IRS clears a private foundation trust's full asset transfer to its beneficiary foundation

Plain-English summary

A charitable trust and its sole beneficiary are both tax-exempt private nonoperating foundations under common control. After a planned transaction involving one trust asset, the trust intends to transfer its current income, all remaining assets, and its liabilities to the beneficiary foundation for no consideration, then dissolve under state law. The IRS ruled that the transfer will be a significant disposition under IRC § 507(b)(2), will not create a new organization, and will not trigger the private-foundation termination tax. The beneficiary foundation will succeed to the trust's aggregate tax benefit, excess-distribution carryover, distributable amount, qualifying distributions, and available refundable § 4940 tax payments as described in the ruling. The transfer will not produce § 4940 investment income, self-dealing, a qualifying distribution, a jeopardizing investment, or a taxable expenditure, and reasonable transfer expenses will not be taxable expenditures. After filing its final Form 990-PF for the transfer year, the trust will not have to file that return for later years if it holds no assets and conducts no activities.

Ruling snapshot

• Question: What federal private-foundation tax consequences follow when the trust transfers all assets and liabilities to its commonly controlled beneficiary foundation and dissolves?
• Outcome: Approved, with ten favorable rulings governing the transfer and the trust's final filing obligations.
• Key authorities: IRC §§ 507(b)(2), 4940, 4941, 4942, 4944, 4945, 6033; Treas. Reg. § 1.507-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202550005 Third Party Communication: None
Release Date: 12/12/2025 Date of Communication: Not Applicable
Index Number: 507.00-00, 4940.00-00,
4941.00-00, 4942.00-00, Person To Contact:
4944.00-00, 4945.00-00 --------------------, ID No. -----------------
Telephone Number:
------------------------------------------------------------ --------------------
------- Refer Reply To:
--------------------------------- CC:EEE:EOET:EO1
-------------------------------- PLR-102673-25
Date:
September 10, 2025

Legend

Trust = --------------------------------------------------------
Foundation = ---------------------------------
Asset A = --------------------------------------------------------------------------
Transaction A = ----------------------------------------------------
Date = ----------------------

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

This letter responds to a letter dated February 3, 2025, and subsequent
correspondence submitted on behalf of Foundation, in which Foundation requested a
private letter ruling involving sections 507, 4940, 4941, 4942, 4944, and 4945 of the
Internal Revenue Code.1

BACKGROUND

Foundation and Trust are recognized as organizations described in section 501(c)(3)
and classified as private non-operating foundations under section 509(a). Foundation
was created as a state nonprofit corporation. Trust was established as a charitable trust
under state law with Foundation as sole beneficiary. Trust’s purpose is to make
distributions of its entire net income to Foundation and to fund additional grants out of
corpus as requested by the trustees of Foundation for Foundation’s charitable purposes

1 Unless otherwise noted, all references in this letter ruling to “section” refer to The Internal Revenue

Code of 1986, as amended.
PLR-102673-25 2

until the assets of Trust are exhausted. Trust exercises expenditure responsibility as
described in Treas. Reg. § 53.4945-5(b) on its annual grants to Foundation.

Trust is overseen and administered according to a trust agreement. Trust has four
trustees - three individual trustees, and one corporate trustee. Foundation has the right
to appoint Trust’s corporate trustee and to approve by a two third’s vote of Foundation
trustees all other trustees of Trust. In addition, the trust agreement requires at least one
trustee of Foundation to serve as a trustee of Trust. Foundation has the right to amend
the trust agreement except as such amendments relate to Foundation’s eligibility as a
beneficiary of Trust. Trust and Foundation represent that Trust and Foundation are
therefore effectively controlled by the same person or persons within the meaning of
Treas. Reg. §§ 1.507-3(a)(2)(ii) and 1.507-3(a)(9)(i).

Trust has no living substantial contributors, and none of the family (as defined in section
4946) of any deceased substantial contributors are trustees of Trust. All of Trust’s
trustees in their roles as foundation managers are disqualified persons of Trust as
defined in section 4946(a)(1)(B).

Trust owns a variety of assets including Asset A. Trust anticipates that in conjunction
with Transaction A, Trust will receive cash in exchange for its ownership interest in
Asset A.

