Correction Where the ATEO is No Longer in Existence or Tax- Exempt

(1) When the ATEO that engaged in the excess benefit transaction is no longer in

existence, or is no longer tax-exempt, correction should be made under the rules provided in Treas. Reg. 53.4958-7(e). The rules specifically address how to

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correct when a Section 501(c)(3) or 501(c)(4) organization ceases to exist or is no longer exempt.

(2) Section 501(c)(3) organizations - The disqualified person must pay the

correction amount to another Section 501(c)(3) organization exempt from tax under Section 501(a) if the ATEO that engaged in the excess benefit transaction no longer exists or is no longer described in Section 501(c)(3) and exempt from tax under Section 501(a). Payment to another Section 501(c)(3) organization should be in accordance with the ATEO’s dissolution clause in its organizing document provided that:

a. The recipient organization must be described in Section 170(b)(1)(A) (other

than in Section 170(b)(1)(A)(vii) and (viii)) for at least 60 months before the correction date.

b. The disqualified person must not also be a disqualified person as to the

recipient organization.

c. The recipient organization must not allow the disqualified person to make or

recommend any grants or distributions. See Treas. Reg. 53.4958-7(e)(2).

d. If the organization or organizations named in the dissolution clause don’t

satisfy the three requirements above, the examiner should consult their manager for guidance.

(3) Section 501(c)(4) organizations - Where the ATEO no longer exists or is no

longer described in Section 501(c)(4), the disqualified person must pay the correction amount to:

a. A successor Section 501(c)(4) organization

b. If a successor tax-exempt organization doesn’t exist, to any Section 501(c)(3)

or 501(c)(4) organization meeting the three requirements discussed above for Section 501(c)(3) organizations and under Treas. Reg. 53.4958-7(e)(2) except that the requirement of being described in Section 170(b)(1)(A) doesn’t apply if the organization is described in Section 501(c)(4)

(4) Treas. Reg. Section 53.4958-7(f) provides several examples that illustrate the

requirements of correction.