Estate transactions and notes avoid self-dealing under safeguards

Plain-English summary

A private foundation expected to receive property through the estates and trusts of members of its founding family, all of whom were disqualified persons. The family proposed redemptions and option transactions involving investment-fund units, corporate interests, loans, securities, real estate, and other assets, sometimes in exchange for promissory notes. The IRS ruled that uniform corporate redemptions for at least fair market value would not be self-dealing and that qualifying estate and trust transactions could use the estate-administration exception in Treas. Reg. § 53.4941(d)-1(b)(3). Court approval, proper timing, adequate value, and liquidity safeguards were required. Notes received in qualifying transactions could later be distributed to and held by the foundation without creating direct or indirect self-dealing.

Ruling snapshot

• Question: Would the proposed estate, trust, redemption, option, and note transactions constitute self-dealing with the private foundation?
• Outcome: Approved, subject to the represented safeguards and regulatory conditions.
• Key authorities: IRC §§ 4941, 4946, 4947; Treas. Reg. §§ 53.4941(d)-1(b)(3), 53.4941(d)-2(c)(1), 53.4941(d)-3(d).

Full text (IRS public release)

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

August 14, 2014

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Contact Person:
Release Number: 201445017 Identification Number:
Release Date: 11/7/2014
Uniform Issue List Numbers: 4941.04-00 Telephone Number:
Employer Identification Number:
Legend:
B =
C =
D =
E =
F =
M =
Dear

This responds to your request for rulings under § 4941 of the Internal Revenue Code and
related Foundation and Similar Excise Taxes Regulations.

Facts

(1) Business and Relationship of Interested Parties

The parties interested in this request are M, B, C, D, E, and F (the “Interested Parties”).

M is a non-profit corporation exempt from federal income tax under § 501(a) as an organization
described in § 501(c)(3), and is classified as a private foundation within the meaning of §
509(a). M provides funding to other non-profit organizations described in § 501(c)(3).

B is a son of one of M's founders. C is the wife of B. D is the widow of B’s deceased brother. E
is the widower of a daughter of one of M’s founders. F is the wife of E.

Substantial contributors to M include descendants of M’s founders, their spouses, and trusts of
which one or more of them were grantors or beneficiaries. Accordingly, B, C, D, E, and F, the
living descendants of M’s founders and their spouses (each a “Family Member” and,
collectively, the “Family” or the “Family Members”), trusts in which such individuals hold more
than 35 percent of the beneficial interests (collectively, the “Family Trusts”), corporations in
which such individuals own more than 35 percent of the total combined voting power (each a

“Family Corporation” and, collectively, the “Family Corporations”), and partnerships and limited
liability companies in which such individuals own more than 35 percent of the profits interest
(each a “Family Partnership” and, collectively, the “Family Partnerships”), are all disqualified
persons (within the meaning of § 4946(a)) with respect to M.

The Family Corporations and Family Partnerships are each sometimes called a “Family
Company” and are, collectively, the “Family Companies.” The Family Companies, Family
Members, and Family Trusts are each sometimes called a “Family Party” and are, collectively,
the “Family Parties.”

(2) Description of the Transactions
(a) Proposed Estate Plans

B and C have created a trust which will be funded on the death of the first of B and C to die, and
which will be held for the benefit of the survivor (the “B/C Trust”). By its terms, the B/C Trust will
qualify as a qualified terminable interest property trust, or QTIP Trust, if the required QTIP
election is made under § 2056(b)(7). The survivor will have a limited testamentary power of
appointment over the assets of the B/C Trust. At the survivor's death, the assets of the B/C
Trust over which the survivor has not exercised a power of appointment will pass to M.

D’s late spouse created a trust under his will for D’s benefit which qualified for the marital
deduction for estate tax purposes (the “D Trust”). D has a general power of appointment over
the D Trust. Under D’s current estate plan, she exercises her general power of appointment
over the D Trust in favor of her estate. After the payment of certain specific bequests and all
debts, expenses, and taxes, the residue of D’s estate will pass to M.

E has created a trust (the “E Trust”), which will receive assets on the death of E, regardless of
whether his spouse, F, survives him. If F survives E, the E Trust will qualify as a QTIP Trust if a
QTIP election is made with respect thereto. At the death of the survivor of E and F,
substantially all of the remaining balance of the E Trust will pass to M.

Hereinafter, the B/C Trust and, if F survives E, the E Trust are referred to, collectively, as the
“QTIP Trusts” and, individually, as a “QTIP Trust.”

(b) Transactions at Death
(i) Cash Redemptions
(A) Redemptions of Units in Investment Funds
Each of B, C, D, E, and the D Trust is an investor in one or both of two general partnerships in
which Family Parties pool their excess cash and invest for the long term (each an “Investment
Fund’). Each Investment Fund's assets are all, or substantially all, cash, cash equivalents, and

marketable securities. Each investor in an Investment Fund is a partner in the Fund, and his or
her ownership interest in the Investment Fund is represented by units (the “Units”). Income of

each Investment Fund is distributed monthly among its partners promptly after the last business
day of the applicable month.

i. Required Redemptions on Death

The partnership agreement for each Investment Fund requires the Investment Fund to redeem
all of the Units owned by a deceased partner’s Estate or a QTIP Trust if those Units, or the
proceeds of sale thereof, would otherwise pass to M following the death of such deceased
partner or the death of the primary beneficiary of such QTIP Trust, in each case at the net asset
value per Unit as of the date of such decedent’s death. Payment to a deceased partner's Estate
or a QTIP Trust may be made in cash or marketable securities (valued at the date of payment),
or partly in each, as the managing partners of the Investment Fund determine, includes interest
from the date of the decedent’s death at a rate equal to the greater of the mid-term applicable
Federal rate under § 1274(d) (the “Mid-Term AFR’) as of the date of such decedent’s death or
the date of payment, and must be made no later than the date the deceased partner’s Estate is
terminated for Federal income tax purposes (or in the case of a trust, no later than the date the
trust is considered subject to § 4947).

ii. Elective Redemptions

At all times when redemption of a deceased partner’s or QTIP Trust’s Units is not required, the
partnership agreement for each Investment Fund allows every partner to elect to have the
Investment Fund redeem any one or more of the partner’s Units, and allows the Investment
Fund to elect to redeem all of every partner’s Units, in either case as of the end of any month, at
the net asset value per Unit. Payment for the Units redeemed may be made in cash or
marketable securities (valued at the date of payment), or partly in each, as the managing
partners of the Investment Fund determine, and must be made within seven business days of
the end of the applicable month. A partner is not entitled to profits earned on redeemed Units
after the end of the month with respect to which such redemption occurs.