Foundation’s Board of Trustees and the trustees of Trust have determined that following
the completion of Transaction A, Trust’s separate existence will no longer be required or
beneficial and are considering a plan of dissolution and termination under state law as
outlined in the trust agreement pursuant to which Trust’s net assets would be
transferred to Foundation to better facilitate and streamline the efficient administration of
assets and to further Foundation’s charitable mission (the “Proposed Transfer”).

Trustees of Foundation and Trust plan to transfer all of Trust’s assets to Foundation to
further Foundation’s charitable exempt purposes to facilitate a more efficient distribution
of funds, limit their liability with regard to the assets, and simplify asset management.
The Proposed Transfer will include distributions out of current income and 100 percent
of the fair market value of Trust’s assets. In addition, Foundation will assume any
remaining liabilities of Trust. Trust will receive no consideration in exchange for the
transfer. It is anticipated that the transfer and retitling of all assets and liabilities to
Foundation would occur in a series of one or more transactions no later than Date.
Trust does not intend to obtain records from Foundation showing that Foundation has
made distributions out of corpus in connection with the transfers.

Upon completion of the Proposed Transfer, Trust will have no remaining assets or
liabilities and will terminate its existence under state law. Trust will file a timely, final
Form 990-PF no earlier than one day after the Proposed Transfer has been made.
PLR-102673-25 3

Trust represents that it has not and will not notify the IRS of an intent to terminate its
status as a private foundation pursuant to section 507(a)(1). Trust also represents that
it has not engaged in willfully repeated acts (or failures to act) or committed a willful and
flagrant act (or failure to act) which would give rise to tax under chapter 42, nor will it
commit any such acts at the time of transfer.

As Trust and Foundation have conducted and continue to conduct appropriate due
diligence to ensure compliance with tax and other matters, both Trust and Foundation
have incurred and will continue to incur expenses relating to the ultimate transfer of
assets of Trust to Foundation, most notably legal fees, accounting fees, IRS filing fees,
and other administrative expenses related to staff engagement. Trust and Foundation
represent that they have incurred these expenses in the good faith belief that they were
reasonable and that the payment or incurrence of such expenses in such amounts was
consistent with ordinary care and prudence relating to the winding down of Trust and
transfer of assets to Foundation.

RULINGS REQUESTED, LAW, AND ANALYSIS

Requested Rulings 1 and 2:

1. The Proposed Transfer from Trust to Foundation of all assets and any remaining
   liabilities of Trust, in one or a series of transfers, will constitute a significant
   disposition of assets described in section 507(b)(2).
2. After the Proposed Transfer is completed, Foundation will not be treated as a
   “newly created organization” under section 507(b)(2) and Treas. Reg. § 1.507-
   3(a)(1).
   Section 507(b)(2) provides that in the case of a transfer of assets of any private
   foundation to another private foundation pursuant to any liquidation, merger,
   redemption, recapitalization, or other adjustment, organization, or reorganization, the
   transferee foundation shall not be treated as a newly created organization. A transfer
   described in section 507(b)(2) is referred to as a “section 507(b)(2) transfer.”

Treas. Reg. § 1.507-3(c)(1) states that for purposes of section 507(b)(2), the terms
“other adjustment, organization, or reorganization” shall include any partial liquidation or
any other significant disposition of assets to one or more private foundations, other than
transfers for full and adequate consideration or distributions out of current income.”

Treas. Reg. § 1.507-3(c)(2)(ii) defines “significant disposition of assets to one or more
private foundations” to include any disposition or series of dispositions where the
cumulative total of dispositions is twenty-five percent (25%) or more of the fair market
value of the net assets of the foundation at the beginning of the taxable year.

In Treas. Reg. § 1.507-3(c)(5), Example (2), U, a tax-exempt private foundation on the
calendar year basis, has net assets worth $100,000 as of January 1, 1971. As part of a
PLR-102673-25 4

series of related dispositions in 1971 and 1972, U transfers in 1971, in addition to
distributions out of current income, $10,000 to private foundation X and $10,000 to
private foundation Y, and in 1972, in addition to distributions out of current income, U
transfers $10,000 to private foundation Z. Under subparagraph (2)(ii) of this paragraph,
U is treated as having made a series of related dispositions in 1971 and 1972. The
aggregate of the 1972 disposition (under subparagraph (2)(i) of this paragraph) and the
series of related dispositions (under subparagraph (2)(ii) of this paragraph) is $30,000,
which is more than 25 percent of the fair market value of U's net assets as of the
beginning of 1971 ($100,000), the first year in which any such disposition was made.
Thus, U has made a significant disposition of its assets and has made transfers
described in section 507(b)(2). The provisions of paragraphs (a) and (b) of this section
apply to each of the transferees as of the date on which it received assets from U.

