A private foundation that inherited a hotel-owning company gets a second five-year period to sell the excess business holdings without triggering the excise tax

Plain-English summary

A private foundation generally cannot hold more than a small stake in a business
(its "permitted holdings"); anything above that is "excess business holdings" and
gets taxed under Section 4943 unless the foundation sells it down. When a foundation
receives such a stake by gift or bequest, it normally gets five years to dispose of
it. Here, a foundation inherited a large interest in a company whose main asset is a
hotel. It tried throughout the initial five years to sell the hotel and wind up the
company, working with multiple brokers and reaching advanced talks with buyers, but
a weak local real estate market and rising interest rates blocked a sale at fair
value. Section 4943(c)(7) lets the IRS grant one additional five-year period for
"unusually large" or complex holdings if the foundation made diligent efforts,
could not sell except at a bargain price, and submitted a disposition plan to both
the IRS and the state attorney general before the first period ended. The foundation
met all those conditions, so the IRS granted the extra five years and confirmed that
no Section 4943 excise tax will apply if the holdings are sold before the extended
deadline.

Ruling snapshot

• Question: May a private foundation get a second five-year period to dispose of excess business holdings (an inherited interest in a hotel-owning company) it could not sell despite diligent efforts?
• Outcome: Approved (additional five-year extension under § 4943(c)(7))
• Key authorities: IRC § 4943(a), (c)(1), (c)(6), (c)(7); Treas. Reg. § 53.4943-6(b)(1)

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202550026                                              Third Party Communication: None
 Release Date: 12/12/2025                                       Date of Communication: Not Applicable
 Index Number: 4943.00-00
                                                                Person To Contact:
 -------------------------------                                ----------------------, ID No. -----------------
 ----------------------------------------------                 Telephone Number:
 ------------------------                                       --------------------
                                                                Refer Reply To:
                                                                CC:EEE:EOET:EO3
                                                                PLR-108365-25
                                                                Date:
                                                                July 14, 2025




Legend

Taxpayer          =        -------------------------------------
Decedent          =        --------------------------
Company           =        ----------------------------------
Hotel             =        ------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Broker            =        -------------------------------------------
Date 1            =        --------------------------
Date 2            =        ---------------------------
Date 3            =        ----------------
Date 4            =        -----------------
Date 5            =        -----------------
X                 =        ------------
State 1           =        ----------------
State 2           =        -------------


Dear ------------------:

This letter responds to a letter from your authorized representative, dated April 8, 2025,
and subsequent documentation dated June 4, 2025, requesting an additional five years
to dispose of certain excess business holdings under section 4943(c)(7) of the Internal
Revenue Code (Code)1. Taxpayer represents the facts as follows.

FACTS

On Date 1, Taxpayer was established pursuant to a trust agreement in State 1.
Taxpayer is exempt from federal income tax under section 501(a) as an organization

1 Section references are to the Internal Revenue Code of 1986, as amended, unless otherwise indicated.
PLR-108365-25                                 2

described in section 501(c)(3) and is classified as a private foundation under section
509.

Decedent died on Date 2. Decedent left a last will and testament dated Date 3.
Pursuant to Decedent’s will, the stock Decedent held in Company passed to Taxpayer.
At the time of Decedent’s death, Decedent owned an X percent interest in Company.
Decedent’s estate distributed Decedent’s interest in Company to Taxpayer on Date 4.
Taxpayer acknowledges that the interest constitutes excess business holdings under
section 4943(c)(1), and it states that the section 4943(c)(6) initial five-year period for
disposing of those excess business holdings expires on Date 5.

Company is a State 2 corporation. Company owns Hotel. Hotel is a large and complex
business holding requiring specialized expertise to market and sell. Taxpayer’s interest
in Company constitutes an unusually large gift or bequest of diverse business holdings
or holdings with complex corporate structures within the meaning of section 4943(c)(7).

Taxpayer made diligent efforts to dispose of its interest in Company throughout the
section 4943(c)(6) initial five-year period by attempting to sell Hotel and dissolve
Company. During the initial five-year period and at the direction of Taxpayer, Company
actively marketed Hotel by working with multiple real estate brokers and engaging in
advanced discussions with numerous potential buyers. Despite those efforts, various
factors prevented finalizing a sale of Hotel, including unfavorable conditions in the local
real estate market and rising interest rates impacting the availability of financing.

Prior to the end of the initial five-year period under section 4943(c)(6), Taxpayer
submitted a request to the Internal Revenue Service for an extension of five years to
dispose of its excess business holdings pursuant to section 4943(c)(7). Taxpayer also
submitted its plan of disposition to the attorney general of State 1. The plan involves
selling Hotel pursuant to an ongoing listing agreement with Broker and dissolving
Company.

RULING REQUEST

Taxpayer requests a ruling granting it an additional five-year period to dispose of its
excess business holdings in Company under section 4943(c)(7).

LAW

Section 4943(a)(1) imposes a tax on the excess business holdings of a private
foundation.

Section 4943(c)(1) provides that the term “excess business holdings” means the
amount of stock or other interest in a business enterprise that the foundation would
have to dispose of to a person other than a disqualified person for the foundation’s
remaining holdings in such enterprise to be permitted holdings.
PLR-108365-25                                 3


Section 4943(c)(2)(A) provides that the permitted holdings of a private foundation in an
incorporated business enterprise are 20 percent of the voting stock, reduced by the
percentage of voting stock in the enterprise owned by all the foundation’s disqualified
persons.