(B) Other Cash Redemptions

To provide greater flexibility, the governing documents of one or more Family Corporations may
be amended, either before or after the death of any of the Interested Parties, to provide that the
Family Corporation will offer to redeem any interest held by the decedent or by a trust of which
such decedent is a primary beneficiary, and to redeem all of the securities of the same class as
that held by the decedent or trust, in a transaction which is intended to constitute a redemption
within the meaning of § 4941(d)(2)(F) and § 53.4941(d)-3(d). The purchase price payable by
any Family Corporation to a redeeming shareholder for each share of stock being redeemed will
be equal to the fair market value of all of the shares of the same class of stock as such share
divided by the number of all of the shares of the same class of stock outstanding (the
“Redemption Price”), together with interest from the date of the decedent’s death to the date of
payment at the greater of the Mid-Term AFR at the date of the decedent’s death or the Mid-
Term AFR at the date of payment. The Redemption Price of each share of stock payable
pursuant to such redemption will be the same, regardless of the percentage of the outstanding
shares of such class of stock owned by the redeeming owner.

(ii) Sale of Optioned Assets

(A) Optioned Assets
i. Demand Loans

Each of B, C, D, E, and the D Trust has made loans to a Family Partnership which acts as a
depository of the lenders’ excess cash and invests the borrowed funds in short-term debt
instruments and other loans approved by its manager (the “Cash Fund”). Each loan to the Cash
Fund is repayable on demand (each a “Demand Loan”). Every lender to the Cash Fund may
require repayment of any or all of the amount loaned, together with accrued interest, at any
time, and the Cash Fund may elect to repay the amount owed to every or any lender at any
time. In addition, there exists with respect to each Demand Loan an agreement granting the
Cash Fund the option to purchase that Demand Loan upon the lender's death (or, in the case of

a trust, upon the death of the primary beneficiary thereof).
ii. Restricted Securities and Family Assets

B, GC, D, and E, individually or through revocable trusts that become irrevocable at death, and
the D Trust, each currently owns some or all of the following assets with respect to each of
which there exists an agreement (each an “Option Agreement”) granting one or more Family
Parties the option to purchase that asset: stock in a publicly traded corporation in which one or
more Family Members serve on the board of directors (each a “Restricted Security” and,
collectively, the “Restricted Securities”), an equity interest in a Family Company which is
substantially or entirely owned by Family Parties (each a “Family Interest”), a non-controlling,
non-marketable interest in a closely held partnership or limited liability company which is
substantially owned by individuals or entities which are not Family Parties (each a “Non-Family
Interest”), an interest in real estate (each a “Real Estate Interest”) or an interest in tangible
personal property (each a “Tangible Personal Property Interest”) (each Family Interest, Non-
Family Interest, Real Estate Interest, and Tangible Personal Property Interest which is subject to
such an agreement is sometimes called a “Family Asset,” and all such interests are sometimes
collectively called the “Family Assets”). In several cases where a Family Asset is an interest in
a Family Partnership, the option holder under the applicable Option Agreement is the Family
Partnership and the Family Partnership’s option to purchase that interest constitutes a right of
redemption. Generally, the option holder with respect to each Restricted Security and each
Family Asset may transfer the option to one or more other Family Parties, subject to any
restrictions on transfer imposed under any agreement that is binding on the option holder. The
Option Agreements do not restrict lifetime sales of any Restricted Security or Family Asset.

(B) Exercise of Options
Each option on a Demand Loan, Restricted Security, or Family Asset is exercisable beginning

on the date of death of the owner thereof (or, if owned by the D Trust, the B/C Trust, or the E
Trust, on the date of D’s, B’s, C’s, E’s, or F’s death, respectively).

The period during which each option on a Demand Loan may be exercised ends 60 days after
the Cash Fund has been notified by the. Estate representative of the outstanding balance
thereof (including principal and accrued unpaid interest) and of the interest rate to be used in
determining the per diem interest from the date such notice is given.

Each option on a Restricted Security, which, because of restrictions imposed by the Federal
securities law, may be sold only during certain limited time periods (each a “Window Period”), is
exercisable within 120 days after the decedent's death, and the sale must take place on the first
business day of the first Window Period that is at least 10 days after the date the option is
exercised.

The period during which each option on a Family Asset may be exercised ends 60 days after
the option holder has been notified of the filing of the Federal estate tax return for the
decedent's estate.

When an option is exercised, the Estate representative is required to sell the Demand Loan,
Restricted Security, or Family Asset to which the option applies (the “Optioned” Demand Loan,
Restricted Security, or Family Asset) in accordance with the terms of the applicable option, and
the sale must be closed within 30 days after the exercise. It is expected that each option on a
Demand Loan, Restricted Security, or Family Asset will be exercised in a timely manner; thus,
the exercise of these options is part of the proposed transaction.

(C) Purchase Price

The purchase price for each Optioned Demand Loan is the outstanding balance, principal, and
accrued unpaid interest as of the date the required notice is given by the Estate representative
to the Cash Fund, plus per diem interest accruing from the date such notice is given until the
date the sale is closed.

The purchase price for each Optioned Restricted Security is the fair market value of the
Restricted Security on the day the sale is closed determined as provided in § 20.2031-2 and
without any discount due to the restrictions that limit sales to Window Periods.

The purchase price for each Optioned Family Asset (whether it is sold or redeemed) is equal to
the fair market value of the Family Asset as finally determined for Federal estate tax purposes.
Initially the purchase price is based on the value of the Optioned Family Asset as reported on
the estate tax return, with a later adjustment, upwards or downwards, if the value as so reported
differs from the value of that Family Asset as finally determined. If the Optioned Family Asset is
an interest in a pass-through entity, the purchase price is adjusted to reflect any cash
transactions (such as capital contributions made by the decedent’s estate, distributions made to
the decedent’s estate, and income tax payments made by the decedent’s estate with respect to
its distributive share of income accrued after the decedent's death) that occur between the date
of the decedent’s death and the date of closing so that, as nearly as possible, the parties will be
in the same economic position as if the sale had occurred on the date of the decedent’s death.

