E. Basis Rules

(1) The basis to be used in determining gain from the sale or other disposition of

property is the greater of:

a. Fair market value on December 31, 1969, plus or minus all adjustments after

December 31, 1969, and before the date of disposition under the rules of Part II of subchapter O of Chapter 1 of the IRC, provided that the property was held by the foundation on December 31, 1969, and continuously thereafter to the date of disposition, or

b. Basis as determined under the rules of Part II of subchapter O of Chapter 1 of

the IRC; however, the special modification rules on deductions for depreciation and depletion apply (see Section 4940(c)(3)(B)) and the zerobasis rule of Section 362(c) doesn’t apply.

(2) For purposes of determining loss, the basis is determined under Part II of

subchapter O of Chapter 1 of the IRC subject to the special modification rules on deductions for depreciation and depletion (see Section 4940(c)(3)(B)) and without regard to the zero-basis rule of Section 362(c). See Treas. Reg. 53.4940-1(f)(2).

(3) There is no provision for a step-up in basis when a public charity converts to a

private foundation and becomes subject to the net investment income tax.