be the charitable lead beneficiary of Trust I
and Foundation II will be the charitable lead beneficiary of Trust II. We note that the identity of the
remainder beneficiary does not change in either trust instrument, nor are income or remainder
interests altered in any way. We also note that your trustees will not have the discretion to
commute and prepay the charitable 'lead' annuity interest prior to the expiration of the specified
term of the annuity, nor will the trustees of Trust I or Trust II have such discretion.

Your trustees and the Successor Trusts' trustees have each represented that they have not notified
the Secretary of your intention to terminate and none of them has received notification from the
Secretary that any of your statuses as private foundations under § 4947(a)(2) has been terminated
pursuant to § 507(a)(2). The respective trustees have each represented that they (i) made a full
disclosure of the factual situation to the Service, (ii) made reasonable attempts to ascertain
whether the Transfers are a violation of Chapter 42, (iii) to the best of their knowledge and
information, believe that the Transfers are not violations of Chapter 42, and (iv) have not committed
either willful repeated acts (or failures to act) or committed a willful and flagrant act (or failure to act)
which gives rise to tax under Chapter 42. You have represented that the Successor Trusts are
effectively controlled, directly or indirectly, by the same person or persons that effectively control
you within the meaning of § 1.507-3(a)(9) of the regulations.

You do not currently have grants that require the exercise of expenditure responsibility within the
meaning of § 4945(h) nor do you intend to make any such grants. You do not have any
outstanding pledges. Your trustees have agreed to allocate any charitable pledges made prior to
your final distributions between the Successor Trusts as may be agreed to by your trustees. Such
pledges will become part of the Assets.

Rulings Requested:

You have requested the following rulings:

1. The proposed Transfers from you to Successor Trusts will each constitute a "significant
   disposition of assets to one or more private foundations" within the meaning of § 1.507-3(a)(1)
   and (c) which are nonexempt split-interest trusts under § 4947(a)(2).

2. The proposed Transfers from you to Successor Trusts will not result in a termination of private
   foundation status under § 507(a) as a nonexempt split-interest trust under § 4947(a)(2), but will
   constitute a transfer between private foundations (all of which are nonexempt split-interest
   trusts under § 4947(a)(2)) within the contemplation of § 507(b)(2).

3. The proposed Transfers from you to Successor Trusts will not constitute either a notification of
   your intent to voluntarily terminate your status as a private foundation under § 507(a)(1) as a
   nonexempt split-interest trust under § 4947(a)(2), or "willful repeated acts (or failures to act) or
   a willful and flagrant act (or failure to act)," within the meaning of § 507(a)(2) such that you will,
   therefore, not be subject to tax under § 507(c).

4. The proposed Transfers from you to Successor Trusts do not constitute self-dealing
   transactions and are not subject to excise tax under § 4941.

5. The proposed Transfers from you to Successor Trusts will not constitute jeopardizing
   investments for purposes of § 4944.

6. The proposed Transfers from you to Successor Trusts will not constitute taxable expenditures
   under § 4945(d), and you will not be required to exercise expenditure responsibility under
   § 4945(h) with respect to the proposed Transfers.

Law:

Section 501(c)(3) provides an exemption from federal tax for organizations that are organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary, or
educational purposes, no part of the net earnings of which inures to the benefit of any private
shareholder or individual.

Section 507(a)(1) states that a private foundation may voluntarily terminate its private foundation
status by notifying the Secretary of its intention to voluntarily terminate its private foundation status
pursuant to § 507(a)(1) and by paying any termination tax under § 507(c).

Section 507(a)(2) states that an organization's private foundation status may involuntarily be
terminated by the Secretary if 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 the
Secretary notifies such organization that, by reason of these acts, such organization is liable for the
tax imposed by subsection 507(c), and either such organization pays the tax imposed by
subsection 507(c) (or any portion not abated under subsection 507(g)) or the entire amount of such
tax is abated under subsection 507(g).

Section 507(d)(1) provides, in part, a formula to compute for purposes of subsection (c) the
aggregate tax benefit resulting from the § 501(c)(3) status of any private foundation.