(D) Payment of Purchase Price

If an option to purchase a Demand Loan, Restricted Security, Real Estate Interest, or Tangible
Personal Property Interest is exercised, the purchase price is payable solely in cash.

Upon the exercise of an option to purchase a Family Interest or a Non-Family Interest, the
transaction is effective as of the date of the decedent’s death, and the purchase price is payable
at the election of the purchaser either in cash or in equal, annual installments under the
purchaser's negotiable promissory note, with the first payment due on the date of the closing
and the remaining payments due annually for 9 or 29 years, respectively. A note issued
pursuant to a redemption of a Family Interest or a Non-Family Interest is referred to as a
“Company Note.” Any other note issued with respect to a Family Interest or Non-Family Interest
is referred to as a “Family Note.”

(E) The Notes

The Family Notes and the Company Notes (each a “Note” and, collectively, the “Notes’”) all bear
interest from the date of the closing of the transaction, payable annually. Interest that accrues
from the date of the decedent's death through the date of the closing is payable at the closing.
In the case of a note with a 9-year term, the interest rate is equal to the greater of ten percent,
the long-term applicable Federal rate under § 1274(d) (the “Long-Term AFR’) at the decedent’s
death, or the Long-Term AFR on the date the Note is delivered to the seller. In the case of a
note with a 29-year term, the interest rate is equal to the following: (A) for the first five years
after the date of the decedent’s death, at the greater of (1) the Long-Term AFR at the date of
the decedent's death or (2) the Long-Term AFR on the date the Note is delivered to the seller;
(B) for the next five years (i.e., years 6 through 10), at the greater of the rate under clause (A) or
eight percent; (C) for the next ten years (i.e., years 11 through 20), at the greater of the rate
under clause (A) or ten percent; and (D) for the next nine years (i.e., years 21 through 29), at
the greater of the rate under clause (A) or twelve percent. The increasing interest rate is
intended to encourage prepayment of the Note by the obligor.

If the fair market value of any Optioned Family Asset as reported on the decedent's Federal
estate tax return differs from the fair market value thereof as finally determined for Federal
estate tax purposes, then the purchase price for that Optioned Family Asset, and the remaining
annual payments due under any Note with respect to the purchase, are adjusted accordingly. In
addition, in the case of an increase in the purchase price, the purchaser will make an immediate
cash payment to the seller equal to the excess of the cash that the purchaser would have paid
through the date of payment if the initial purchase price would have been equal to the increased
purchase price, over the cash the purchaser has actually paid.

Each Note may be prepaid in whole or in part at any time, without any premium or penalty. The
obligor under each Family Note is required to pay to the holder of that Note, as a mandatory
prepayment of the principal due on that Note, (A) fifty percent of any ordinary cash distribution
received with respect to the Family Interest or Non-Family Interest purchased, (B) one hundred
percent of any extraordinary cash distribution received with respect to that Interest, and (C) one
hundred percent of the cash received from any sale or exchange of that Interest.

Each Family Note is secured by a pledge of the Family Interest or Non-Family Interest that is
being purchased and contains customary commercial terms to protect the Note holder if the
Note goes into default.

Each Company Note is an unsecured obligation of the purchasing Company.
(3) Representations
For purposes of this ruling request, the Interested Parties represent that:

(a) Under the current estate plans of B, C, D, and E, M will have an “interest or expectancy” (as
that term is used in § 53.4941(d)-1(b)(3)) in property held by his or her Estate.

(b) No charitable deduction was claimed by, or allowed to, the estate of the late spouse of D
with respect to property that passed to the D Trust. Under D’s current estate plan, M will have
an “interest or expectancy” in the D Trust beginning on the date of her death on account of her
exercise of her general power of appointment over the assets thereof in favor of her Estate.

(c) Under the current estate plans of B and C, (i) M will have an “interest or expectancy” in the
B/C Trust during the lifetime of the survivor and at the survivor's death, and (ii) no deduction will
be allowable under § 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522 with respect to any
assets passing to the B/C Trust on account of the death of the first to die.

(d) Under E’s current estate plan, (i) M will have an “interest or expectancy” in the E Trust during
E’s lifetime and at her death (if F survives E), and (ii) no deduction will be allowable under §
170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522 with respect to any assets passing to the E
Trust on account of E’s death if F survives E.

(e) In any redemption of Units in an Investment Fund, payment will be made to the redeeming
Estate or Trust during the calendar year with respect to which the redemption occurs, and there
will be no extension of credit between the Investment Fund and such redeeming Estate or Trust
on January 1 of the year after which the redemption occurs.

(f) Where the parties are relying on § 53.4941(d)-1(b)(3) in order for a transaction between a
Family Party (on the one hand) and the Estate of B, C, D, or E following his or her death, the D
Trust following D’s death, the B/C Trust following the death of the survivor of B and C, or the E
Trust following the death of the survivor of E and F (on the other), not to constitute indirect self-
dealing with respect to M's interest or expectancy in property held by such Estate or Trust—

(i) The executor of the Estate or the trustee of such Trust will either:
(A) Possess a power of sale with respect to the property,
(B) Have the power to reallocate the property to another beneficiary, or
(C) Be required to sell the property under the terms of any option subject to
which the property was acquired by such Estate or Trust;
(ii) Such transaction will be submitted to the probate court having jurisdiction over such

Estate or Trust (or to another court having jurisdiction over such Estate or Trust, or over
M) for court approval;
(iii) Such transaction will occur before such Estate is considered terminated for Federal
income tax purposes pursuant to paragraph (a) of § 1.641(b)-3 (or, in the case of a
Trust, before it is considered subject to § 4947);
(iv) Such Estate or Trust will receive an amount which equals or exceeds the fair market
value of M’s interest or expectancy in the property at the time of the transaction, taking
into account the terms of any option subject to which the property was acquired by such
Estate or Trust; and
(v) The transaction will either:
(A) Result in M receiving an interest or expectancy at least as liquid as the one it
gave up; or
(B) Be required under the terms of any option which is binding on such Estate or
Trust.

Rulings Requested

M, on its own behalf and on behalf of the other Interested Parties, requests the following rulings:

1.