In addition to distributions out of current income, Trust will transfer 100 percent of its
assets to Foundation. Trust will not receive any consideration for the amounts
transferred. The Proposed Transfer will exceed twenty-five percent (25%) of Trust's
assets and thus will constitute a significant disposition of assets that will qualify as a
section 507(b)(2) transfer. Because Trust will be making a section 507(b)(2) transfer to
Foundation, Foundation shall not be treated as a newly created organization following
the Proposed Transfer.

Requested Ruling 3: The Proposed Transfer will not terminate the status of Trust as a
private foundation under section 507(a)(1), and Trust’s voluntary termination as an
entity under state law will not cause the imposition of the termination tax under section
507(c).

Section 507(a) provides that, except as provided in subsection (b), the status of any
organization as a private foundation shall be terminated only if (1) it notifies the
Secretary of its intent to accomplish such a termination, or (2) with respect to such
organization, there have been either willful repeated acts (or failures to act), or a willful
and flagrant act (or failure to act), giving rise to liability for tax under chapter 42, and the
Secretary notifies such organization that it is liable for the tax imposed by section
507(c), and either such organization pays the tax (or any portion not abated
under section 507(g) or the entire amount of such tax is abated under section 507(g).

Section 507(c) imposes an excise tax on an organization whose private foundation
status is terminated pursuant to section 507(a) equal to the lower of (1) the aggregate
tax benefit that has resulted from the private foundation's tax-exempt status
under section 501(c)(3), or (2) the value of the net assets of the foundation.

Treas. Reg. § 1.507-1(b)(6) states, in part, that if a private foundation transfers all or
part of its assets to one or more other private foundations in a transfer described in
section 507(b)(2) and Treas. Reg. § 1.507-3(c), the transferor foundation will not have
terminated its private foundation status under section 507(a)(1).
PLR-102673-25 5

Treas. Reg. § 1.507-3(d) states that unless a private foundation voluntarily gives notice
pursuant to section 507(a)(1), a transfer of assets described in section 507(b)(2) will not
constitute a termination of the transferor's private foundation status under section
507(a)(1). Such transfer must, nevertheless, satisfy the requirements of any pertinent
provisions of chapter 42.

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

Trust represents that it has not and will not notify the Service of an intent to terminate its
status as a private foundation pursuant to section 507(a)(1). Trust also represents that
it has not willfully engaged in repeated acts (or failures to act) or committed a willful and
flagrant act (or failure to act) which would give rise to tax under chapter 42. Therefore,
because the Proposed Transfer is described in section 507(b)(2), and Trust’s status as
a private foundation will otherwise not be terminated pursuant to section 507(a)(1), the
Proposed Transfer will not terminate Trust’s private foundation status and will not cause
any liability under section 507(c).

Requested Ruling 4: As a result of the Proposed Transfer of all assets to Foundation,
Foundation will succeed to the “aggregate tax benefit,” as defined in section 507(d)(1).
As the Proposed Transfer constitutes a transfer of all of Trust’s assets, Treas Reg. §
1.507-3(a)(9)(i) will apply and Foundation will be treated as if it is Trust with respect to
the Proposed Transfer.

a. After the Proposed Transfer is completed, all of Trust’s excess qualifying
distribution carryover will transfer to Foundation; Trust will terminate and not
retain its excess qualifying distribution carryover.
b. Trust’s distributable amount and qualifying distributions under section 4942 for
the tax year in which the Proposed Transfer is completed will be carried over to
Foundation, and Trust will not need to separately meet the qualifying distribution
requirements under section 4942 for the tax year in which the Proposed Transfer
is completed.
c. Any refundable tax payments of Trust will be available to Foundation under
section 4940 to offset Foundation’s tax liability under section 4940.
Section 507(d)(1) defines “aggregate tax benefit” as the sum of the following amounts:

(i) the aggregate increases in tax under chapters 1,11 and 12 of the Internal
Revenue Code that would have been imposed on the substantial contributors to the
private foundation if the charitable income, estate and gift tax deductions were
disallowed for contributions made after February 28, 1913;

(ii) the aggregate increases in tax under chapter 1 that would have been imposed on
the private foundation's income for taxable years beginning after December 31, 1912
PLR-102673-25 6

if the foundation had not been exempt under section 501(c)(3) or if deductions
under section 642(c) had been limited to 20 percent of taxable income (in the case
of a trust); and

(iii) interest on the amounts described in items (i) and (ii) above from the first date
each amount would have been due and payable until the date when the organization
ceases to be a private foundation.