Section 507(c) imposes on an organization that voluntarily terminates its private foundation status
an excise tax equal to the lower of: (1) the aggregate tax benefits that have resulted from the

private foundation's exempt status under § 501(c)(3), or (2) the value of the net assets of the
private foundation.

Section 509(a) defines the term “private foundation” to mean a domestic or foreign organization
described in § 501(c)(3) other than one described in paragraph (1), (2), (3), or (4) of § 509(a).

Section 4941(a) imposes an excise tax on acts of self-dealing between a private foundation and
any of its disqualified persons, as defined in § 4946.

Section 4944(a) imposes a tax on any investment that jeopardizes any exempt purpose of a
§ 501(c)(3) private foundation.

Section 4945(a) imposes a tax on each taxable expenditure, payable by the private foundation. In
addition, § 4945(a)(2) imposes a tax on each foundation manager who agrees to make a taxable
expenditure unless that agreement is not willful and is due to reasonable cause.

Section 4945(d) defines the term “taxable expenditure” to include any amount paid or incurred by a
private foundation “(4) as a grant to an organization unless-- (A) such organization-- (i) is described
in paragraph (1) or (2) of § 509(a), (ii) is an organization described in § 509(a)(3) (other than an
organization described in clause (i) or (ii) of § 4942(g)(4)(A)), or (iii) is an exempt operating
foundation (as defined in § 4940(d)(2)), or (B) the private foundation exercises expenditure
responsibility with respect to such grant in accordance with subsection (h)” of § 4945 or “(5) for any
purpose other than one specified in § 170(c)(2)(B).”

Section 4945(h) states that the term “expenditure responsibility” means that a private foundation is
responsible to exert all reasonable efforts and to establish adequate procedures--(1) to see that a
grant is spent solely for the purpose for which made, (2) to obtain full and complete reports from
the grantee on how the funds are spent, and (3) to make full and detailed reports with respect to
such expenditures to the Secretary.

Section 4946 defines the term “disqualified person” with respect to a private foundation.

Section 4947(a)(2) states that in the case of a trust which is not exempt from tax under § 501(a),
not all of the unexpired interests in which are devoted to one or more of the purposes described in
§ 170(c)(2)(B), and which has amounts in trust for which a deduction was allowed under §§ 170,
545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, § 507 (relating to termination of private foundation
status), § 508(e) (relating to governing instruments) to the extent applicable to a trust described in
this paragraph, § 4941 (relating to taxes on self-dealing), § 4943 (relating to taxes on excess
business holdings) except as provided in subsection (b)(3), § 4944 (relating to investments which
jeopardize charitable purpose) except as provided in subsection (b)(3), and § 4945 (relating to
taxes on taxable expenditures) shall apply as if such trust were a private foundation. This
paragraph shall not apply with respect to-- (A) any amounts payable under the terms of such trust
to income beneficiaries, unless a deduction was allowed under § 170(f)(2)(B), 642(c),
2055(e)(2)(B), or 2522(c)(2)(B), (B) any amounts in trust other than amounts for which a deduction
was allowed under § 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, if such other amounts are
segregated from amounts for which no deduction was allowable, or (C) any amounts transferred in
trust before May 27, 1969.

Section 1.507-1(b)(1) provides in part that in order to terminate its private foundation status under
paragraph (a)(1) of § 1.507-1, an organization must submit a statement of its intent to terminate its
private foundation status under § 507(a)(1). Such statement must set forth in detail the
computation and amount of tax imposed under § 507(c).

Section 1.507-1(b)(7) provides, in part, that neither a transfer of all of the assets of a private
foundation nor a significant disposition of assets (as defined in § 1.507-3(c)(2)) by a private
foundation (whether or not any portion of such significant disposition of assets is made to another
private foundation) shall be deemed to result in a termination of the transferor private foundation
under § 507(a) unless the transferor private foundation elects to terminate pursuant to § 507(a)(1)
or § 507(a)(2) is applicable.

Section 1.507-1(c)(1) provides that for purposes of § 507(a)(2)(A), 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.

