D.1. Transferor and Transferee Treatment Following a Transfer to Another Private…

(1) The broad purpose of the rules contained in the regulations is to preserve the

applicable restrictions contained in Chapter 42 in the case of assets that are transferred from one private foundation to another. The regulations thus provide that such transfers result in a carryover of certain tax attributes and characteristics of the transferor organization to the transferee foundation. See Treas. Reg. 1.507-3(a)(1).

(2) A transferee private foundation succeeds to that part of the transferor’s

"aggregate tax benefit" (defined in Treas. Reg. 1.507-5) that is attributable to the assets transferred, based on the transferor’s assets held just before the transfer. However, fair market value of assets held and transferred is determined at the time of the transfer. Furthermore, a transferee foundation not effectively controlled, directly or indirectly, by the same person or persons who effectively control the transferor organization cannot succeed to an aggregate tax benefit greater than the fair market value of the assets transferred, as determined at the time of the transfer. See Treas. Reg. 1.507-3(a)(2).

(3) In the event of a transfer of assets described in Section 507(b)(2), any person

who is a substantial contributor (within the meaning of Section 507(d)(2)) with respect to the transferor foundation shall be treated as a substantial contributor with respect to the transferee foundation, regardless of whether such person meets the $5,000-2% test with respect to the transferee organization at any time. If a private foundation makes a Section 507(b)(2) transfer to two or more transferee private foundations, any person who is a substantial contributor with

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respect to the transferor foundation prior to such transfer shall be considered a substantial contributor with respect to each transferee private foundation. This prevents a transferor foundation from avoiding the prohibitions of Chapter 42 relating to substantial contributors by transferring its assets to another private foundations having different substantial contributors. Thus, a transferee foundation that has acquired "substantial contributors" by reason of a Section 507(b)(2) transfer will be affected by the rules under Section 4941 (selfdealing), Section 4942 (income distributions), and Section 4963 (excess business holdings) that relate to a private foundation and its "disqualified persons." See Treas. Reg. 1.507-3(a)(3).

(4) A transferor foundation cannot prevent the use of its assets for the payment of

Chapter 42 tax liabilities by transferring such assets to another private foundation. In such a case the assets are subject to, in the hands of the transferee, any liability incurred by the transferor either prior to or as a result of the transfer, to the extent that the transferor foundation does not satisfy the liability. See Treas. Reg. 1.507-3(a)(4).

(5) A Section 507(b)(2) transfer will be counted toward the satisfaction of the

transferor’s Section 4942 distribution requirements to the extent the assets transferred meet the requirements of Section 4942(g). However, the recordkeeping requirements of Section 4942(g)(3)(B) are inapplicable during any period in which the transferor has no assets. See Treas. Reg. 1.5073(a)(5).

(6) After a Section 507(b)(2) transfer, the applicable time period described in

Sections 4943(c)(4), (c)(5), or (c)(6) shall include the period during which the transferor foundation held the assets transferred, and the period during which the transferee foundation holds such assets. See Treas. Reg. 1.507-3(a)(6).

(7) When the transferor foundation disposes of all of its assets, during any period in

which it has no assets, Sections 4945(d)(4) and (h) shall not apply to the transferee or the transferor with respect to any "expenditure responsibility" grants made by the transferor. However, any information reporting requirements imposed by Section 4945 would still apply for any year in which any such transfer is made. See Treas. Reg. 1.507-3(a)(7).

(8) In a Section 507(b)(2) transfer, the following provisions shall apply to the

transferee foundation with respect to the assets transferred to the same extent they would apply to the transferor foundation had the transfer not been affected:

a. Section 4940(c)(4)(B) as to basis of property,

b. Section 4942(f)(4) as to distributions of income,

c. Section 101(l)(2) of the Tax Reform Act of 1969 (TRA ‘69) with respect to

the provisions of Section 4941,

d. Section 101(l)(3)(a) of TRA ‘69 as to Section 4942, if the transferor qualified

for the application of such section just before the transfer, and at least 85%

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of the fair market value of the net assets of the transferee immediately after the transfer were received pursuant to the transfer,

e. Section 101(l)(3)(B) through (E) of TRA ‘69 as to Section 4942,

f. Section 101(l)(5) of TRA ‘69 as to Section 4945, and

g. Section 101(l)(6) of TRA ‘69 as to Section 508(e). See Treas. Reg. 1.507 3(a)(8)(ii).

(9) In a Section 507(b)(2) transfer, if the transferee foundation(s) is effectively

controlled (as stated in Treas. Reg. 1.482-1(a)(3)), directly or indirectly, by the same person or persons which effectively controlled the transferor foundation, for purposes of Chapter 42 and Sections 507 through 509 such a transferee shall be treated as if it were the transferor. When the net assets are transferred to two or more foundations, then, when appropriate, each transferee shall be treated as if it were the transferor on a proportional basis, according to the fair market value of assets received and the fair market value of the net assets held by the transferor just before the transfer. See Treas. Reg. 1.507-3(a)(9).