C.2. Exclusion of Income from Section 4947 Trusts

(1) Distributions received from a non-exempt charitable trust described in Section

4947(a)(1) or from an estate are excluded from a private foundation’s gross investment income for purposes of Section 4940 tax. See Treas. Reg. 53.4940

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1(d)(2). Such trusts are treated as organizations described in Section 501(c)(3) and are themselves subject to Section 4940 excise tax unless they qualify as other than private foundations under Section 509.

(2) Also excluded from a private foundation’s income for purposes of the Section

4940 tax are distributions received from split-interest (charitable and noncharitable beneficiaries) trusts unless the distributions are attributable to transfers in trust made by a split-interest trust after May 26, 1969. See Treas. Reg. 53.4940-1(d)(2). This exception for distributions from post-May 26, 1969, transfers in trust prevents use of the split-interest trust to shelter investment income from the Section 4940 tax. However, Notice 2004-35 provides that until further guidance is promulgated, income from a trust or an estate is not included in a foundation’s net investment income. See Notice 2004-35, 2004-19 IRB 889.