Section 1.507-1(c)(2) provides that for purposes of § 507(a)(2)(A), 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 § 4940 or 4948(a)) and which appears to a reasonable man to
be a gross violation of any such provision.

Section 1.507-1(c)(5) provides that no motive to avoid the restrictions of the law or the incurrence
of any tax is necessary to make an act (or failure to act) willful. However, a foundation's act (or
failure to act) is not willful if the foundation (or a foundation manager, if applicable) does not know
that it is an act of self-dealing, a taxable expenditure, or other act (or failure to act) to which
Chapter 42 applies. Rules similar to the regulations under Chapter 42 (see, for example,
§ 53.4945-1(a)(2)(iii)) shall apply in determining whether a foundation or a foundation manager
knows that an act (or failure to act) is an act of self-dealing, a taxable expenditure, or other such act
(or failure to act).

Section 1.507-3(a)(4) states that if a private foundation incurs a liability for one or more of the
taxes imposed under Chapter 42 (or any penalty resulting therefrom) prior to, or as a result of,
making a transfer of assets described in § 507(b)(2) to one or more private foundations, in any
case where transferee liability applies, each transferee foundation shall be treated as receiving the
transferred assets subject to such liability to the extent that the transferor foundation does
not satisfy such liability.

Section 1.507-3(a)(5) states that, except as provided in subparagraph (9) of that paragraph, a
private foundation is required to meet the distribution requirements of § 4942 for any taxable year
in which it makes a § 507(b)(2) transfer of all or part of its net assets to another private
foundation.

Section 1.507-3(a)(7) provides that except as provided in subparagraph (9) of that paragraph,
where the transferor has disposed of all of its assets, during any period in which the transferor has
no assets, § 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, the exception contained in
this subparagraph shall not apply with respect to any information reporting requirements imposed
by § 4945 and the regulations thereunder for any year in which any such transfer is made.

Section 1.507-3(a)(9)(i) states that if a private foundation transfers all of its net assets to one or
more private foundations which are effectively controlled (within the meaning of § 1.482-1(a)(3)),
directly or indirectly, by the same person or persons which effectively controlled the transferor
private foundation, for purposes of Chapter 42 (§ 4940 et seq.) and part II of subchapter F of
chapter 1 (§§ 507 through 509), such a transferee private foundation shall be treated as if it were
the transferor. However, where proportionality is appropriate, such a transferee private foundation
shall be treated as if it were the transferor in the proportion which the fair market value of the
assets (less encumbrances) transferred to such transferee bears to the fair market value of the
assets (less encumbrances) of the transferor immediately before the transfer. Subdivision (ii)
states that subdivision (i) of this subparagraph shall not apply to the requirements under §§ 6033
and 6104, which must be complied with by the transferor private foundation, nor to the requirement
under § 6043 that the transferor file a return with respect to its liquidation, dissolution, or
termination.

Section 1.507-3(c)(1) states that a transfer of assets is described in § 507(b)(2) if it is made by a
private foundation to another private foundation pursuant to any liquidation, merger, redemption,
recapitalization, or other adjustment, organization, or reorganization, which includes any other
significant disposition of assets to one or more private foundations.

Section 1.507-3(c)(2) defines the term “significant disposition of assets to one or more private
foundations” as any disposition or series of dispositions where the cumulative total of
dispositions is 25 percent or more of the fair market value of the net assets of the foundation at
the beginning of the taxable year.

Section 1.507-3(d) states that unless a private foundation voluntarily gives notice pursuant to
§ 507(a)(1), a transfer of assets described in § 507(b)(2) will not constitute a termination of the
transferor's private foundation status under § 507(a)(1). Such a transfer must, nevertheless,
satisfy the requirements of any pertinent provisions of Chapter 42. See subparagraphs (5)
through (7) of § 1.507-3(a). However, if such transfer constitutes an act or failure to act which is
described in § 507(a)(2)(A), then such transfer will be subject to the provisions of § 507(a)(2)
rather than § 507(b)(2). For example, X, a private nonoperating foundation, transfers all of its
net assets to Y, a private operating foundation, in 1971. X does not file the notice referred to in
§ 507(a)(1) and the transfer does not constitute either a willful and flagrant act (or failure to act),
or one of a series of willful repeated acts (or failures to act), giving rise to liability for tax under
Chapter 42. Under these circumstances, the transfer is described in § 507(b)(2) and the
provisions of § 1.507-3(a) apply with respect to Y. The private foundation status of X has not
been terminated under § 507(a).