The redemption by any Family Corporation of the interest in such Family Corporation
held by the decedent’s Estate or the D Trust, the B/C Trust, or the E Trust for the
Redemption Price will constitute a redemption within the meaning of § 4941(d)(2)(F) and
§ 53.4941(d)-3(d), and will not be an act of self-dealing under § 4941, so long as such
Family Corporation offers to redeem all interests held by others that are of the same
class as that held (prior to the redemption) by such Estate or Trust on the same terms,
such Estate or Trust receives no less than fair market value for the interest redeemed,
and there is no extension of credit between such Family Corporation and such Estate or
Trust on January 1 of the year after the year in which the redemption occurred.

The estate administration exception to indirect self-dealing set forth in § 53.4941(d)-
1(b)(3) will be available:
a. Following the death of each of B, C, D, E, and F, to such decedent's Estate;
b. Following the death of D, to the D Trust;
c. Following the death of the survivor of B and C, to the B/C Trust; and
d. Following the death of the survivor of E and F, to the E Trust.

Where the executor of a decedent’s Estate or the trustee of the D Trust, the B/C Trust,
or the E Trust is required to sell Units in an Investment Fund or any Demand Loan,
Restricted Securities, Family Asset, or other property held by such decedent's Estate or
Trust pursuant to an option or redemption agreement subject to which such property was
acquired by the Estate or Trust which is binding thereon, the redemption of the property
or sale of the property to the option holder will not constitute an act of indirect self-
dealing under § 4941 if the transaction is approved by the probate court having
jurisdiction over the Estate or by another court having jurisdiction over the Estate, such
Trust, or M, the transaction occurs before such decedent's Estate is considered
terminated for Federal income tax purposes pursuant to paragraph (a) of § 1.641(b)-3

(or in the case of a Trust, before it is considered subject to § 4947), and the transaction
results in the decedent's Estate or such Trust receiving cash or a Note, or both, with an
aggregate value equal to or exceeding the fair market value of M’s interest or
expectancy in such property at the time of the transaction, taking into account the terms
of the option subject to which the property was acquired by the Estate or Trust.

4. The distribution from a decedent’s Estate to M of any Note which was received by such
   Estate during the administration thereof in a transaction meeting all of the requirements
   of § 53.4941(d)-1(b)(3) and M's receipt of the same, its holding of any such Note, and its
   receipt of any payments under such Note will not constitute an act of direct or indirect
   self-dealing under § 4941.

5. None of the following will constitute an act of direct or indirect self-dealing under § 4941:

a. The distribution from a decedent's Estate to a QTIP Trust and the receipt by such
Trust of a Note which was received by such Estate during the administration
thereof in a transaction meeting all the requirements of § 53.4941 (d)-1(b)(3),
such Trust’s holding of such Note during the lifetime of the surviving spouse, or
the receipt by such Trust of any payments under such Note; or

b. The distribution from such Trust to M of any Note which was received by such
Trust during the administration of an Estate, in a transaction meeting all of the
requirements of § 53.4941(d)-1(b)(3), and M's receipt of the same, its holding of
any such Note, or its receipt of any payments under any such Note.

Law

I.R.C. § 501(a) of the Internal Revenue Code exempts from Federal income taxation
organizations described in § 501(c).

I.R.C. § 501(c)(3) describes organizations organized and operated exclusively for charitable and
other specified exempt purposes.

I.R.C. § 509(a) provides that, unless specifically excepted, any organization described in §
501(c)(3) is a private foundation.

I.R.C. § 4941(a) imposes an excise tax on each act of self-dealing between a disqualified
person and a private foundation. The initial tax is equal to ten percent of the amount involved in
the act of self-dealing for each year (or part thereof) in the taxable period.

I.R.C. § 4941(b) imposes an additional tax equal to 200 percent of the amount involved in the
act of self-dealing if the act is not corrected within the taxable period.

I.R.C. § 4941(d)(1)(A) provides that the term “self-dealing” means any direct or indirect sale or
exchange, or leasing, of property between a private foundation and a disqualified person.

I.R.C. § 4941(d)(1)(B) provides that the term “self-dealing” means any direct or indirect lending
of money or other extension of credit between a private foundation and a disqualified person.

10

I.R.C. § 4941(d)(2)(F) provides that, for purposes of paragraph (1), any transaction between a
private foundation and a corporation which is a disqualified person (as defined in § 4946(a)),
pursuant to any liquidation, merger, redemption, recapitalization, or other corporate adjustment,
organization, or reorganization, shall not be an act of self-dealing if all of the securities of the
same class as that held by the foundation are subject to the same terms and such terms provide
for receipt by the foundation of no less than fair market value.

I.R.C. § 4946(a)(1) provides that the term “disqualified person” means, with respect to a private
foundation, a person who is—
A. a substantial contributor to the foundation,
B. a foundation manager (within the meaning of subsection (b)(1),
C. an owner of more than 20 percent of—
i. the total combined voting power of a corporation,
ii. the profits interest of a partnership, or
iii. the beneficial interest of a trust or unincorporated enterprise,
which is a substantial contributor to the foundation,
D. a member of the family (as defined in subsection (d)) of any individual described in
subparagraph (A), (B), or (C),
E. a corporation of which persons described in subparagraph (A), (B), (C), or (D) own more
than 35 percent of the total combined voting power,
F. a partnership in which persons described in subparagraph (A), (B), (C), or (D) own more
than 35 percent of the profits interest, and
G. a trust or estate in which persons described in subparagraph (A), (B), (C), or (D) hold
more than 35 percent of the beneficial interest.

I.R.C. § 4946(a)(2) provides that the term “substantial contributor” means a person who is
described in § 507(d)(2), (i.e., a 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.)

I.R.C. § 4946(b)(1) provides that the term “foundation manager” means, with respect to any
private foundation, an officer, director, or trustee of a foundation (or an individual having powers
or responsibilities similar to those of officers, directors, or trustees of the foundation).

I.R.C. § 4946(d) provides that, for purposes of subsection (a)(1), the family of any individual
shall include only his spouse, ancestors, children, grandchildren, great grandchildren, and the
spouses of children, grandchildren, and great grandchildren.

I.R.C. § 4947(a)(1) provides that, for purposes of Chapter 42, a trust which is not exempt from
tax under § 501(a), all of the unexpired interests in which are devoted to one or more of the
purposes described in § 170(c)(2)(B), and for which a deduction was allowed under § 170,
545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, shall be treated as an organization described in §
501(c)(3).

