[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: 26CFR1.507-2]

[Page 69-84]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.507-2  Special rules; transfer to, or operation as, public charity.

    (a) Transfer to public charities--(1) General rule. Under section 
507(b)(1)(A) a private foundation, with respect to

[[Page 70]]

which there have not been either 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, may terminate its private foundation 
status by distributing all of its net assets to one or more 
organizations described in section 170(b)(1)(A) (other than in clauses 
(vii) and (viii)) each of which has been in existence and so described 
for a continuous period of at least 60 calendar months immediately 
preceding such distribution. Since section 507(a) does not apply to such 
a termination, a private foundation which makes such a termination is 
not required to give the notification described in section 507(a)(1). A 
private foundation which terminates its private foundation status under 
section 507(b)(1)(A) does not incur tax under section 507(c) and, 
therefore, no abatement of such tax under section 507(g) is required.
    (2) Effect of current ruling--(i) Distributions before final 
regulations. With respect to distributions made before (insert day after 
the date these regulations are filed by the Office of the Federal 
Register), an organization to which a distribution of net assets is made 
will qualify as an organization described in section 170(b)(1)(A) (other 
than clauses (vii) and (viii)) for purposes of meeting the requirements 
of section 507(b)(1)(A) without a further showing if such distributee 
organization:
    (A) Has been in existence for a continuous period of at least 60 
calendar months preceding the distribution described in subparagraph (1) 
of this paragraph;
    (B) Has received a ruling or determination letter that it is an 
organization described in clause (i), (ii), (iii), (iv), (v), or (vi) of 
section 170(b)(1) (A);
    (C) The facts and circumstances forming the basis for the issuance 
of the ruling have not substantially changed during the 60-month period 
referred to in (A) of this subdivision; and
    (D) The ruling or determination letter referred to in (B) of this 
subdivision has not been revoked expressly or by a subsequent change of 
the law or regulations under which the ruling was issued.
    (ii) Distributions after final regulations. With respect to 
distributions made after December 29, 1972, a private foundation seeking 
to terminate its private foundation status pursuant to section 
507(b)(1)(A) may rely on a ruling or determination letter issued to a 
potential distributee organization that such distributee organization is 
an organization described in clause (i), (ii), (iii), (iv), (v), or (vi) 
of section 170(b)(1)(A) in accordance with the provisions of Sec. 
1.509(a)-7.
    (3) Organizations described in more than one clause of section 
170(b)(1)(A). For purposes of this paragraph and section 507(b)(1)(A), 
the parenthetical term other than in clauses (vii) and (viii) shall 
refer only to an organization which is described only in section 
170(b)(1)(A) (vii) or (viii). Thus, an organization described in clause 
(i), (ii), (iii), (iv), (v), or (vi) of section 170(b)(1)(A) will not be 
precluded from being a distributee described in section 507(b)(1)(A) 
merely because it also appears to meet the description of an 
organization described in section 170(b)(1)(A) (vii) or (viii).
    (4) Applicability of chapter 42 to foundations terminating under 
section 507(b)(1)(A). Except as provided in subparagraph (5) of this 
paragraph, an organization which terminates its private foundation 
status pursuant to section 507(b)(1)(A) will remain subject to the 
provisions of chapter 42 until the distribution of all of its net assets 
to distributee organizations described in section 507(b)(1)(A) has been 
completed.
    (5) Special transitional rule. (i) Section 4940(a) imposes a tax 
upon private foundations with respect to the carrying on of activities 
for each taxable year. For purposes of section 4940, an organization 
which terminates its private foundation status under section 
507(b)(1)(A) by the end of the period described in subdivision (ii) of 
this subparagraph will not be considered as carrying on activities 
within the meaning of section 4940 during such period. Such organization 
will therefore not be subject to the tax imposed under section 4940(a) 
for such period.
    (ii) The period referred to in subdivision (i) of this subparagraph 
is the 12-month period beginning with the first day of the 
organization's first taxable year which begins after December 31,

