Trusts Treated as Private Foundations

(1) A charitable trust described in Section 4947(a)(1) is a trust that is not tax

exempt, all of the unexpired interests of which are devoted to one or more charitable purposes, and for which a charitable contribution deduction was allowed under a specific section of the IRC. A charitable trust is treated as a private foundation unless it meets the requirements for one of the exclusions that classifies it as a public charity. Therefore, it will be subject to the private foundation excise tax provisions including Chapter 42 and Section 507.

(2) Section 4947(a)(2) split interest trusts are not subject to all the Chapter 42

restrictions on private foundations. Sections 4941 and 4945, self-dealing and taxable expenditures, apply in all cases, as do Sections 507 and 508(e). Sections 4943 and 4944 apply except in two situations:

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(a) If the remainder interests are entirely charitable, and the income interests

entirely non-charitable; and

(b) If all the income interests are entirely charitable, the charitable interests

comprise less than 60% of the value of all the assets of the trust, and there are no charitable remainder interests.

Congress determined that, in these situations, since the charitable interests were comparatively small or remote in time, the restrictions of the annuity or unitrust form offer enough protection under the circumstances.