C.3. Non-Dividend Treatment of Certain Distributions in Redeeming Stock

(1) Distributions made to a private foundation by a disqualified person (as defined in

Section 4946(a)) in redemption of foundation-owned stock aren’t treated as dividends.

(2) Any distribution by a corporation that is classified as a disqualified person in

redemption of stock held by a private foundation in a business enterprise will be treated as not essentially equivalent to a dividend if all the following conditions are met:

a. The stock was owned by the private foundation on May 26,1969.

b. The foundation is required to dispose of the stock in order not to be liable for

the Section 4943 tax on excess business holdings.

c. The foundation receives in return an amount that equals or exceeds the fair

market value of the stock at the time of disposition (or at the time a contract for the disposition was previously executed) in a transaction that wouldn’t be a prohibited transaction (under Section 503(b)).

(3) For purposes of paragraph (1) above, if a private foundation acquired stock under

the terms of a trust that was irrevocable on May 26, 1969, or under the terms of a will executed by that date, which is in effect on that date and at all times thereafter, the foundation will be considered as owning the stock on that date.

(4) A distribution which otherwise qualifies under Section 302 as a distribution in part

or full payment in exchange for stock is not treated as essentially equivalent to a dividend because it does not meet the requirements above. See Treas. Reg. 53.4940-1(d)(3).