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1969, but such period shall not be treated as ending before February 20, 
1973. In the case of a private foundation distributing assets pursuant 
to section 507(b)(1)(A) to a medical research organization or a 
community trust (or in the case of a private foundation seeking to 
terminate into such an organization or trust pursuant to section 
507(b)(1)(B)), the period described in this subdivision shall not be 
treated as ending before:
    (A) In the case of a distribution to a medical research 
organization, March 29, 1976; or
    (B) In the case of a community trust, May 11, 1977.
    (iii) If the period described in subdivision (ii) of this 
subparagraph has not expired prior to the due date for the 
organization's annual return required to be filed by section 6033 or 
6012 (determined with regard to any extension of time for filing the 
return) for its first taxable year which begins after December 31, 1969 
(or for any other taxable year ending before the expiration of the 
period referred to in subdivision (ii) of this subparagraph), and if the 
organization has not terminated its private foundation status under 
section 507(b)(1)(A) by such date, then notwithstanding the provisions 
of subdivision (ii) of this subparagraph, the organization must take 
either of the following courses of action:
    (A) Complete and file its annual return, including the line relating 
to excise taxes on investment income, by such date, and pay the tax on 
investment income imposed under section 4940 at the time it files its 
annual return. If such organization subsequently terminates its private 
foundation status under section 507(b)(1)(A) within the period specified 
in subdivision (ii) of this subparagraph, it may file a claim for refund 
of the tax paid under section 4940; or
    (B) Complete and file its annual return, except for the line 
relating to excise taxes on investment income, by such date, and, in 
lieu of paying the tax on investment income imposed under section 4940, 
file a statement with its annual return which establishes that the 
organization has taken affirmative action by such date to terminate its 
private foundation status under section 507(b)(1)(A). Such statement 
must indicate the type of affirmative action taken and explain how such 
action will result in the termination of its private foundation status 
under section 507(b)(1)(A). Such affirmative action may include making 
application to the appropriate State court for approval of the 
distribution of all net assets pursuant to section 507(b)(1)(A) in the 
case of a charitable trust, or the passage of a resolution by the 
organization's governing body directing the distribution of all net 
assets pursuant to section 507(b)(1)(A) in the case of a not-for-profit 
corporation. A written commitment or letter of agreement by the trustee 
or governing body to one or more section 509(a)(1) distributees 
indicating an intent to distribute all of the organization's net assets 
to such distributees will also constitute appropriate affirmative action 
for purposes of this subdivision. An organization may take such 
affirmative action and may terminate its private foundation status under 
section 507(b)(1)(A) in reliance upon 26 CFR 13.12 (rev. as of Jan. 1, 
1972) and upon the provisions of the notices of proposed rule making 
under sections 170(b)(1)(A), 507(b)(1), and 509. Thus, if a distributee 
organization meets the requirements of the provisions of the notices of 
proposed rule- making under sections 170(b)(1)(A), 507, or 509 as a 
distributee under section 507(b)(1)(A), the distributor organization may 
terminate its private foundation status under section 507(b)(1)(A) in 
reliance upon such provisions prior to the expiration of the period 
described in subdivision (ii) of this subparagraph. If such 
organization, however, fails to terminate its private foundation status 
under section 507(b)(1)(A) within the period specified in subdivision 
(ii) of this subparagraph by failing to meet the requirements of either 
the notices of proposed rulemaking under section 170(b)(1)(A), 
507(b)(1), or 509 or the final regulations published under these Code 
sections, the tax imposed under section 4940 shall be treated as if due 
from the due date for its annual return (determined without regard to 
any extension of time for filing its return).
    (6) Return required from organizations terminating private 
foundation status

[[Page 72]]

under section 507(b)(1)(A). (i) An organization which terminates its 
private foundation status under section 507(b)(1)(A) is required to file 
a return under the provisions of section 6043(b), rather than under the 
provisions of section 6050.
    (ii) An organization which terminates its private foundation status 
under section 507(b)(1)(A) is not required to comply with section 
6104(d) for the taxable year in which such termination occurs. For 
purposes of this subdivision, the term taxable year shall include the 
period described in subparagraph (5)(ii) of this paragraph.
    (7) Distribution of net assets. A private foundation will meet the 
requirement that it distribute all of its net assets within the meaning 
of section 507(b)(1)(A) only if it transfers all of its right, title, 
and interest in and to all of its net assets to one or more 
organizations referred to in section 507(b)(1)(A).
    (8) Effect of restrictions and conditions upon distributions of net 
assets-- (i) In general. In order to effectuate a transfer of all of its 
right title and interest in and to all of its net assets within the 
meaning of paragraph (a)(7) of this section, a transferor private 
foundation may not impose any material restriction or condition that 
prevents the transferee organization referred to in section 507(b)(1)(A) 
(herein sometimes referred to as the public charity) from freely and 
effectively employing the transferred assets, or the income derived 
therefrom, in furtherance of its exempt purposes. Whether or not a 
particular condition or restriction imposed upon a transfer of assets is 
material (within the meaning of paragraph (a)(8) of this section) must 
be determined from all of the facts and circumstances of the transfer. 
Some of the more significant facts and circumstances to be considered in 
making such a determination are:
    (A) Whether the public charity (including a participating trustee, 
custodian, or agent in the case of a community trust) is the owner in 
fee of the assets it receives from the private foundation;
    (B) Whether such assets are to be held and administered by the 
public charity in a manner consistent with one or more of its exempt 
purposes;
    (C) Whether the governing body of the public charity has the 
ultimate authority and control over such assets, and the income derived 
therefrom; and
    (D) Whether, and to what extent, the governing body of the public 
charity is organized and operated so as to be independent from the 
transferor.
    (ii) Independent governing body. As provided in paragraph 
(a)(8)(i)(D) of this section, one of the more significant facts and 
circumstances to be considered in making the determination whether a 
particular condition or restriction imposed upon a transfer of assets is 
material within the meaning of paragraph (a)(8) of this section is 
whether, and the extent to which, the governing body is organized and 
operated so as to be independent from the transferor. In turn, the 
determination as to such factor must be determined from all of the facts 
and circumstances. Some of the more significant facts and circumstances 
to be considered in making such a determination are:
    (A) Whether, and to what extent, members of the governing body are 
comprised of persons selected by the transferor private foundation or 
disqualified persons with respect thereto, or are themselves such 
disqualified persons;
    (B) Whether, and to what extent, members of the governing body are 
selected by public officials acting in their capacities as such; and
    (C) How long a period of time each member of the governing body may 
serve as such. In the case of a transfer that is a community trust, the 
community trust shall meet paragraph (a)(8)(ii)(C) of this section if it 
meets the requirements of Sec. 1.170A-9(e)(13)(iv) (other than Sec. 
1.170A-9(e)(13)(iv) (C) or (D)), relating to rules for governing body.
    (iii) Factors not adversely affecting determination. The presence of 
some or all of the following factors will not be considered as 
preventing the transferee from freely and effectively employing the 
transferred assets, or the income derived therefrom, in furtherance of 
its exempt purposes (within the meaning of paragraph (a)(8)(i) of this 
section):
    (A) Name. The fund is given a name or other designation which is the 
same

