U. Section 507(b)(1)(B) Termination—Notice and Filing Requirements

A private foundation or nonexempt charitable trust (other than a foundation or trust described in section 4948(b)) may terminate its private foundation status under section 507(b)(1)(B) by meeting the requirements of public charity status under section 509(a)(1), (2), or (3) over a continuous 60-month period that begins with the beginning of a tax year of the organization. The organization must give proper notice to the IRS prior to the start of the 60-month period, and establish to the satisfaction of the IRS within 90 days after the end of the 60-month period that it so qualified.

If the organization fails to qualify as a public charity over the entire 60-month period, then it will be treated as a private foundation after the end of the 60-month period, and for any tax year within the 60-month period in which it didn't qualify as a public charity.

An organization gives the IRS notice of termination under section 507(b)(1)(B) by submitting Form 8940, Request for Miscellaneous Determinations, on which it provides the information set forth in Regulations section 1.507-2(b)(3).

An organization may also give the notice with a request for an advance ruling that the organization can be expected to meet the requirements of public charity status during the 60-month period. Form 8940, Request for Miscellaneous Determination, is also used for this purpose. No user fee is required to provide the required notice, but a user fee is required if an advance ruling is requested. See the Instructions for Form 8940 for more information. The advantage of an advance ruling is that the organization’s grantors and contributors can generally rely on it during the 60-month period, and the ruling constitutes reasonable cause for abatement of penalties for failure to pay section 4940 tax during the period. The organization itself can't rely on the ruling to avoid private foundation status during or after the 60-month period.

Although an organization terminating its private foundation status under section 507(b)(1)(B) may be regarded as a public charity for certain purposes, it is considered a private foundation for filing requirement purposes and must file an annual return on Form 990-PF. The return must be filed for each year in the 60-month termination period, if that period hasn't expired before the due date of the return.

Within 90 days after the end of the termination period, the organization must supply information to the IRS establishing that

it has terminated its private foundation status and, as a result, qualifies as a public charity. This information is provided on Form 8940.

If information is furnished establishing a successful termination, then, for the final year of the termination period, the organization should comply with the filing requirements for the type of public charity it has become. See the Instructions for Form 990 and the Instructions for Schedule A (Form 990 or 990-EZ) for details on filing requirements. This applies even if the IRS hasn't confirmed that the organization has terminated its private foundation status by the time the return for the final year of the termination is due (or would be due if a return were required).

The organization will be allowed a reasonable period of time to file any private foundation returns required (for the last year of the termination period) but not previously filed if it is later determined that the organization didn't terminate its private foundation status. Interest on any tax due will be charged from the original due date of Form 990-PF, but penalties under sections 6651 and 6652 won't be assessed if Form 990-PF is filed within the period allowed by the IRS.