I.R.C. § 4947(a)(2) provides, in part, 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, certain provisions of the
Code, including § 4941, 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), 2055(e)(2)(B), or 2522(c)(2)(B);

B. any amounts in trust other than amounts for which a deduction was allowed under
section 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.

Treas. Reg. § 53.4941(d)-1(a) provides that, for purposes of § 4941, the term “self-dealing”
means any direct or indirect transaction described in § 53.4941 (d)-2.

Treas. Reg. § 53.4941(d)-1(b)(3) provides that the term “indirect self-dealing” shall not include a
transaction with respect to a private foundation’s interest or expectancy in property (whether or
not encumbered) held by an estate (or revocable trust, including a trust which has become
irrevocable on a grantor’s death), regardless of when title to the property vests under local law,
if—

i. The administrator or executor of an estate or trustee of a revocable trust either—

a. Possesses a power of sale with respect to the property,

b. Has the power to reallocate the property to another beneficiary, or

c. Is required to sell the property under the terms of any option subject to which the
property was acquired by the estate (or revocable trust);

ii. Such transaction is approved by the probate court having jurisdiction over the estate (or
by another court having jurisdiction over the estate (or trust) or over the private
foundation); :

iii. Such transaction occurs before the estate is considered terminated for Federal income
tax purposes pursuant to paragraph (a) of § 1.641(b)-3 (or in the case of a revocable
trust, before it is considered subject to § 4947);

iv. | The estate (or trust) receives an amount which equals or exceeds the fair market value
of the foundation’s interest or expectancy in such property at the time of the transaction,
taking into account the terms of any option subject to which the property was acquired
by the estate (or trust); and

v. With respect to transactions occurring after April 16, 1973, the transaction either—

a. Results in the foundation receiving an interest or expectancy at least as liquid as
the one it gave up,

b. Results in the foundation receiving an asset related to the active carrying out of
its exempt purposes, or

c. Is required under the terms of any option which is binding on the estate (or
trust).

Treas. Reg. § 53.4941(d)-1(b)(7) provides that the term “indirect self-dealing” does not include a

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transaction involving one or more disqualified persons to which a private foundation is not a
party, in any case in which the private foundation, by reason of § 4941(d)(2), could itself engage
in such a transaction.

Treas. Reg. § 53.4941 (d)-1(b)(8) provides examples to illustrate the provisions of this paragraph
(b). In Example (4), A, a substantial contributor to P, a private foundation, bequeathed one-half
of his estate to his spouse and one-half of his estate to P. Included in A’s estate is one-third
interest in AB, a partnership. The other two-thirds interest in AB is owned by B, a disqualified
person with respect to P. The one-third interest in AB was subject to an option agreement when
it was acquired by the estate. The executor of A’s estate sells the one-third interest in AB to B
pursuant to such option agreement at the price fixed in such option agreement in a sale which
meets the requirements of § 53.4941(d)-1(b)(3). Under these circumstances, the sale does not
constitute an indirect act of self-dealing between B and P.

Treas. Reg. § 53.4941(d)-2(c)(1) provides that, except in the case of the receipt and holding of a
note pursuant to a transaction described in § 53.4941(d)-1(b)(3), an act of self-dealing occurs
where a note, the obligor of which is a disqualified person, is transferred by a third party to a
private foundation which becomes the creditor under the note.

Treas. Reg. § 53.4941(d)-3(d)(1) provides that, for purposes of § 4941(d)(2)(F), any transaction
between a private foundation and a corporation which is a disqualified person will not be an act
of self-dealing if such transaction is engaged in pursuant to a liquidation, merger, redemption,
recapitalization, or other corporate adjustment, organization, or reorganization, so long as all the
securities of the same class as that held (prior to such transaction) by the foundation are subject
to the same terms and such terms provide for receipt by the foundation of no less than fair
market value. For purposes of this paragraph, all of the securities are not subject to the same
terms unless, pursuant to such transaction, the corporation makes a bona fide offer on a
uniform basis to the foundation and every other person who holds such securities.

Treas. Reg. § 53.4941(d)-3(d)(2) provides examples to illustrate the provisions of the previous
paragraph. In Example (2), private foundation Y, which is on a calendar year basis, acquires 60
percent of the class A preferred stock of corporation N by will on January 10, 1970. N, which is
also on a calendar year basis, is a disqualified person with respect to Y. In 1971, N offers to
redeem all of the class A preferred stock for a consideration equal to 100 percent of the face
amount of such stock by the issuance of debentures. The offer expires January 2, 1972. Both
Y and all other holders of the class A preferred stock accept the offer and enter into the
transaction on January 2, 1972, at which time it is determined that the fair market value of the
debentures is no less than the fair market value of the preferred stock. The transaction on
January 2, 1972, shall not be treated as an act of self-dealing for 1972. However, because
under § 53.4941 (e)-1(e)(1)(i) an act of self-dealing occurs on the first day of each taxable year
or portion of a taxable year that an extension of credit from a foundation to a disqualified person
goes uncorrected, if such debentures are held by Y after December 31, 1972, except as
provided in § 53.4941(d)-4(c)(4), such extension of credit shall not be excepted from the
definition of an act of self-dealing by reason of the January 2, 1972, transaction.

Treas. Reg. § 53.4941(e)-1(e)(1)(i) provides that if a transaction between a private foundation

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and a disqualified person is determined to be self-dealing (as defined in § 4941(d)), for
purposes of § 4941 there is generally one act of self-dealing. If, however, such transaction
relates to the leasing of property, the lending of money or other extension of credit, other use of
money or property, or payment of compensation, the transaction will generally be treated (for
purposes of § 4941 but not § 507 or § 6684) as giving rise to an act of self-dealing on the day
the transaction occurs plus an act of self-dealing of the first day of each taxable year or portion
of a taxable year which is within the taxable period and which begins after the taxable year in
which the transaction occurs.

Treas. Reg. § 53.4941(e)-1(f) provides that, for purposes of §§ 53.4941(a)-1 through 53.4941 (f)-
1, fair market value shall be determined pursuant to the provisions of § 53.4942(a)-2(c)(4).