[[Page 73]]

as or similar to that of the transferor private foundation or otherwise 
memorializes the creator of the foundation or his family.
    (B) Purpose. The income and assets of the fund are to be used for a 
designated purpose or for one or more particular section 509(a) (1), 
(2), or (3) organizations, and such use is consistent with the 
charitable, educational, or other basis for the exempt status of the 
public charity under section 501(c)(3).
    (C) Administration. The transferred assets are administered in an 
identifiable or separate fund, some or all of the principal of which is 
not to be distributed for a specified period, if the public charity 
(including a participating trustee, custodian, or agent in the case of a 
community trust) is the legal and equitable owner of the fund and the 
governing body exercises ultimate and direct authority and control over 
such fund, as, for example, a fund to endow a chair at a university or a 
medical research fund at a hospital. In the case of a community trust, 
the transferred assets must be administered in or as a component part of 
the community trust within the meaning of Sec. 1.170A-9(e)(11).
    (D) Restrictions on disposition. The transferor private foundation 
transfers property the continued retention of which by the transferee is 
required by the transferor if such retention is important to the 
achievement of charitable or other similar purposes in the community 
because of the peculiar features of such property, as, for example, 
where a private foundation transfers a woodland preserve which is to be 
maintained by the public charity as an arboretum for the benefit of the 
community. Such a restriction does not include a restriction on the 
disposition of an investment asset or the distribution of income.
    (iv) Adverse factors. The presence of any of the following factors 
will be considered as preventing the transferee from freely and 
effectively employing the transferred assets, or the income derived 
therefrom, in furtherance of its exempt purposes (within the meaning of 
paragraph (a)(8)(i) of this section):
    (A) Distributions. (1) With respect to distributions made after 
April 19, 1977, the transferor private foundation, a disqualified person 
with respect thereto, or any person or committee designated by, or 
pursuant to the terms of an agreement with, such a person (hereinafter 
referred to as donor), reserves the right, directly or indirectly, to 
name (other than by designation in the instrument of transfer of 
particular section 509(a) (1), (2), or (3) organizations) the persons to 
which the transferee public charity must distribute, or to direct the 
timing of such distributions (other than by direction in the instrument 
of transfer that some or all of the principal, as opposed to specific 
assets, not be distributed for a specified period) as, for example, by a 
power of appointment. The Internal Revenue Service will examine 
carefully whether the seeking of advice by the transferee from, or the 
giving of advice by, any donor after the assets have been transferred to 
the transferee constitutes an indirect reservation of a right to direct 
such distributions. In any such case, the reservation of such a right 
will be considered to exist where the only criterion considered by the 
public charity in making a distribution of income or principal from a 
donor's fund is advice offered by the donor. Whether there is a 
reservation of such a right will be determined from all of the facts and 
circumstances, including, but not limited to, the facts contained in 
paragraph (a)(8)(iv)(A) (2) and (3) of this section.
    (2) The presence of some or all of the following factors will 
indicate that the reservation of such a right does not exist:
    (i) There has been an independent investigation by the staff of the 
public charity evaluating whether the donor's advice is consistent with 
specific charitable needs most deserving of support by the public 
charity (as determined by the public charity);
    (ii) The public charity has promulgated guidelines enumerating 
specific charitable needs consistent with the charitable purposes of the 
public charity and the donor's advice is consistent with such 
guidelines;
    (iii) The public charity has instituted an educational program 
publicizing to donors and other persons the guidelines enumerating 
specific charitable needs consistent with the charitable purposes of the 
public charity;