Treas. Reg. § 1.507-3(a)(1) states that, in the case of a significant disposition of assets
to one or more private foundations pursuant to a transfer described in section 507(b)(2)
and § 1.507-3(c), the transferee organization shall not be treated as a newly created
organization, but shall succeed to those attributes and characteristics of the transferor
organization which are described in § 1.507-3(a)(2), (3), and (4), which includes its
aggregate tax benefit, substantial contributors, and Chapter 42 tax and penalty
liabilities.

Treas. Reg. § 1.507-3(a)(2)(i) states that a transferee organization shall succeed to the
aggregate tax benefit of the transferor organization in an amount determined as follows:
Such amount shall be an amount equal to the amount of such aggregate tax benefit
multiplied by a fraction the numerator of which is the fair market value of the assets
(less encumbrances) transferred to such transferee and the denominator of which is the
fair market value of the assets of the transferor (less encumbrances) immediately before
the transfer.

Treas. Reg. § 1.507-3(a)(8)(ii) provides that certain provisions enumerated in that
section (including section 4940(c)(4)(B)) with respect to the basis of property
and section 4942(f)(4) with respect to distributions of income) shall apply to the
transferee foundation with respect to the assets transferred to the same extent and in
the same manner that they would have applied to the transferor foundation had the
transfer described in section 507(b)(2) not been effected.

Treas. Reg. § 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 by the same
persons which effectively controlled the transferor private foundation, for purposes of
chapter 42 (section 4940 et. seq.) and part II of subchapter F of chapter 1 of the Code
(sections 507 through 509) such a transferee private foundation shall be treated as if it
were the transferor.

Treas. Reg. § 1.507-7(d) provides that for purposes of section 507 and the regulations
thereunder, the term “net assets” shall mean the gross assets of a private foundation
reduced by all liabilities of the foundation, including appropriate estimated and
contingent liabilities.

Rev. Rul. 78-387, 1978-2 C.B. 270, holds that when a transferee foundation is treated
as the transferor under Treas. Reg. § 1.507-3(a)(9)(i), the transferee is entitled to
PLR-102673-25 7

reduce its distributable amount under section 4942 by the amount of the transferor’s
excess qualifying distribution carryover.

Rev. Rul. 2002-28, 2002-1 C.B. 941 holds that where, by reason of Treas. Reg. §
1.507-3(a)(9)(i), a transferee private foundation is treated as though it were the
transferor for purposes of section 4942, a transfer to the transferee foundation is not
treated as a qualifying distribution of the transferor foundation. Rather, the transferee
foundation assumes all obligations with respect to the transferor’s “undistributed
income” within the meaning of section 4942(c), if any, and reduces its own distributable
amount under section 4942(d) by the transferor foundation’s excess qualifying
distributions under section 4942(i).

Rev. Rul. 2002-28 also holds that where the transferor foundation transfers all of its
assets to one or more private foundations effectively controlled by the same persons
that effectively control the transferor, any excess section 4940 tax paid by the transferor
may be used by the transferee to offset the transferee's section 4940 tax liability.

Trust and Foundation represent that Trust and Foundation are effectively controlled by
the same person or persons within the meaning of Treas. Reg. §§ 1.507-3(a)(2)(ii) and
1.507-3(a)(9)(i). Trust anticipates that Proposed Transfer will collectively transfer all of
the assets and any remaining liabilities of Trust to Foundation.

Because Trust will transfer all assets to Foundation, which is effectively controlled by
the same person or persons that control Trust, Foundation will be treated as if it is Trust
with respect to the Proposed Transfer for purposes of chapter 42 and sections
507 through 509. As a result, all of Trust’s excess qualifying distribution carryover will
transfer to Foundation. Trust’s distributable amount and qualifying distributions under
section 4942 for the tax year in which the Proposed Transfer is completed will be
carried over to Foundation, and Trust will not need to separately meet the qualifying
distribution requirements under section 4942 for the tax year in which the Proposed
Transfer is completed. In addition, refundable tax payments of Trust will be available to
Foundation under section 4940 to offset Foundation’s tax liability under section 4940.