Treas. Reg. § 53.4947-1(a) provides that the basic purpose of § 4947 is to prevent trusts which
are not exempt from tax under § 501(a), all or part of the unexpired interests in which are
devoted to one or more of the purposes described in § 170(c)(2)(B), and which have amounts in
trust for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055,
2106(a)(2) or 2522, from being used to avoid the requirements and restrictions applicable to
private foundations. For purposes of this section, a trust shall be presumed (in the absence of
proof to the contrary) to have amounts in trust for which a deduction was allowed under § 170,
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 if a deduction would have been
allowable under one of these sections.

Treas. Reg. § 53.4947-1(b)(1)(i) provides that, for purposes of this section and § 53.4947-2, a
“charitable trust,” within the meaning of § 4947(a)(1), is a trust which is not exempt from taxation
under § 501(a), all of the unexpired interests in which are devoted to one or more of the
purposes described in § 170(c)(2)(B), and for which a deduction was allowed under § 170,
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2) or 2522. A charitable trust (as defined in this
paragraph) shall be treated as an organization described in § 501(c)(3), and, if it is determined
under § 509 that the trust is a private foundation, then Chapter 42, including § 4941, shall apply
to the trust.

Treas. Reg. § 53.4947-1(b)(2)(ii)(A) provides that when an estate from which the executor or
administrator is required to distribute all of the net assets in trust for charitable beneficiaries, or
free of trust to such beneficiaries, is considered terminated for Federal income tax purposes
under § 1.641(b)-3(a), then the estate will be treated as a charitable trust under § 4947(a)(1)
between the date on which the estate is considered terminated under § 1.641(b)-3(a) and the
date final distribution of all of the net assets is made to or for the benefit of the charitable
beneficiaries.

Treas. Reg. § 53.4947-1(b)(2)(iv) provides, in part, that, for purposes of this paragraph, the term
“reasonable period of settlement” means that period reasonably required (or, if shorter, actually
required) by the trustee to perform the ordinary duties of administration necessary for the
settlement of the trust. These duties include, for example, the collection of assets, the payment
of debts, taxes, and distributions, and the determination of the rights of the subsequent
beneficiaries.

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Treas. Reg. § 53.4947-1(b)(2)(v) provides that a revocable trust that becomes irrevocable upon
the death of the decedent-grantor, or a trust created by will, from which the trustee is required to
distribute all of the net assets in trust for, or free of trust to, charitable beneficiaries is not
considered a charitable trust under § 4947(a)(1) for a reasonable period of settlement (within
the meaning of paragraph (b)(2)(iv) of this section) after becoming irrevocable. After that
period, the trust is considered a charitable trust under § 4947(a)(1).

Treas. Reg. § 53.4947-1(b)(2)(vi) provides that a revocable trust that becomes irrevocable upon
the death of the decedent-grantor in which all of the unexpired interests are charitable and
under the terms of the governing instrument of which the trustee is required to hold some or all
of the net assets in trust after becoming irrevocable solely for charitable beneficiaries is not
considered a trust under § 4947(a)(1) for a reasonable period of settlement (within the meaning
of paragraph (b)(2)(iv) of this section) after becoming irrevocable except that § 4941 may apply
if the requirements of § 53.4941(d)-1(b)(3) are not met. After that period, the trust is considered
a charitable trust under § 4947(a)(1).

Treas. Reg. § 53.4947-1(c)(1)(i) provides that, for purposes of this section and § 53.4947-2, a
“split-interest trust,” within the meaning of § 4947(a)(2), is a trust which is not exempt from
taxation 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), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522.

Treas. Reg. § 53.4947-1(c)(1)(ii) provides that a split-interest trust is, with certain exceptions,
subject to the provisions of § 4941 in the same manner as if such trust were a private
foundation.

Treas. Reg. § 53.4947-1(c)(6)(ii) provides that when an estate from which the executor or
administrator is required to distribute all of the net assets in trust or free of trust to both
charitable and non-charitable beneficiaries is considered terminated for Federal income tax
purposes under § 1.641(b)-3(a), then the estate will be treated as a split-interest trust under §
4947(a)(2) (or a charitable trust under § 4947(a)(1), if applicable) between the date on which the
estate is considered terminated under § 1.641(b)-3(a) and the date on which final distribution of
the net assets to the last remaining charitable beneficiary is made.

Treas. Reg. § 53.4947-1(c)(6)(iii) provides that a revocable trust that becomes irrevocable upon
the death of the decedent-grantor under the terms of the governing instrument of which the
trustee is required to hold some or all of the net assets in trust after becoming irrevocable for
both charitable and non-charitable beneficiaries is not considered a split-interest trust under §
4947(a)(2) for a reasonable period of settlement after becoming irrevocable, except that § 4941
may apply if the requirements of § 53.4941(d)-1(b)(3) are not met. After that period, the trust is
considered a split-interest trust under § 4947(a)(2). For the purposes of this (iii), the term
“reasonable period of settlement” means that period reasonably required (or, if shorter, actually
required) by the trustee to perform the ordinary duties of administration necessary for the
settlement of the trust. These duties include, for example, the collection of assets, the payment
of debts, taxes, and distributions, and the determination of rights of the subsequent
beneficiaries.

Analysis

M is a private foundation, within the meaning of § 509(a), by reason of the nature of its support.
Each of the Family Parties is a disqualified person, within the meaning of § 4946(a), with
respect to M.

Section 4941(a) imposes an excise tax on each act of self-dealing between a disqualified
person and a private foundation. Section 4941(d)(1)(A) and (B) provide that self-dealing.
includes a direct or indirect sale or exchange, or leasing, of property, or lending of money or
other extension of credit, between a private foundation and a disqualified person. While neither
the Code nor the regulations defines the term “indirect self-dealing,” § 53.4941(d)-1(b) describes
certain transactions that are specifically excluded from indirect self-dealing.

Ruling (1)

I.R.C. § 4941(d)(2)(F) and Treas. Reg. § 53.4941(d)-3(d)(1) provide that a stock redemption
between a private foundation and a corporation is not an act of self-dealing so long as the
corporation makes a bona fide offer on a uniform basis to redeem the stock held by the
foundation and the stock of the same class held by every other stockholder, and the foundation
receives no less than the fair market value of its stock.

Under the provisions of § 53.4941(d)-1(b)(7), a disqualified person may do whatever a private
foundation could do by reason of § 4941(d)(2)(F) without being in violation of indirect self-
dealing under § 4941(d)(1).