[[Page 74]]

    (iv) The public charity distributes funds in excess of amounts 
distributed from the donor's fund to the same or similar types of 
organizations or charitable needs as those recommended by the donor; and

    (v) The public charity's solicitations (written or oral) for funds 
specifically state that such public charity will not be bound by advice 
offered by the donor.
    (3) The presence of some or all of the following factors will 
indicate the reservation of such a right does exist:
    (i) The solicitations (written or oral) of funds by the public 
charity state or imply, or a pattern of conduct on the part of the 
public charity creates an expectation, that the donor's advice will be 
followed;
    (ii) The advice of a donor (whether or not restricted to a 
distribution of income or principal from the donor's trust or fund) is 
limited to distributions of amounts from the donor's fund, and the 
factors described in paragraph (a)(8)(iv)(A)(2) or (i) or (ii) of this 
section are not present;
    (iii) Only the advice of the donor as to distributions of such 
donor's fund is solicited by the public charity and no procedure is 
provided for considering advice from persons other than the donor with 
respect to such fund; and
    (iv) For the taxable year and all prior taxable years the public 
charity follows the advice of all donors with respect to their funds 
substantially all of the time.
    (B) Other action or withholding of action. The terms of the transfer 
agreement, or any expressed or implied understanding, required the 
public charity to take or withhold action with respect to the 
transferred assets which is not designed to further one or more of the 
exempt purposes of the public charity, and such action or withholding of 
action would, if performed by the transferor private foundation with 
respect to such assets, have subjected the transferor to tax under 
chapter 42 (other than with respect to the minimum investment return 
requirement of section 4942(e)).
    (C) Assumption of leases, etc. The public charity assumes 
leases,contractural obligations, or liabilities of the transferor 
private foundation, or takes the assets thereof subject to such 
liabilities (including obligations under commitments or pledges to 
donees of the transferor private foundation), for purposes inconsistent 
with the purposes or best interests of the public charity, other than 
the payment of the transferor's chapter 42 taxes incurred prior to the 
transfer to the public charity to the extent of the value of the assets 
transferred.

    (D) Retention of investment assets. The transferee public charity is 
required by any restriction or agreement (other than a restriction or 
agreement imposed or required by law or regulatory authority), express 
or implied, to retain any securities or other investment assets 
transferred to it by the private foundation. In a case where such 
transferred assets consistently produce a low annual return of income, 
the Internal Revenue Service will examine carefully whether the 
transferee is required by any such restriction or agreement to retain 
such assets.
    (E) Right of first refusal. An agreement is entered into in 
connection with the transfer of securities or other property which 
grants directly or indirectly to the transferor private foundation or 
any disqualified person with respect thereto a right of first refusal 
with respect to the transferred securities or other property when and if 
disposed of by the public charity, unless such securities or other 
property was acquired by the transferor private foundation subject to 
such right of first refusal prior to October 9, 1969.
    (F) Relationships. An agreement is entered into between the 
transferor private foundation and the transferee public charity which 
establishes irrevocable relationships with respect to the maintenance or 
management of assets transferred to the public charity, such as 
continuing relationships with banks, brokerage firms, investment 
counselors, or other advisors with regard to the investments or other 
property transferred to the public charity (other than a relationship 
with a trustee, custodian, or agent for a community trust

[[Page 75]]

acting as such). The transfer of property to a public charity subject to 
contractual obligations which were established prior to November 11, 
1976 between the transferor private foundation and persons other than 
disqualified persons with respect to such foundation will not be treated 
as prohibited under the preceding sentence, but only if such contractual 
obligations were not entered into pursuant to a plan to terminate the 
private foundation status of the transferor under section 507(b)(1)(A) 
and if the continuation of such contractual obligations is in the best 
interests of the public charity.
    (G) Other conditions. Any other condition is imposed on action by 
the public charity which prevents it from exercising ultimate control 
over the assets received from the transferor private foundation for 
purposes consistent with its exempt purposes.
    (v) Examples. The provisions of paragraph (a)(8) of this sectiom may 
be illustrated by the following examples:

    Example 1. The M Private Foundation transferred all of its net 
assets to the V Cancer Institute, a public charity described in section 
170(b)(1)(A)(iii). Prior to the transfer, M's activities consisted of 
making grants to hospitals and universities to further research into the 
causes of cancer. Under the terms of the transfer, V is required to keep 
M's assets in a separate fund and use the income and principal to 
further cancer research. Although the assets may be used only for a 
limited purpose, this purpose is consistent with and in furtherance of 
V's exempt purposes, and does not prevent the transfer from being a 
distribution for purposes of section 507(b)(1)(A).
    Example 2. The N Private Foundation transferred all of its net 
assets to W University, a public charity described in section 
170(b)(1)(A)(ii). Under the terms of the transfer, W is required to use 
the income and principal to endow a chair at the university to be known 
as the ``John J. Doe Memorial Professorship'', named after N's creator. 
Although the transferred assets are to be used for a specified purpose 
by W, this purpose is in furtherance of W's exempt educational purposes, 
and there are no conditions on investment or reinvestment of the 
principal or income. The use of the name of the foundation's creator for 
the chair is not a restriction which would prevent the transfer from 
being a distribution for purposes of section 507(b)(1)(A).
    Example 3. The O Private Foundation transferred all of its net 
assets to X Bank as trustee for the P Community Trust, a community trust 
which is a public charity described in section 170(b)(1)(A)(vi). Under 
the terms of the transfer, X is to hold the assets in trust for P and is 
directed to distribute the income annually to the Y Church, a public 
charity described in Section 170(b)(1)(A)(i). The distribution of income 
to Y Church is consistent with P's exempt purposes. If the trust created 
by this transfer otherwise meets the requirements of Sec. 1.170A-
9(e)(11) as a component part of P Community Trust, and assets 
transferred by O to X will be treated as distributed to one or more 
public charities within the meaning of section 507(b)(1)(A). The 
direction to distribute the income to Y Church meets the conditions of 
paragraph (a)(8)(iii)(B) of this section and will therefore not 
disqualify the transfer under section 507(b)(1)(A).
    Example 4. The U Private Foundation transferred all of its net 
assets to Z Bank as trustee for the R Community Trust, a community trust 
which is a public charity described in section 170(b)(1)(A)(vi). Under 
the terms of the transfer, Z is to hold the assets in trust for R and 
distribute the income to those public charities described in section 
170(b)(1)(A) (i) through (vi) that are designated by B, the creator of 
U. R's governing body has no authority during B's lifetime to vary B's 
direction. Under the terms of the transfer, it is intended that Z retain 
the transferred assets in their present form for a period of 20 years, 
or until the date of B's death if it occurs before the expiration of 
such period. Upon the death of B, R will have the power to distribute 
the income to such public charities as it selects and may dispose of the 
corpus as it sees fit.
    Under paragraph (a)(8)(iv) (A) or (D) of this section, as a result 
of the restrictions imposed with respect to the transferred assets, 
there has been no distribution of all U's net assets within the meaning 
of section 507(b)(1)(A) at the time of the transfer. In addition, U has 
not transferred its net assets to a component part of R Community Trust, 
but rather to a separate trust described in Sec. 1.170A-9(e)(14).

    (vi) Transitional rule. If the governing instrument of the public 
charity (or an instrument of transfer) lacks the factors described in 
paragraph (a)(8)(i)(D) or (ii) of this section, but with respect to 
gifts or bequests acquired before January 1, 1982, the public charity 
changes its governing instrument (or instrument of transfer) by the 
later of November 11, 1977, or one year after the gift or bequest is 
acquired, in order to conform such instrument to such provisions, then 
such an instrument shall be treated as consistent with such provisions 
for taxable years beginning