Section 1.507-4(b) states that private foundations that make transfers described in § 507(b)(2)
are not subject to the tax imposed under § 507(c) with respect to such transfers unless the
provisions of § 507(a) become applicable.

Section 4945(a) imposes an excise tax on each taxable expenditure of a private foundation and in
certain circumstances on the agreement of any foundation manager to the making of a taxable
expenditure by a private foundation.

Section 53.4945-1(a)(2)(iii) of the excise tax regulations states that a foundation manager shall be
considered to have agreed to an expenditure “knowing” that it is a taxable expenditure only if: (a)
he has actual knowledge of sufficient facts so that, based solely upon such facts, such expenditure
would be a taxable expenditure, (b) he is aware that such an expenditure under these
circumstances may violate the provisions of federal tax law governing taxable expenditures, and (c)
he negligently fails to make reasonable attempts to ascertain whether the expenditure is a taxable
expenditure, or he is in fact aware that it is such an expenditure.

Section 53.4946-1(a)(8) of the excise tax regulations states that, for purposes of § 4941 only, the
term “disqualified person” shall not include any organization which is described in § 501(c)(3) (other
than an organization described in § 509(a)(4)).

Rev. Rul. 2002-28, 2002-1 C.B. 941, rules on the implications of § 507(b)(2) transfers under
§§ 4940, 4941, 4942, 4943, 4944, and 4945, for private foundations in various situations.

Analysis:

Of your three trustees, one sibling has a differing charitable philosophy and divergent charitable
goals from the other two siblings. The proposed Transfers into Trust I and Trust II will allow the two
sibling groups to direct the respective investment and exempt uses of those assets independent of
the other. You have represented that an appropriate state court of jurisdiction will issue an order
approving the Transfers and associated restructuring as described herein.

Because you are a charitable lead unitrust which has amounts in trust for which a deduction was
allowed under § 2055(e)(2)(B) and are a nonexempt split-interest trust within the meaning of §
4947(a)(2), § 507 (relating to termination of private foundation status), § 508(e) (relating to
governing instruments) to the extent applicable to a trust described in this paragraph, § 4941
(relating to taxes on self-dealing), § 4943 (relating to taxes on excess business holdings) except as
provided in subsection (b)(3), § 4944 (relating to investments which jeopardize charitable purpose)
except as provided in subsection (b)(3), and § 4945 (relating to taxes on taxable expenditures)
shall apply as if you were a private foundation.

Rulings 1, 2, and 3:

Section 507(b)(2) describes a transfer from one private foundation to another private foundation
according to any liquidation, merger, redemption, recapitalization, or other adjustment, organization
or reorganization. Section 1.507-3(c)(1) describes the terms “other adjustment, organization, or
reorganization” as including any partial liquidation or any other significant distribution of assets to
one or more private foundations, other than transfers for full and adequate consideration or
distributions out of current income. The term “significant disposition of assets to one or more
private foundations” is defined by § 1.507-3(c)(2) as any disposition or series of dispositions where
the aggregate value transferred is 25 percent or more of the fair market value of the net assets of
the foundation at the beginning of the taxable year. Since you are transferring all of your assets to
the Successor Trusts, for no consideration, and not out of current income, your proposed transfers
will qualify as a significant disposition of assets under § 507(b)(2).