The redemption by any Family Corporation of the interest in that Corporation held by a
decedent’s Estate, the D Trust, the B/C Trust, or the E Trust will not constitute an act of indirect
self-dealing and need not comply with § 53.4941(d)-1(b)(3) so long as the Corporation offers to
redeem all interests held by every other person that are of the same class as that held (prior to
the redemption) by the Estate or Trust on the same terms, the Estate or Trust receives the
Redemption Price for its interest, and there is no extension of credit with respect to the
redeemed interest between the Estate or such Trust and such Family Corporation on January 1
of the year following the year in which the redemption occurred.

Ruling (2)

Treas. Reg. § 53.4941(d)-1(b) describes certain transactions that will not be treated as indirect
self-dealing, among which are certain transactions during the administration of an estate or
trust. Specifically, § 53.4941(d)-1(b)(3), commonly referred to as the “estate administration
exception,” provides that indirect self-dealing does not include a transaction with respect to a
private foundation’s interest or expectancy in property held by an estate or a revocable trust that
has become irrevocable at the grantor’s death if the following five conditions are satisfied: (i) the
administrator or executor of the estate or the trustee of the trust either possesses a power of
sale with respect to the property, has the power to allocate the property to another beneficiary,
or is required to sell the property under the terms of any option subject to which the property

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was acquired by the estate (or trust); (ii) the transaction is approved by the probate court having
jurisdiction over the estate (or by another court having jurisdiction over the estate (or trust), or
over the private foundation); (iii) the transaction occurs before the estate is considered
terminated for Federal income tax purposes (or before the trust is considered subject to § 4947);
(iv) the estate (or trust) receives an amount which equals or exceeds the fair market value of the
foundation’s interest or expectancy in such property at the time of the transaction, taking into
account the terms of any option subject to which the property was acquired by the estate (or
trust); and (v) the transaction results in the foundation either receiving an interest or expectancy
at least as liquid as the one it gave up or an asset related to the active carrying out of its exempt
purposes, or is required under the terms of any option which is binding on the estate (or trust).

This estate administration exception applies to transactions with respect to a private
foundation's “interest or expectancy” in property held by an estate (or a revocable trust that has
become irrevocable at the grantor’s death). The reference in § 53.4941(d)-1(b)(3) to a
“revocable trust, including a trust which has become irrevocable on a grantor’s death,” is
intended to include certain other trusts where the assets of the trust are included in the
decedent’s gross estate. On D’s death, the D Trust will be included in D’s gross estate. The
B/C Trust will be included in the gross estate of the survivor of B and C. Likewise, the E Trust
will be included in the gross estate of the survivor of E and F.

The regulations do not address the issue of when a private foundation has an “interest or
expectancy” in property held by an estate or a trust. Therefore, solely for purposes of this ruling
request, and based on the understanding that the determination of when M will have an “interest
or expectancy’ in property held by the Estate of any Interested Party or by the D Trust, the B/C
Trust, or the E Trust is to be made under the law of the state of M’s incorporation, each of B, C,
D, and E has represented that, under his or her current estate plan, M will have an “interest or
expectancy” in property held by his or her Estate, D has represented that M will have an
“interest or expectancy” in property held in the D Trust after her death, B and C have
represented that M will have an “interest or expectancy” in the B/C Trust during the lifetime of
the survivor of B and C and after his or her death, and E has represented that M will have an
“interest or expectancy” in the E Trust beginning with E’s death.

In order for a transaction between the D Trust, the B/C Trust, or the E Trust and a disqualified
person with respect to M to meet the estate administration exception under § 53.4941(d)-
1(b)(3), the transaction must occur before the trust is considered subject to § 4947. Section
4947 applies to only two types of trusts: charitable trusts described in § 53.4947-1(b)(1)(i) and
split-interest trusts described in § 53.4947-1(c)(1)(i). A charitable trust is a trust for which,
among other requirements, a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c),
2055, 2106(a)(2), or 2522. A split-interest trust is a trust which, among other requirements, has
amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c),
2055, 2106(a)(2), or 2522. The element common to both charitable trusts and split-interest
trusts is that it has amounts in trust for which a charitable deduction has been allowed, whether
it be for income, gift, or estate tax purposes. Section 4947 does not apply to a trust for which no
charitable deduction has been allowed.

D has represented that no charitable deduction was claimed by, or allowed to, her late

17

husband's estate with respect to property that passed to the D Trust. Therefore, the D Trust is
not subject to § 4947 during D’s lifetime. Likewise, each of B, C, and E has represented that if
he or she is survived by his or her spouse, no charitable deduction will be claimed by, or
allowable to, his or her estate with respect to any property that passes to his or her spouse’s
QTIP Trust. Therefore, the B/C Trust will not be subject to § 4947 during the lifetime of the
survivor of B and C, and the E Trust will not be subject to § 4947 during F's lifetime.

On the death of the survivor of B and C, unless he or she designates otherwise, the B/C Trust
will be distributable solely to charitable beneficiaries. Under § 53.4947-1(b)(2)(v), the B/C Trust
will not be considered a charitable trust under § 4947(a)(1) for a reasonable period of settlement
after the survivor's death. Likewise, the E Trust will not be considered a charitable trust under §
4947(a)(1) for a reasonable period after the death of the survivor of E and F.

Thus, based on the above representations, the estate administration exception to indirect self-
dealing under § 53.4941(d)-1(b)(3) will be available with respect to any property held in the
Estate of each of B, C, D, and E, the D Trust following D's death, the B/C Trust following the
death of the survivor of B and C, and the E Trust following the death of the survivor of E and F.

Ruling (3)

Where the sale of property from a decedent's estate or a trust to a disqualified person meets all
of the requirements of § 53.4941(d)-1(b)(3), § 53.4941(d)-2(c)(1) specifically excepts the receipt
and holding of the purchaser’s note by a private foundation from the definition of self-dealing.

The Interested Parties have represented that in the case of any transaction between a Family
Party (on the one hand) and an Estate, the D Trust following D’s death, the B/C Trust following
the death of the survivor of B and C, or the E Trust following the death of the survivor of E and F
(on the other) which would otherwise constitute indirect self-dealing, all of the requirements of §
53.4941(d)-1(b)(3) will be met.