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prior to the date of change. In addition, if prior to the later of such 
dates, the organization has instituted court proceedings in order to 
conform such an instrument, then it may apply (prior to the later of 
such dates) for an extension of the period to conform such instrument to 
such provisions. Such application shall be made to the Commissioner of 
Internal Revenue, Attention E:EO, Washington, DC 20224. The 
Commissioner, at the Commissioner's discretion, may grant such an 
extension, if in the Commissioner's opinion such a change will conform 
the instrument to such provisions, and the change will be made within a 
reasonable time.
    (b) Operation as a public charity-- (1) In general. Under section 
507(b)(1)(B) an organization can terminate its private foundation status 
if the organization:
    (i) Meets the requirements of section 509(a) (1), (2), or (3) by the 
end of the 12-month period (as extended by paragraph (c)(3)(i) of this 
section) beginning with its first taxable year which begins after 
December 31, 1969, or for a continuous period of 60 calendar months 
beginning with the first day of any taxable year which begins after 
December 31, 1969;
    (ii) In compliance with section 507(b)(1)(B)(ii) and subparagraph 
(3) of this paragraph, properly notifies the district director before 
the commencement of such 12-month or 60-month period or before March 29, 
1973 that it is terminating its private foundation status; and
    (iii) Properly establishes immediately after the expiration of such 
12-month or 60-month period that such organization has complied with the 
requirements of section 509(a) (1), (2), or (3) by the end of the 12-
month period or during the 60-month period, as the case may be, in the 
manner described in subparagraph (4) of this paragraph.
    (2) Relationship of section 507(b)(1)(B) to section 507 (a), (c), 
and (g). Since section 507(a) does not apply to a termination described 
in section 507(b)(1)(B), a private foundation's notification that it is 
commencing a termination pursuant to section 507(b)(1)(B) will not be 
treated as a notification described in section 507(a) even if the 
private foundation does not successfully terminate its private 
foundation status pursuant to section 507(b)(1)(B). A private foundation 
which terminates its private foundation status under section 
507(b)(1)(B) does not incur tax under section 507(c) and, therefore, no 
abatement of such tax under section 507(g) is required.
    (3) Notification of termination. In order to comply with the 
requirements under section 507(b)(1)(B)(ii), an organization shall 
before the commencement of the 12-month or 60-month period under section 
507(b)(1)(B)(i) (or before March 29, 1973) or, in the case of the 12-
month period for a community trust, before May 11, 1977, notify the 
district director of its intention to terminate its private foundation 
status.

Such notification shall contain the following information:
    (i) The name and address of the private foundation;
    (ii) Its intention to terminate its private foundation status;
    (iii) Whether the 12-month or 60-month period shall apply;
    (iv) The Code section under which it seeks classification (section 
509(a) (1), (2), or (3));
    (v) If section 509(a)(1) is applicable, the clause of section 
170(b)(1)(A) involved;
    (vi) The date its regular taxable year begins; and
    (vii) The date of commencement of the 12-month or 60-month period.
    (4) Establishment of termination. In order to comply with the 
requirements under section 507(b)(1)(B)(iii), an organization shall 
within 90 days after the expiration of the 12-month or 60-month period, 
file such information with the district director as is necessary to make 
a determination as to the organization's status as an organization 
described under section 509(a) (1), (2), or (3) and the regulations 
thereunder. See paragraphs (c) and (d) of this section as to the 
information required to be submitted under this subparagraph.
    (5) Incomplete information; 12- and 60-month terminations. The 
failure to supply, within the required time, all of the information 
required by subparagraph (3) or (4) of this paragraph is not alone 
sufficient to constitute a failure to satisfy the requirements of 
section 507(b)(1)(B). If the information which is submitted within the 
required time is

[[Page 77]]

incomplete and the organization supplies the necessary additional 
information at the request of the Commissioner within the additional 
time period allowed by him, the original submission will be considered 
timely.
    (6) Application of special rules and filing requirements. An 
organization which has terminated its private foundation status under 
section 507(b)(1)(B) is not required to comply with the special rules 
set forth in section 508 (a) and (b). Such organization is also not 
required to file a return under the provisions of section 6043(b) or 
6050 by reason of termination of its private foundation status under the 
provisions of section 507(b)(1)(B).
    (7) Extension of time to assess deficiencies. If a private 
foundation files a notification (described in subparagraph (3) of this 
paragraph) that it intends to begin a 60-month termination pursuant to 
section 507(b)(1)(B) and does not file a request for an advance ruling 
pursuant to paragraph (e) of this section, such private foundation may 
file with the notification described in subparagraph (3) of this 
paragraph a consent under section 6501(c)(4) to the effect that the 
period of limitation upon assessment under section 4940 for any taxable 
year within the 60-month termination period shall not expire prior to 1 
year after the date of the expiration of the time prescribed by law for 
the assessment of a deficiency for the last taxable year within the 60-
month period. Such consents, if filed, will ordinarily be accepted by 
the Commissioner. See paragraph (f)(3) of this section for an 
illustration of the procedure required to obtain a refund of the tax 
imposed by section 4940 in a case where such a consent is not in effect.
    c) Twelve-month terminations--(1) Method of determining normal 
sources of support--(i) In general. The 12-month termination provisions 
of section 507(b)(1)(B) permit a private foundation to terminate its 
private foundation status by changing its organizational structure, its 
operations, the sources of its support, or any combination thereof, in 
order to conform to the requirements of section 509(a) (1), (2), or (3) 
by the end of the 12-month period.
    (ii) Support requirements for 12-month termination under section 
170(b)(1) (A)(vi). A private foundation attempting to meet the 
requirements of section 509(a)(1) as an organization described in 
section 170(b)(1)(A)(vi) will be considered normally to receive a 
substantial part of its support from governmental units or direct or 
indirect contributions from the general public if it can establish that 
it has changed the sources of its support before the close of the 12-
month period to those of an organization described in section 
170(b)(1)(A)(vi) and it can reasonably be expected to maintain its 
publicly supported status for subsequent years. In order to establish 
these facts, an organization shall submit all information sufficient to 
make a determination under Sec. 1.170A-9(e) as if such provisions 
applied, including a description of all organizational and operational 
changes which have occurred during the 12-month period. It shall also 
submit detailed information with respect to its sources of support for 
the 12-month period, as well as for the four taxable years immediately 
preceding the 12-month period. In applying the tests contained in Sec. 
1.170A-9(e), however, data from periods preceding the 12-month period 
shall be disregarded except for purposes of determining whether the 
organization has effectively changed its sources of support and whether 
it can reasonably be expected to maintain such publicly supported status 
for subsequent years. Thus, for example, in applying the mathematical 
tests of Sec. 1.170A-9(e) only data for the 12-month period may enter 
into the computation.
    (iii) Support requirements for 12-month terminations under section 
170(b)(1)(A)(iv). Section 170(b)(1) (A)(iv) describes an organization 
which normally receives a substantial part of its support (exclusive of 
income from related activities) from the United States or any State or 
political subdivision thereof, or from the general public, and which is 
organized and operated exclusively to receive, hold, invest, and 
administer property and to make expenditures to or for the benefit of 
certain colleges or universities. For purposes of the 12-month 
termination period, the rule set forth in subdivision (ii) of this 
subparagraph with respect to section 170(b)(1)(A)(vi) organizations

