[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.507-1]

[Page 67-69]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.507-1  General rule.

    (a) In general. Except as provided in Sec. 1.507-2, the status of 
any organization as a private foundation shall be terminated only if:
    (1) Such organization notifies the district director of its intent 
to accomplish such termination, or
    (2)(i) With respect to such organization, there have been either 
willful repeated acts (or failures to act), or a willful and flagrant 
act (or failure to

[[Page 68]]

act), giving rise to liability for tax under chapter 42, and
    (ii) The Commissioner notifies such organization that, by reason of 
subdivision (i) of this subparagraph, such organization is liable for 
the tax imposed by section 507(c),

and either such organization pays the tax imposed by section 507(c) (or 
any portion not abated under section 507(g)) or the entire amount of 
such tax is abated under section 507(g).
    (b) Termination under section 507(a)(1). (1) In order to terminate 
its private foundation status under paragraph (a)(1) of this section, an 
organization must submit a statement to the district director of its 
intent to terminate its private foundation status under section 
507(a)(1). Such statement must set forth in detail the computation and 
amount of tax imposed under section 507(c). Unless the organization 
requests abatement of such tax pursuant to section 507(g), full payment 
of such tax must be made at the time the statement is filed under 
section 507(a)(1). An organization may request the abatement of all of 
the tax imposed under section 507(c), or may pay any part thereof and 
request abatement of the unpaid portion of the amount of tax assessed. 
If the organization requests abatement of the tax imposed under section 
507(c) and such request is denied, the organization must pay such tax in 
full upon notification by the Internal Revenue Service that such tax 
will not be abated. For purposes of subtitle F of the Code, the 
statement described in this subparagraph, once filed, shall be treated 
as a return.
    (2) Termination of private foundation status under section 507(a)(1) 
does not relieve a private foundation, or any disqualified person with 
respect thereto, of liability for tax under chapter 42 with respect to 
acts or failures to act prior to termination or for any additional taxes 
imposed for failure to correct such acts or failures to act. See 
subparagraph (8) of this paragraph as to the possible imposition of 
transferee liability in cases not involving termination of private 
foundation status.
    (3) In the case of an organization which has terminated its private 
foundation status under section 507(a) and continues in operation 
thereafter, if such organization wishes to be treated as described in 
section 501(c)(3), then pursuant to section 509(c) and Sec. 1.509(c)-1 
such organization must apply for recognition of exemption as an 
organization described in section 501(c)(3) in accordance with the 
provisions of section 508(a).
    (4) See Sec. 53.4947-1(c)(7) of this chapter as to the application 
of section 507(a) to certain split-interest trusts.
    (5) For purposes of section 508(d)(1), the Internal Revenue Service 
shall make notice to the public (such as by publication in the Internal 
Revenue Bulletin) of any notice received from a private foundation 
pursuant to section 507(a)(1) or of any notice given to a private 
foundation pursuant to section 507(a)(2).
    (6) If a private foundation transfers all or part of its assets to 
one or more other private foundations (or one or more private 
foundations and one or more section 509(a) (1), (2), (3), or (4) 
organizations) pursuant to a transfer described in section 507(b)(2) and 
Sec. 1.507-3(c), such transferor foundation will not have terminated 
its private foundation status under section 507(a)(1). See Sec. 1.507-
3, however, for the special rules applicable to private foundations 
participating in section 507(b)(2) transfers.
    (7) Neither a transfer of all of the assets of a private foundation 
nor a significant disposition of assets (as defined in Sec. 1.507-
3(c)(2)) by a private foundation (whether or not any portion of such 
significant disposition of assets is made to another private foundation) 
shall be deemed to result in a termination of the transferor private 
foundation under section 507(a) unless the transferor private foundation 
elects to terminate pursuant to section 507(a)(1) or section 507(a)(2) 
is applicable. Thus, if a private foundation transfers all of its assets 
to one or more persons, but less than all of its net assets to one or 
more organizations described in section 509(a)(1) which have been in 
existence and so described for a continuous period of 60 calendar 
months, for purposes of this paragraph such transferor foundation will 
not be deemed by reason of such transfer to have terminated its private 
foundation status under section 507 (a) or (b) unless section 507(a)(2) 
is applicable. Such foundation