Section 4943(c)(6) generally provides that if there is a change in a private foundation’s
holdings in a business enterprise (other than by purchase by the private foundation or
by a disqualified person) that causes the private foundation to have excess business
holdings in such enterprise, the interest of the foundation in such enterprise
(immediately after such change) will (while held by the foundation) be treated as held by
a disqualified person (rather than by the foundation) during the five-year period
beginning on the date of such change.

Section 4943(c)(7) provides that the Secretary may extend the section 4943(c)(6) period
to dispose of excess business holdings for an additional five years in the case of an
unusually large gift or bequest of diverse business holdings or holdings with complex
corporate structures if—

(A) The foundation establishes that—
    (i)    Diligent efforts to dispose of such holdings have been made within the initial
           five-year period, and
    (ii)   Disposition within the initial five-year period has not been possible (except at
           a price substantially below fair market value) by reason of the size and
           complexity or diversity of such holdings,
(B) Before the close of the initial five-year period—
    (i)    The private foundation submits to the Secretary a plan for disposing of all the
           excess business holdings involved in the extension, and
    (ii)   The private foundation submits the plan to the attorney general (or other
           appropriate state official) having administrative or supervisory authority or
           responsibility with respect to the foundation’s disposition of the excess
           business holdings involved and submits to the Secretary any response
           received by the private foundation during the five-year period, and
(C) The Secretary determines that such plan can reasonably be expected to be carried
    out before the close of the extension period.

Treas. Reg. § 53.4943-6(b)(1) generally provides that in the case of an acquisition of
holdings in a business enterprise by a private foundation pursuant to the terms of a will
or trust, the five-year period described in section 4943(c)(6) does not commence until
the date on which the distribution of such holdings from the estate or trust to the
foundation occurs.
PLR-108365-25                                4

ANALYSIS

Taxpayer received its interest in Company from Decedent’s estate. Taxpayer’s
ownership of Company constitutes excess business holdings under section 4943(c)(1),
and neither Taxpayer nor disqualified persons with respect to Taxpayer purchased the
interest. As a result, section 4943(c)(6) provides Taxpayer with an initial five-year
period to dispose of its excess business holdings. That period ends on Date 5.

Company owns Hotel. Taxpayer represents that Hotel is a large and complex business
holding requiring specialized expertise to market and sell. Taxpayer further represents
that its interest in Company constitutes an unusually large gift or bequest of diverse
business holdings or holdings with complex corporate structures within the meaning of
section 4943(c)(7).

Taxpayer made diligent efforts to dispose of its excess business holdings in Company,
as required by section 4943(c)(7)(A)(i). During the initial five-year period and at the
direction of Taxpayer, Company actively marketed Hotel by working with multiple real
estate brokers and engaging in advanced discussions with numerous potential buyers.
Despite those efforts, various factors prevented finalizing a sale. Because disposition of
Taxpayer’s excess business holdings in Company was not possible within the initial
five-year period (except at a price substantially below fair market value) by reason of the
size and complexity or diversity of such holdings, Taxpayer meets the requirements of
section 4943(c)(7)(A)(ii).

Before the close of the initial five-year period, Taxpayer submitted a request to the
Internal Revenue Service under section 4943(c)(7), seeking an additional five-year
period within which to dispose of its excess business holdings in Company. Taxpayer
also timely submitted its plan to the State 1 attorney general.

RULING

Based on the facts and representations Taxpayer submitted, we have determined that
Taxpayer’s plan to dispose of its excess business holdings in Company can reasonably
be expected to be carried out before the close of the extension period. Accordingly, we
conclude that Taxpayer satisfies the requirements under section 4943(c)(7) for an
additional five years to dispose of its excess business holdings. We also conclude that
Taxpayer’s excess business holdings in Company will not be subject to tax under
section 4943(a)(1) if Taxpayer disposes of them before the close of the extension
period.

The ruling contained in this letter is based on information and representations submitted
by or on behalf of Taxpayer and accompanied by a penalty of perjury statement
executed by an appropriate party, and on the understanding that there will be no
material changes in the facts described above. While this office has not verified any of
the material submitted in support of the request for a ruling, the material is subject to
PLR-108365-25                                   5

verification upon examination. The Associate office will revoke or modify a letter ruling
and apply the revocation retroactively if there has been a misstatement or omission of
controlling facts; the facts at the time of the transaction are materially different from the
controlling facts on which the ruling was based; or, in the case of a transaction involving
a continuing action or series of actions, the controlling facts change during the course of
the transaction. See Rev. Proc. 2025-1, section 11.05.

This letter does not address the applicability of any section of the Code or Treasury
Regulations to the facts submitted other than with respect to the sections specifically
described, and, except as expressly provided in this letter, no opinion is expressed or
implied concerning the tax consequences of any aspect of any transaction or item of
income discussed or referenced in this letter.

This ruling is directed only to Taxpayer. Section 6110(k)(3) of the Code provides that it
may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to Taxpayer’s authorized representative.

A copy of this letter must be attached to any federal return to which it is relevant.
Alternatively, if Taxpayer files its returns electronically, Taxpayer may satisfy this
requirement by attaching a statement to its return that provides the date and control
number of this letter.



                                          Sincerely,



                                          __________________________________
                                          Kenneth M. Griffin
                                          Branch Chief
                                          (Employee Benefits, Exempt Organizations,
                                          and Employment Taxes)


 cc: ---------------------------------
     ----------------------------------
     --------------------
     ------------------------
     --------------------------