C.1. Section 507(b)(1)(A) Terminations – Distributions of Net Assets to Public Charities

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(1) A foundation may terminate its private foundation status if it distributes its net

assets to one or more public charities. To accomplish the termination in this manner:

a. There have not been either willful, repeated acts (or failures to act) or a

willful and flagrant act (or failure to act) giving rise to liability for tax under Chapter 42.

b. It must distribute all its right, title, and interest in and to all its net assets.

c. The organization(s) to which it distributes must be public charities as

described in Section 170(b)(1)(A)(i) - (vi) and (ix).

d. The public charities must have been in existence and so described for a

continuous period of at least 60 months. See Treas. Reg. 1.507-2(a).

Note: Section 170(b)(1)(A)(ix) was added by Consolidated Appropriations Act 2016, Public Law 114-113, 129 Stat. 2241 (2015) and Treas. Reg. 1.507-2(a) was not amended to reflect this new section.

(2) The Section 507(c) termination tax is not imposed on organizations terminating

under Section 507(b)(1)(A); therefore, no abatement of such tax under Section 507(g) is required. See Treas. Reg. 1.507-2(a)(1).

(3) To terminate its private foundation status by distributing all its net assets in

compliance with the requirements of Section 507(b)(1)(A), the organization is not required to file the notification described under Section 507(a)(1). The private foundation may, therefore, carry out the distributions without giving advance notice to the IRS of its intent to terminate. See Treas. Reg. 1.5072(a)(1).

(4) To effectuate a transfer of "all of its rights, title, and interest in and to all of its

net assets" within the meaning of Section 507(b)(1)(A), a transferor private foundation may not impose any material restriction or condition that prevents the transferee organization (the public charity) from freely and effectively employing the transferred assets, or derived income, in furtherance of its exempt purposes. Whether a condition or restriction imposed upon a transfer is "material " must be determined from all the facts and circumstances of the transfer. See Treas. Reg. 1.507-2(a)(7).

(5) If a private foundation transfers all its assets to one or more persons, but less

than all its net assets to one or more 60-month Section 509(a)(1) organizations, the foundation will not have terminated its private foundation status. If such a foundation subsequently receives a grant, the grant will be considered to have been made to a private foundation. See Treas. Reg. 1.507-1(b)(7).

(6) Neither Section 507(b)(1)(A) nor the regulations establish a fixed time period

within which the distribution of all the organization’s net assets must be completed. Nevertheless, the distributing organization will be treated as a private foundation for all purposes until the distribution is completed. See Treas. Reg. 1.507-2(a)(4).

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(7) An organization that remains in existence after terminating its private foundation

status under Section 507(b)(1)(A) must, unless specifically excepted by Section 508(c), file Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, to be treated as an organization described in Section 501(c)(3). See Rev. Rul. 74-490, 1974-2 C.B. 171.