[[Page 78]]

shall be applicable in determining whether an organization normally 
receives a substantial part of its support from the sources required 
under section 170(b)(1)(A)(iv).
    (iv) Support requirements for 12-month terminations under section 
509(a)(2). An organization attempting to terminate its private 
foundation status under section 507(b)(1)(B) by meeting the requirements 
of section 509(a)(2) by the end of the 12-month period will be 
considered as normally receiving its support in compliance with the one-
third support requirements of section 509(a)(2) if:
    (A) For the 12-month period under section 507(b)(1)(B), the 
organization receives more than one-third of its support from gifts, 
grants, contributions, membership fees, and gross receipts from related 
activities (as limited by section 509(a)(2)(A)(ii)) and not more than 
one-third of its support from items described in section 509 (a)(2)(B), 
and
    (B) The organization can establish that it can reasonably be 
expected to maintain its continued public support for subsequent years. 
In order to establish a reasonable expectation of continued public 
support, an organization shall submit a detailed statement describing 
its past and current operations, any organizational or operational 
changes and when such changes have occurred, and any changes in its 
foundation managers (as defined in section 4946(b)(1)). Duplicate copies 
of its governing instrument and bylaws, with an indication of any 
amendments made, and detailed information with respect to its sources of 
support for the 4 taxable years immediately preceding the 12-month 
period shall also be submitted as part of the evidence that the 
organization can reasonably be expected to maintain its publicly 
supported status.
    (2) Organizational and operational tests--(i) Section 509(a)(3) 
organizations--(A) In general. An organization attempting to terminate 
its private foundation status under section 507(b)(1)(B) by meeting the 
requirements of section 509(a)(3) by the end of the 12-month period is 
required to meet the organizational and operational test of section 
509(a)(3)(A), in addition to the requirements of section 509(a)(3) (B) 
and (C), by the end of the 12-month period beginning with its first 
taxable year which begins after December 31, 1969. An organization may 
qualify under section 509(a)(3)(A) even though its original governing 
instrument did not limit its purposes to those set forth in section 
509(a)(3)(A) and even though it operated for some other purpose before 
the end of the 12-month period, if it has amended its governing 
instrument and changed its operations to conform to the requirements of 
section 509(a)(3) by the end of the 12-month period.
    (B) Proof of changed status. In order to establish that an 
organization described in (A) of this subdivision will continue to be 
operated exclusively for the required purposes in years subsequent to 
the end of the 12-month period, such organization shall submit a 
detailed statement describing its past and current operations, any 
organizational or operational changes and when such changes have 
occurred, any changes in foundation managers (as defined in section 
4946(b)(1)), and duplicate copies of its governing instrument and 
bylaws, with an indication of any amendments made. A detailed statement 
of the relationship between such organization and the specified 
organizations described in section 509(a) (1) or (2) (as required by 
section 509(a)(3) (A) and (B)) and all pertinent information to 
establish that the organization does not violate the control 
requirements of section 509(a)(3)(C) shall also be submitted.
    (ii) Section 509(a)(1) organizations other than those described in 
section 170(b)(1)(A)(vi)--
    (A) In general. An organization attempting to terminate its private 
foundation status under section 507(b)(1)(B) by meeting the requirements 
of section 170(b)(1)(A) (i), (ii), (iii), (iv), or (v) by the end of the 
12-month period is required to be operated as an organization described 
in clauses (i), (ii), (iii), (iv), or (v) of section 170(b)(1)(A) by the 
end of the 12-month period beginning with its first taxable year which 
begins after December 31, 1969.
    (B) Proof of changed status. In order to establish that it will 
continue to be operated as an organization described in section 
509(a)(1) in years subsequent to