Pursuant to § 1.507-4(b), a private foundation that makes a transfer described in § 507(b)(2) is not
subject to the tax imposed under § 507(c) with respect to such transfer. However, § 507(a) states

that the status of any organization as a private foundation shall be terminated only if the
organization notifies the Secretary of its intent to accomplish such termination or, with respect to
the 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 the Secretary
notifies such organization that, by reason of § 507(a)(2)(A), such organization is liable for the tax
imposed by § 507(c). As discussed in the paragraph above, your transfers will constitute a
significant distribution of assets described in § 507(b)(2). You have not notified the Secretary of
your intent to terminate your status as a private foundation, and you have represented that you
have not committed willful repeated acts (or failures to act) or committed a willful and flagrant act
(or failure to act) which gives rise to tax under Chapter 42. Therefore, your proposed transfers of
assets to the Foundations under § 507(b)(2) will not constitute either a notification of your intent to
voluntarily terminate your status as a private foundation under § 507(a)(1), or “willful repeated acts
(or failures to act) or a willful and flagrant act (or failure to act),” within the meaning of § 507(a)(2),
such that you will therefore not be subject to tax under § 507(c).

The Successor Trusts have the same governing provisions as you, with the exceptions noted
above, and collectively, the same income beneficiaries, and remainder beneficiaries. In addition,
each income beneficiary and remainder beneficiary is entitled to the same benefits both before and
after your division, with the exceptions noted above. Further, you are transferring all of your assets
to the Successor Trusts pursuant to a transfer described in § 507(b)(2). Thus, you have not
terminated your private foundation status under § 507(a)(1) as a result of your division, because no
notice of termination was filed or was required to be filed. See § 1.507-1(b)(6).

Accordingly, the proposed transfers also will not terminate your private foundation status under
§ 507(a) but will constitute a transfer between private foundations within the contemplation of
§ 507(b)(2). Accordingly, the excise tax imposed under § 507(c) will not apply.

Ruling 4:

Section 4941(a) imposes an excise tax on each act of self-dealing between a disqualified person
and a private foundation. Under § 53.4946-1(a)(8), a “disqualified person” does not include
organizations that are exempt under § 501(c)(3) other than organizations also described in §
509(a)(4). Section 4947(a)(2) and § 53.4947-1(c)(1)(ii) provide that a split-interest trust generally is
subject to the provisions of § 4941 (among other provisions) in the same manner as if such trust
were a private foundation, but, under § 4947(a)(2)(A), not with respect to any amounts payable
under the terms of such trust to income beneficiaries, unless a deduction was allowed for those
amounts under §§ 170(f)(2)(B), 642(c), 2055(e)(2)(B), or 2522(e)(2)(B). Both CRATs and CRUTs
and charitable lead trusts are split-interest trusts for this purpose and are, thus, subject to the rules
of § 4941.

Your remainder beneficiary is an entity and might be a disqualified person with respect to you
under § 4946. The remainder beneficiary's sole interest in you is the right to the payment of the
remainder interest. As a result of your division, Trust I and Trust II each will hold a pro rata share
of each of your assets, and the remainder beneficiary will receive its remainder interest from each
of these separate trusts. The remainder interest payments the remainder beneficiary will receive
from Trust I and Trust II will remain equivalent to the remainder beneficiary's share of all remainder
interests in you under the terms of your trust agreement.

The remainder beneficiary will not receive any additional interest in your assets, and, therefore, no
self-dealing transaction will occur within the meaning of § 4941(d). Your annual unitrust payments
will remain preserved exclusively for charitable interests, and there will be no increase in the
remainder interest at the expense of the charitable interest. Additionally, the pro rata division of
your assets between Trust I and Trust II is not a sale or exchange between a private foundation
and a disqualified person. Rather, it is a division of a charitable lead trust authorized under §
507(b)(2). Also, the Transfers will involve no other transactions with the remainder beneficiary that
affect your principal; and, accordingly, no self-dealing transaction will occur by reason of your
division. Accordingly, the proposed Transfers from you to Successor Trusts will not constitute self-
dealing transactions and will not be subject to excise tax under § 4941.

Ruling 5:

Section 4944 imposes an excise tax on investments that jeopardize a private foundation's
charitable purpose. In the discussion of Ruling 2, above, we determined that your transfers to the
Successor Trusts, which lack consideration and are not out of current income, will not constitute
investments or sales or other dispositions of investment property. You are materially similar to the
trust described in Situation 2 of Rev. Rul. 2002-28, supra, where a charitable trust transferred all of
its assets and liabilities to an organization exempt under section 501(c)(3) and classified as a private
foundation under section 509(a). Therefore, as explained in Rev. Rul. 2002-28, your transfers to
the Successor Trusts will not constitute investments that jeopardize your exempt purposes and will
not be subject to tax under § 4944.