Requested Ruling 5: The Proposed Transfer to Foundation will not result in gross
investment income or capital gain income within the meaning of section 4940 and the
excise tax on net investment income.

Section 4940(a) imposes an excise tax on a private foundation's net investment income
for the taxable year.

Section 4940(c)(1) defines net investment income as the amount by which the sum of
the gross investment income and the capital gain net income exceeds the deductions
allowed under section 4940(c)(3).
PLR-102673-25 8

Section 4940(c)(2) provides, in part, that for purposes of section 4940, the term “gross
investment income” means the gross amount of income from interest, dividends, rents,
payments with respect to securities loans, and royalties.

Rev. Rul. 2002-28 presents situations where a private foundation transfers all of its
assets to transferee private foundations that are effectively controlled (within the
meaning of the regulations under section 507), directly or indirectly by the same person
who effectively controlled the transferor private foundations. The ruling concludes that
the transfers do not constitute investments of the transferor for purposes of section
4940; therefore, the transfers do not give rise to net investment income subject to tax
under section 4940(a).

Trust proposes to distribute all of its assets to Foundation. Trust will receive no
consideration for the transfer and thus will receive no gross income. Similar to the
transfers described in Rev. Rul. 2002-28, the Proposed Transfer does not constitute an
investment of Trust for purposes of section 4940. Accordingly, the Proposed Transfer
will not result in the production of net investment income (including capital gains from
the taxable sale or disposition of property) subject to excise tax under section 4940.

Requested Ruling 6: The Proposed Transfer to Foundation will not result in an act of
self-dealing under section 4941 and the excise tax imposed on self-dealing.

Section 4941(a) imposes taxes on each act of self-dealing between a private foundation
and a disqualified person, as defined in section 4946. Taxes are imposed on both the
self-dealers involved in an act of self-dealing and on any foundation managers who
knowingly participate in an act of self-dealing.

Section 4941(d)(1)(E) provides that the term “self-dealing” includes any direct or indirect
transfer to, or use by or for the benefit of, a disqualified person of the income or assets
of a private foundation.

Section 4946(a)(1) defines the term “disqualified person.” Treas. Reg. § 53.4946-
1(a)(8) provides that, for purposes of section 4941 only, the term “disqualified person”
shall not include organizations that are exempt under section 501(c)(3) (other than an
organization described in section 509(a)(4)).

Rev. Rul. 2002-28 presents situations where a private foundation transfers all of its
assets to transferee private foundations that are effectively controlled (within the
meaning of the regulations under section 507), directly or indirectly by the same person
who effectively controlled the transferor private foundations. The ruling states that the
transfers are to section 501(c)(3) organizations, which are not treated as disqualified
persons for purposes of section 4941. See Treas. Reg. § 53.4946-1(a)(8). Thus, the
transfers do not constitute self-dealing transactions and are not subject to tax
under section 4941(a).
PLR-102673-25 9

Trust is recognized as tax exempt under section 501(c)(3). Foundation also is
recognized by the IRS as an organization exempt from tax under section
501(c)(3). Under Treas. Reg. § 53.4946-1(a)(8), the Proposed Transfer from Trust to
Foundation will not constitute a transfer to a disqualified person because both Trust and
Foundation are described in section 501(c)(3) and are not organizations described
in section 509(a)(4). See sections 4941(a); 4941(d)(1)(E); and Rev. Rul. 2002-28.
Moreover, any benefit to disqualified persons with respect to Foundation or Trust arising
from the transfer is incidental or tenuous under the facts presented. As a result, the
transfer of all of Trust’s assets to Foundation will not be an act of self-dealing with
respect to Trust or Foundation, provided Foundation maintains its tax-exempt status
under section 501(c)(3) and is recognized by the IRS as an organization exempt from
tax under section 501(c)(3) on the dates of the Proposed Transfer. See Treas. Reg.
§ 53.4946-1(a)(8).

Requested Ruling 7: The Proposed Transfer to Foundation will not result in a qualifying
distribution under IRC Section 4942.

