C.3. Section 507(b)(1)(B) Terminations – Operation as a Public Charity

(1) The basic requirements for terminating private foundation status under Section

507(b)(1)(B) are:

a. The organization has not been involved in 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. The organization meets the requirements of Section 509(a)(1), (a)(2), or

(a)(3) for a continuous period of 60 calendar months (the 12-month transition period referred to in the Code).

c. The organization notifies the IRS, before the start of the 60-month period,

that it’s terminating its private foundation status.

d. The organization, within 90 days after the end of the 60-month period,

furnishes the IRS sufficient information to allow a determination that the organization met the requirements of Section 509(a)(1), (a)(2), or (a)(3). See Treas. Reg. 1.507-2(b).

(2) Generally, a private foundation is required to notify the IRS of its intention to

terminate before the beginning of the 60-month period that it is terminating its private foundation status. Treas. Reg. 1.507-2(b)(1)(ii).

(3) To request an advance ruling that an organization can be expected to meet the

requirements of Section 507(b)(1)(B)(i), the organization would submit Form 8940, Request for Miscellaneous Determination, along with the required information and user fee to the address indicated in the Form 8940 instructions. See Rev, Proc. 2024-5, 2024-1 I.R.B. 262 (updated annually).

(4) Such notification should contain the following information:

a. Name and address of the private foundation;

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b. Its intention to terminate its private foundation status;

c. Whether the 60-month period applies;

d. IRC Section under which it seeks classification (Section 509(a)(1), (a)(2), or

(a)(3));

e. If Section 509(a)(1) is applicable, the clause of Section 170(b)(1)(A)

involved;

f. Date its regular taxable year begins; and

g. Date of commencement of the 60-month period.

(5) If not requesting an advance ruling, the organization would send the required

information to Internal Revenue Service, Exempt Organizations Determinations, P.O. Box 2508, Cincinnati, OH 45201.

(6) In order to accomplish a Section 507(b)(1)(B) termination of its private

foundation status, an organization must change its organizational structure, its operations, the sources of its support, or any combination of the foregoing, to the extent necessary to meet the requirements of Section 509(a)(1), (a)(2), or (a)(3) for a continuous period of 60 calendar months beginning with the first day of any taxable year which begins after December 31, 1969.

(7) To establish a successful termination an organization must, within 90 days after

the expiration of the 60-month period, file such information with the IRS as is necessary to make a determination as to the organization’s status as an organization described under Section 509(a)(1), (a)(2), or (a)(3).

Note: The regulations do not address what happens if an organization doesn’t provide the information within the 90 days.

a. Failure to supply all the information required to make such a determination,

within the time required, will not alone constitute a failure to satisfy the requirements of Section 507(b)(1)(B).

b. When timely filed information is incomplete, and additional information as

requested by the IRS is filed within the allowed time period, the original submission will be considered timely. See Treas. Reg. 1.507-2(b)(5).

(8) If a private foundation successfully accomplishes a valid Section 507(b)(1)(B)

termination of its private foundation status, the termination is retroactive to the beginning of the 60-month period. Thus, the terminating organization will be treated for the entire 60-month period in the same manner as an organization described in Sections 509(a)(1), (a)(2), or (a)(3). See Treas. Reg. 1.507-2(e)(1).

(9) If a private foundation fails to accomplish a Section 507(b)(1)(B) termination

during the 60-month period, it will be subject to Sections 507, 508, 509, and Chapter 42 for the 60-month period during which it does not satisfy the requirements of Sections 509(a)(1), (a)(2), or (a)(3). However, it will be treated as an organization described in Sections 509(a)(1), (a)(2), or (a)(3) for any taxable year or years in which it does satisfy those requirements; in such

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year(s), Sections 507, 508, 509, and Chapter 42 will not apply. Grants and contributions made for any particular year will be treated according to its foundation status during that year. In determining whether an organization satisfies the requirements of Sections 509(a)(1), (a)(2) or (a)(3) for any taxable year in the 60-month period, the organization will be treated as if it were a new organization with its first taxable year beginning on the date of the commencement of the 60-month period. See Treas. Reg. 1.507-2(e)(2)(i) and (ii).

(10) The organization’s aggregate tax benefit will continue to be computed from the

date from which such computation would have been made, but for the notice filed under Section 507(b)(1)(B)(ii), except that any taxable year within such 60month period for which such organization meets the requirements of Sections 509(a)(1), (a)(2), or (a)(3) will be excluded from such computations. See Treas. Reg. 1 507-2(e)(2)(iii).