[[Page 69]]

will continue to be treated as a private foundation for all purposes. 
For example, if a private foundation transfers all of its net assets to 
a section 509(a)(2) organization in 1971 and receives a bequest in 1973, 
the bequest will be regarded as having been made to a private foundation 
and the foundation will be subject to the provisions of chapter 42 with 
respect to such funds. If a private foundation makes a transfer of all 
of its net assets to a section 509(a) (2) or (3) organization, for 
example, it must retain sufficient income or assets to pay the tax 
imposed under section 4940 for that portion of its taxable year prior to 
such transfer. For additional rules applicable to a transfer by a 
private foundation of all of its net assets to a section 509(a)(1) 
organization which has not been in existence and so described for a 
continuous period of 60 calendar months, see Sec. 1.507-3(e).
    (8) If a private foundation makes a transfer described in 
subparagraph (7) of this paragraph and prior to, or in connection with, 
such transfer, liability for any tax under chapter 42 is incurred by the 
transferor foundation, transferee liability may be applied against the 
transferee organization for payment of such taxes. For purposes of this 
subparagraph, liability for any tax imposed under chapter 42 for failure 
to correct any act or failure to act shall be deemed incurred on the 
date on which the act or failure to act giving rise to the initial tax 
liability occurred.
    (9) A private foundation which transfers all of its net assets is 
required to file the annual information return required by section 6033, 
and the foundation managers are required to file the annual report of a 
private foundation required by section 6056, for the taxable year in 
which such transfer occurs. However, neither such foundation nor its 
foundation managers will be required to file such returns for any 
taxable year following the taxable year in which the last of any such 
transfers occurred, if at no time during the subsequent taxable years in 
question the foundation has either legal or equitable title to any 
assets or engages in any activity.
    (c) Involuntary termination under section 507(a)(2). (1) For 
purposes of section 507(a)(2)(A), the term willful repeated acts (or 
failures to act) means at least two acts or failures to act both of 
which are voluntary, conscious, and intentional.
    (2) For purposes of section 507(a)(2)(A), a willful and flagrant act 
(or failure to act) is one which is voluntarily, consciously, and 
knowingly committed in violation of any provision of chapter 42 (other 
than section 4940 or 4948(a)) and which appears to a reasonable man to 
be a gross violation of any such provision.
    (3) An act (or failure to act) may be treated as an act (or failure 
to act) by the private foundation for purposes of section 507(a)(2) even 
though tax is imposed upon one or more foundation managers rather than 
upon the foundation itself.
    (4) For purposes of section 507(a)(2), the failure to correct the 
act or acts (or failure or failures to act) which gave rise to liability 
for tax under any section of chapter 42 by the close of the correction 
period for such section may be a willful and flagrant act (or failure to 
act).
    (5) No motive to avoid the restrictions of the law or the incurrence 
of any tax is necessary to make an act (or failure to act) willful. 
However, a foundation's act (or failure to act) is not willful if the 
foundation (or a foundation manager, if applicable) does not know that 
it is an act of self-dealing, a taxable expenditure, or other act (or 
failure to act) to which chapter 42 applies. Rules similar to the 
regulations under chapter 42 (see, for example, Sec. 53.4945-
1(a)(2)(iii) of this chapter) shall apply in determining whether a 
foundation or a foundation manager knows that an act (or failure to act) 
is an act of self-dealing a taxable expenditure or other such act (or 
failure to act).

[T.D. 7233, 37 FR 28157, Dec. 21, 1972, as amended by T.D. 7290, 38 FR 
31833, Nov. 19, 1973]