Section 4942(a) generally imposes a tax on the undistributed income of a private non-
operating foundation for any taxable year which has not been distributed before the first
day of the second (or any succeeding) taxable year following such taxable year.

Section 4942(c) defines “undistributed income” for any taxable year as the amount by
which the distributable amount for such taxable year exceeds the qualifying distributions
made out of such distributable amount for such taxable year.

Section 4942(g)(1)(A) and Treas. Reg. §53.4942(a)-3(a)(2)(i) provide, in part, that the
term “qualifying distribution” means any amount paid to accomplish one or more
purposes described in section 170(c)(1) or (2)(B), other than any contribution to (i) a
private non-operating foundation, unless the amount paid satisfies the requirements
of section 4942(g)(3); (ii) an organization controlled (directly or indirectly) by the private
foundation or one or more disqualified persons (as defined in section 4946) with respect
to the foundation; or (iii) a supporting organization described in section 4942(g)(4)(A)(i)
or (ii), including a Type III functionally integrated supporting organization if a disqualified
person of the private foundation directly or indirectly controls such organization or a
supported organization (as defined in section 509(f)(3)) of such organization.

Section 4942(g)(3) and Treas. Reg. § 53.4942(a)-3(c)(1) provide that, if two
requirements are satisfied, the term “qualifying distribution” includes a contribution to (i)
another section 501(c)(3) organization controlled directly or indirectly by the transferor
foundation or one or more disqualified persons with respect to the transferor or (ii) a
private non-operating foundation. The first such requirement is that the transferee
organization satisfy certain distribution requirements described in section 4942(g)(3)(A).
The second requirement is that the transferor obtains adequate records or other
sufficient evidence from the transferee organization(s) showing that the required pass-
through distributions were made, as described in section 4942(g)(3)(B). The
PLR-102673-25 10

distributions must be made no later than the close of the first taxable year after its
taxable year in which such contribution is received and must be equal to the amount of
the contribution.

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

Rev. Rul. 2002-28 holds that where, by reason of Treas. Reg. § 1.507-3(a)(9)(i), a
transferee private foundation is treated as though it were the transferor for purposes of
section 4942, a transfer to the transferee foundation is not treated as a qualifying
distribution of the transferor foundation. Rather, the transferee foundation assumes all
obligations with respect to the transferor's “undistributed income” within the meaning
of section 4942(c), if any, and reduces its own distributable amount under section
4942(d) by the transferor foundation's excess qualifying distributions under section
4942(i).

Under section 4942(g)(3) and Treas. Reg. § 53.4942(a)-3(c)(1), a grant by a private
non-operating foundation to another private non-operating foundation (or to another
organization controlled by disqualified persons with respect to the transferor) is not
treated as a qualifying distribution by the transferor foundation for purposes of section
4942 except to the extent that the transferee makes one or more distributions that would
be qualifying distributions under section 4942(g) prior to the close of the transferee's
first taxable year following the taxable year in which it received the transfer and the
distributions are treated as being made out of corpus. Thus, under section 4942(g)(3),
a transfer to another private foundation shall count toward an organization's distribution
requirements only if the redistribution requirements are met. As Trust does not intend to
obtain records from Foundation showing that Foundation has made distributions out of
corpus in connection with the transfers, the Proposed Transfer will not satisfy the
requirements for qualifying distributions under section 4942(g)(3).

Requested Ruling 8: The Proposed Transfer to Foundation will not result in an
investment that jeopardizes charitable purposes under section 4944 and the excise tax
imposed on jeopardizing investments.

Section 4944(a)(1) imposes a tax on any amount invested by a private foundation in a
manner that jeopardizes the carrying out of any of the foundation's exempt purposes.
Section 4944(c) provides an exception for investments where the primary purpose of
the investment is to accomplish exempt purposes and no significant purpose of which is
the production of income or appreciation of property.

Rev. Rul. 2002-28 presents situations where a private foundation transfers all of its
assets to transferee private foundations that are effectively controlled (within the
meaning of the regulations under section 507), directly or indirectly by the same person
PLR-102673-25 11

who effectively controlled the transferor private foundations. The ruling holds that the
transfers do not constitute investments for purposes of section 4944. Therefore, the
transfers do not constitute investments jeopardizing the transferor foundation's exempt
purposes and are not subject to tax under section 4944(a)(1).