Ruling 6:

Section 4945(d) imposes an excise tax on each taxable expenditure made by a private foundation
as a grant to an organization unless the private foundation exercises expenditure responsibility with
respect to the grant in accordance with subsection (h). However, since you will transfer all of your
assets to the Successor Trusts, which you represent will be effectively controlled, directly or
indirectly, by the same persons that effectively control you, for purposes of Chapter 42, the
Successor Trusts will be treated as if they were you.

The transfers of your assets to the Successor Trusts will not be expenditures that require
expenditure responsibility by you, pursuant either to § 1.507-3(a)(9) (if you and the Successor
Trusts are controlled by the same person or persons) or § 1.507-3(a)(7) (if you and the Successor
Trusts are not controlled by the same person or persons). Because you will have made no prior
distributions for which expenditure responsibility is required, the Successor Trusts will assume no
preexisting expenditure responsibility from you under § 1.507-3(a)(9). Thus, the proposed
Transfers from you to Successor Trusts will not constitute taxable expenditures under § 4945(d),
and you will not be required to exercise expenditure responsibility under § 4945(h) with respect to
the proposed Transfers.

Conclusion:

Based on the foregoing, we rule as follows:

1. The proposed Transfers from you to the Successor Trusts will each constitute a "significant
   disposition of assets to one or more private foundations" within the meaning of § 1.507-3(a)(1)
   and (c) which are nonexempt split-interest trusts under § 4947(a)(2).

2. The proposed Transfers from you to the Successor Trusts will not result in a termination of
   private foundation status under § 507(a) as a nonexempt split-interest trust under § 4947(a)(2),
   but will constitute a transfer between private foundations (all of which are nonexempt split-
   interest trusts under § 4947(a)(2)) within the contemplation of § 507(b)(2).

3. The proposed Transfers from you to the Successor Trusts will not constitute either a notification
   of your intent to voluntarily terminate your status as a private foundation under § 507(a)(1) as a
   nonexempt split-interest trust under § 4947(a)(2), or "willful repeated acts (or failures to act) or
   a willful and flagrant act (or failure to act)," within the meaning of § 507(a)(2) such that you will,
   therefore, not be subject to tax under § 507(c).

4. The proposed Transfers from you to the Successor Trusts will not constitute self-dealing
   transactions and will not be subject to excise tax under § 4941.

5. The proposed Transfers from you to the Successor Trusts will not constitute jeopardizing
   investments for purposes of § 4944.

6. The proposed Transfers from you to the Successor Trusts will not constitute taxable
   expenditures under § 4945(d), and you will not be required to exercise expenditure
   responsibility under § 4945(h) with respect to the proposed Transfers.

This ruling will be made available for public inspection under § 6110 after certain deletions of
identifying information are made. For details, see enclosed Notice 437, Notice of Intention to
Disclose. A copy of this ruling with deletions that we intend to make available for public
inspection is attached to Notice 437. If you disagree with our proposed deletions, you should
follow the instructions in Notice 437.

This ruling is directed only to the organization that requested it. Section 6110(k)(3) provides
that it may not be used or cited by others as precedent.

This ruling is based on the facts as they were presented and on the understanding that there will
be no material changes in these facts. This ruling does not address the applicability of any
section of the Code or regulations to the facts submitted other than with respect to the sections
described. Because it could help resolve questions concerning your federal income tax status,
this ruling should be kept in your permanent records.

If you have any questions about this ruling, please contact the person whose name and
telephone number are shown in the heading of this letter.

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In accordance with the Power of Attorney currently on file with the Internal Revenue Service, we
are sending a copy of this letter to your authorized representative.

Sincerely,

Theodore R. Lieber
Manager, Exempt Organizations
Technical Group 3

Enclosure
Notice 437

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