With respect to each transaction meeting the requirements of § 53.4941(d)-1(b)(3) where the
executor or trustee is required to sell a Demand Loan, Units in an Investment Fund, any
Restricted Securities, or any Family Asset or other property pursuant to an option or redemption
agreement subject to which such property was acquired by the Estate or Trust and which is
binding on the Estate or Trust, the Interested Parties have represented that the Estate or Trust
will receive, in exchange, cash or the purchaser’s Note, or both, in an amount which equals or
exceeds the fair market value of M’s interest or expectancy in such property at the time of the
transaction, taking into account the terms of the option subject to which such property was
acquired by the Estate or Trust.

Based on these representations, the proposed transactions, including the sale or redemption of
any property held in an Estate, the D Trust, the B/C Trust, or the E Trust to the option holder for
cash or the purchaser’s Note, or both, each of which is required under an option or redemption
agreement which is binding on such Estate or Trust, will meet all of the five conditions specified
in § 53.4941(d)-1(b)(3) and, therefore, none of said transactions will be treated as an act of
indirect self-dealing between M and a disqualified person.

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Rulings (4) and (5)

I.R.C. § 53.4941(d)-2(c)(1) provides that, except in the case of the receipt and holding of a note
pursuant to a transaction described in § 53.4941(d)-1(b)(3), an act of self-dealing occurs where
a note, the obligor of which is a disqualified person, is transferred by a third party to a private
foundation which becomes the creditor under the note.

The Interested Parties have represented that each transaction by the executor of a decedent’s
Estate, or by the trustee of the D Trust, the B/C Trust, or the E Trust, with respect to M’s interest
or expectancy in property held by such Estate or Trust whereby the Estate or such Trust
receives in exchange a note the obligor of which is a disqualified person with respect to M will
meet all of the requirements of § 53.4941(d)-1(b)(3). Based on these representations, the
distribution by an Estate or the D Trust to M of any Family Note or Company Note, M’s receipt of
the same, and the holding of and receipt by M of payments under any such Note, will not
constitute an act of direct or indirect self-dealing under § 4941.

Similarly, the distribution by the Estate of the first to die of B and C or by E’s Estate to, and the
receipt by, the B/C Trust or the E Trust, respectively, of any Family Note or Company Note, the
holding of and the receipt of payments under any such Note by such QTIP Trust, and the
distribution by such QTIP Trust to M of any such Note, M’s receipt of the same, and its receipt
and holding of payments under such Note, will not constitute an act of direct or indirect self-
dealing under § 4941 where the transaction has been approved by a local state court and is
otherwise excepted from self-dealing under § 53.4941 (d)-1(b)(3).

Conclusion
In light of the above, we rule as follows:

1. The redemption by any Family Corporation of the interest in such Family Corporation
   held by the decedent’s Estate or by the D Trust, the B/C Trust, or the E Trust for the
   Redemption Price will constitute a redemption within the meaning of § 4941(d)(2)(F) and
   § 53.4941(d)-3(d), and will not be an act of self-dealing under § 4941, so long as such
   Family Corporation offers to redeem all interests held by others that are of the same
   class as that held (prior to the redemption) by such Estate or Trust on the same terms,
   such Estate or Trust receives no less than fair market value for the interest redeemed,
   and there is no extension of credit between such Family Corporation and such Estate or
   Trust on January 1 of the year after the year in which the redemption occurred.

2. The estate administration exception to indirect self-dealing set forth in § 53.4941(d)-
   1(b)(3) will be available:
   a. Following the death of each of B, C, D, E, and F, to such decedent’s Estate;
   b. Following the death of D, to the D Trust;
   c. Following the death of the survivor of B and C, to the B/C Trust; and
   d. Following the death of the survivor of E and F, to the E Trust.

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3. Where the executor of a decedent’s Estate or the trustee of the D Trust, the B/C Trust,
   or the E Trust is required to sell Units in an Investment Fund or any Demand Loan,
   Restricted Securities, Family Asset, or other property held by such decedent’s Estate or
   Trust pursuant to an option or redemption agreement subject to which such property was
   acquired by the Estate or Trust which is binding thereon, the redemption of the property
   or sale of the property to the option holder will not constitute an act of indirect self-
   dealing under § 4941 if the transaction is approved by the probate court having
   jurisdiction over the Estate or by another court having jurisdiction over the Estate, such
   Trust, or M, the transaction occurs before such decedent’s Estate is considered
   terminated for Federal income tax purposes pursuant to paragraph (a) of § 1.641(b)-3
   (or in the case of a Trust, before it is considered subject to § 4947), and the transaction
   results in the decedent's Estate or such Trust receiving cash or a Note, or both, with an
   aggregate value equal to or exceeding the fair market value of M's interest or
   expectancy in such property at the time of the transaction, taking into account the terms
   of the option subject to which the property was acquired by the Estate or Trust.

4. The distribution from a decedent’s Estate to M of any Note which was received by such
   Estate during the administration thereof in a transaction meeting all of the requirements
   of § 53.4941(d)-1(b)(3) and M’s receipt of the same, its holding of any such Note, and its
   receipt of any payments under such Note will not constitute an act of direct or indirect
   self-dealing under § 4941.

5. None of the following will constitute an act of direct or indirect self-dealing under § 4941:

a. The distribution from a decedent’s Estate to a QTIP Trust, and the receipt by
such Trust of a Note which was received by such Estate during the
administration thereof in a transaction meeting all the requirements of §
53.4941 (d)-1(b)(3), such Trust’s holding of such Note during the lifetime of the
surviving spouse, or the receipt by such Trust of any payments under such Note;
or

b. The distribution from such QTIP Trust to M of any Note which was received by
such Trust either from a decedent’s Estate during the administration thereof or
during the administration of the Estate in a transaction meeting all of the
requirements of § 53.4941(d)-1(b)(3), and M’s receipt of the same, its holding of
any such Note, or its receipt of any payments under any such Note.

This private letter ruling request was submitted prior to the issuance of Revenue Procedure
2011-4, Section 6, in which a no-rule position was announced with regard to self-dealing issues
involving the issuance of a promissory note by a disqualified person during the administration of
an estate or trust.

This ruling will be made available for public inspection under section 6110 of the Code 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.

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This ruling is directed only to the organization that requested it. Section 6110(k)(3) of the Code
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.

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,

Michael Seto
Manager, EO Technical

Enclosure
Notice 437