C. Gross Investment Income

(1) Section 4940(c)(2) defines gross investment income as the gross amount of

income (other than unrelated business taxable income) from, and from sources similar to:

a. Interest

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b. Dividends

c. Rents

d. Payments with respect to securities loans (Section 512(a)(5))

e. Royalties (including overriding royalties)

Example: Rents taxable as unrelated business taxable income pursuant to Section 512(b)(3) wouldn’t be subject to Section 4940 excise tax. Interest, dividends, rents and royalties derived from assets devoted to charitable activities are included in gross investment income. Therefore, interest received on a student loan would be included in the gross investment income of a private foundation making such loan.

(2) In computing gross investment income, unrelated business income taxable under

Section 641(a) isn’t includible in the gross investment income of a Section 4947(a)(1) nonexempt charitable trust. See Rev. Rul. 74-497, 1974-2 C.B. 383.

(3) A private foundation includes in gross investment income the entire amount of

interest income derived from the redemption of Series E U.S. Savings Bonds received from the estate of the purchaser, when neither the estate nor the purchaser elected to report as income the periodic increases in bond value. See Rev. Rul. 80-118, 1980-1 C.B. 254.