Under section 4944(c), a transfer is not considered a jeopardizing investment for
purposes of section 4944 if the transfer of assets was made for the purpose of
accomplishing a charitable purpose and not for the production of income or appreciation
of property. The Proposed Transfer is being made to fulfill both Trust and Foundation’s
shared charitable purposes and for no consideration. The transfers are not
investments, and Trust expects no return on investment, nor a return of principal.
Therefore, the Proposed Transfer does not constitute an investment and will not result
in the imposition of tax for a jeopardizing investment under section 4944. See also Rev.
Rul. 2002-28.

Requested Ruling 9: The Proposed Transfer to Foundation pursuant to section
507(b)(2) will not result in the transfers being taxable expenditures under section 4945.
The payment of reasonable legal, accounting, and other administrative expenses
incurred by Trust and Foundation in connection with the transfer of assets from Trust to
Foundation do not constitute taxable expenditures under section 4945.

Section 4945(a) imposes a tax on each “taxable expenditure” incurred by a private
foundation.

Section 4945(d)(4) provides that the term “taxable expenditure” includes a grant paid to
an organization unless (A) the grantee is either a public charity described in section
509(a)(1), (2), or (3), (other than certain supporting organizations described in section
4942(g)(4)(A)(i) or (ii)) or an exempt operating foundation described in section
4940(d)(2), or (B) unless the grantor exercises expenditure responsibility over the grant
pursuant to section 4945(h).

Section 4945(d)(5) provides that the term “taxable expenditure” also includes any
amount paid or incurred by a private foundation for any purpose other than one
specified in section 170(c)(2)(B).

Section 170(c)(2)(B) lists the following purposes: “religious, charitable, scientific, literary,
or educational purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals.” The purposes listed
in section 170(c)(2)(B) are nearly the same as the purposes listed in section 501(c)(3).
Thus, a grant by a private foundation to another organization described in section
501(c)(3) ordinarily is an amount paid to accomplish a purpose described in section
170(c)(2)(B).
PLR-102673-25 12

Section 4945(h) defines “expenditure responsibility” to mean that the grantor private
foundation is responsible for exerting all reasonable efforts to establish adequate
procedures to see that the grant is spent solely for the purpose for which it was made,
obtain full and complete reports from the grantee on how the funds are spent, and make
full and detailed reports with respect to such expenditures to the Secretary.

Treas. Reg. § 53.4945-6(c)(3) allows a private foundation to transfer its assets to
exempt organizations described in section 501(c)(3), including private foundations,
pursuant to section 507(b)(2), without the transfers being taxable expenditures
under section 4945(d)(5). As discussed, Treas. Reg. § 1.507-3(a)(9)(i) provides that if a
private foundation transfers all of its net assets to one or more private foundations which
are effectively controlled by the same person or persons which effectively controlled the
transferor private foundation, for purposes of chapter 42 and sections 507 through
509 such a transferee private foundation shall be treated as if it were the transferor.

Rev. Rul. 2002-28 provides that where each transferor foundation transfers all of its
assets to private foundations effectively controlled by the same persons that effectively
control the transferor foundation, the transferee foundations are treated as if they were
the transferor for purposes of section 4945.

Because Foundation is treated as though it were the transferor foundation rather than
as a recipient of expenditure responsibility grants, there are no expenditure
responsibility requirements under section 4945 that must be exercised with respect to
the Proposed Transfer from Trust to Foundation and the Proposed Transfer will not be a
taxable expenditure.

Treas. Reg. § 53.4945-6(b)(2) provides that legal, administrative, and other expenses
incurred by a private foundation are not taxable expenditures if the foundation can
demonstrate that such expenses were paid or incurred in the good faith belief that they
were reasonable and that the payment or incurrence of such expenses in such amounts
was consistent with ordinary business care and prudence. Trust and Foundation
represent that the legal, accounting, and other expenses paid in connection with this
ruling request and in effectuating the proposed transfer are reasonable, necessary, and
consistent with ordinary business care and prudence. Therefore, these payments will
also not constitute taxable expenditures under section 4945.

Requested Ruling 10: Trust will not be required to file Form 990-PF for any taxable year
following the taxable year in which the Proposed Transfer is completed under section
6033.

Treas. Reg. § 1.507-3(a)(10), by reference to Treas. Reg. § 1.507-1(b)(9), provides that
a private foundation that transfers all of its net assets is required to file the annual
information return required by section 6033, and the foundation managers are required
to file the annual report of a private foundation required by section 6056, for the taxable
year in which such transfer occurs. However, neither such foundation nor its foundation
PLR-102673-25 13

managers will be required to file such returns for any taxable year following the taxable
year in which the last of any such transfers occurred, if at no time during the subsequent
taxable years in question the foundation has either legal or equitable title to any assets
or engages in any activity. See also Rev. Rul. 2002-28. After the completion of the
Proposed Transfer, Trust plans to file a final Form 990-PF. Trust will no longer have
any assets, liabilities, or activities. Therefore, Trust will not be required to file Form 990-
PF for any taxable year subsequent to the taxable year in which the Proposed Transfer
occurs.

RULINGS

Based on the foregoing, and assuming the accuracy of the facts and representations set
forth herein, we rule as follows:

1) The Proposed Transfer from Trust to Foundation of all assets and any remaining
liabilities of Trust, in one or a series of transfers, will constitute a significant disposition
of assets described in section 507(b)(2).

2) After the Proposed Transfer is completed, Foundation will not be treated as a “newly
created organization” under section 507(b)(2) and Treas. Reg. § 1.507-3(a)(1).

3) The Proposed Transfer will not terminate the status of Trust as a private foundation
under section 507(a)(1), and Trust’s voluntary termination as an entity under state law
will not cause the imposition of the termination tax under section 507(c).

4) As a result of the Proposed Transfer of all assets to Foundation, Foundation will
succeed to the “aggregate tax benefit,” as defined in section 507(d)(1). As the
Proposed Transfer constitutes a transfer of all of Trust’s assets, Treas Reg. § 1.507-
3(a)(9)(i) will apply and Foundation will be treated as if it is Trust with respect to the
Proposed Transfer.

a. After the Proposed Transfer is completed, all of Trust’s excess qualifying
distribution carryover will transfer to Foundation; Trust will terminate and not
retain its excess qualifying distribution carryover.
b. Trust’s distributable amount and qualifying distributions under section 4942 for
the tax year in which the Proposed Transfer is completed will be carried over to
Foundation, and Trust will not need to separately meet the qualifying distribution
requirements under section 4942 for the tax year in which the Proposed Transfer
is completed.
c. Any refundable tax payments of Trust will be available to Foundation under
section 4940 to offset Foundation’s tax liability under section 4940.
5) The Proposed Transfer to Foundation will not result in gross investment income or
capital gain income within the meaning of section 4940 and the excise tax on net
investment income.
PLR-102673-25 14

6) The Proposed Transfer to Foundation will not result in an act of self-dealing
under section 4941 and the excise tax imposed on self-dealing.

7) The Proposed Transfer will not result in a qualifying distribution under section 4942.
8) The Proposed Transfer to Foundation will not result in an investment that jeopardizes
charitable purposes under section 4944 and the excise tax imposed on jeopardizing
investments.

9) The Proposed Transfer to Foundation pursuant to section 507(b)(2) will not result in
the transfers being taxable expenditures under section 4945. The payment of
reasonable legal, accounting, and other administrative expenses incurred in connection
with the transfer of assets from Trust to Foundation do not constitute taxable
expenditures under section 4945.

10) Trust will not be required to file Form 990-PF for any taxable year following the
taxable year in which the Proposed Transfer is completed under section 6033.

The rulings contained in this letter are based upon information and representations
submitted by or on behalf of Foundation and accompanied by a penalty of perjury
statement executed by an individual with authority to bind Foundation, and upon the
understanding that there will be no material changes in the facts. While this office has
not verified any of the material submitted in support of the request for a ruling, it is
subject to verification on 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 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 aspects of any transaction or item of income
discussed or referenced in this letter.

Because it could help resolve questions concerning federal income tax status, this letter
should be kept in taxpayer’s permanent records.

A copy of this letter must be attached to any tax return to which it is relevant.
Alternatively, if taxpayer files a return electronically, this requirement may be satisfied
by attaching a statement to the return that provides the date and control number of this
letter.
PLR-102673-25 15

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.

This letter is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited by others as precedent.

                                              Sincerely,



                                              Theodore R. Lieber
                                              Senior Technician Reviewer
                                              (Employee Benefits, Exempt Organizations, and
                                              Employment Taxes)

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