[[Page 79]]

the end of the 12-month period, the organization shall submit a detailed 
statement describing its past and current operations, any organizational 
or operational changes and when such changes have occurred, and any 
changes in its foundation managers (as defined in section 4946(b)(1)). 
Duplicate copies of its governing instrument and bylaws, with an 
indication of any amendments made, and its financial statements for the 
4-taxable years immediately preceding the 12-month period shall also be 
submitted as evidence that the organization can reasonably be expected 
to maintain its status as an organization described in section 
170(b)(1)(A)(i), (ii), (iii), (iv), or (v).
    (3) Extensions of the 12-month period. (i) For purposes of this 
section, an organization may accomplish a 12-month termination if it 
meets the requirements of section 507(b)(1)(B) and this paragraph for 
such a termination with respect to any of the following periods:
    (A) The 12-month period beginning with the organization's first 
taxable year which begins after December 31, 1969;
    (B) The period described in paragraph (a)(5)(ii) of this section; or
    (C) Any period consisting of two or more taxable years beginning 
with the organization's first taxable year beginning after December 31, 
1969, and ending with any taxable year ending before the end of the 
period described in paragraph (a)(5)(ii) of this section.
    (ii) An organization will be considered as ``normally'' meeting the 
requirements of section 170(b)(1)(A) (iv) or (vi) or 509(a)(2), as the 
case may be, if it meets the requirements of such provision with respect 
to any period described in subdivision (i) (A), (B), or (C) of this 
subparagraph. Thus, for example, an organization on a calendar year 
basis which seeks to convert to a section 509(a)(2) organization under 
section 507(b)(1)(B) may meet the one-third support requirement based on 
the aggregate support received during a period described in subdivision 
(i) (A), (B), or (C) of this subparagraph, for purposes of subparagraph 
(1)(iv) of this paragraph.
    (4) Status of organization subsequent to the 12-month period. For 
purposes of sections 507 through 509, an organization, the status of 
which as a private foundation is terminated under section 507(b)(1), 
shall (except as provided in paragraph (b)(6) of this section) be 
treated as an organization created on the day after the date of such 
termination. However, termination of private foundation status under the 
provisions of section 507(b)(1)(B) is based upon an organization's 
submission of information establishing compliance by the end of the 12-
month period with the requirements of subparagraph (1) or (2) of this 
paragraph. Therefore, if in the 4 taxable years immediately following 
the end of the 12-month period, the sources of support or the methods of 
operation of the organization are materially different from the facts 
and circumstances presented during the 12-month period upon which the 
determination under section 507(b)(1)(B)(iii) was made (and such 
material difference adversely affects such determination), the 
organization will be deemed not to have satisfied the requirements of 
section 507(b)(1)(B). Under such circumstances, section 509(c) will not 
apply and the organization will continue to remain subject to the 
provisions of section 507. However, the status of grants and 
contributions under sections 170, 4942, and 4945 will not be affected 
until the Internal Revenue Service makes notice to the public (such as 
by publication in the Internal Revenue Bulletin) that the organization 
has been deleted from classification as an organization described in 
section 509(a) (1), (2), or (3) unless the donor (1) was in part 
responsible for, or was aware of, the act or failure to act that 
resulted in the organization's inability to satisfy the requirements of 
section 507(b) (1)(B), or (2) had knowledge that such organization would 
be deleted from classification as an organization described in section 
509(a) (1), (2), or (3). Prior to the making of any grant or 
contribution which allegedly will not result in the grantee's loss of 
classification under section 509(a) (1), (2), or (3), a potential 
grantee organization may request a ruling whether such grant or 
contribution may be made without such loss of classification. A request 
for such ruling may be filed by

[[Page 80]]

the grantee organization with the district director. The issuance of 
such ruling will be at the sole discretion of the Commissioner.
    (d) Sixty-month terminations--(1) Method of determining normal 
sources of support. (i) In order to meet the requirement of section 
507(b)(1)(B) for the 60-month termination period as a section 509(a) (1) 
or (2) organization, an organization must meet the requirements of 
section 509(a) (1) or (2), as the case may be, for a continuous period 
of at least 60 calendar months. In determining whether an organization 
seeking status under section 509(a)(1) as an organization described in 
section 170(b)(1)(A) (iv) or (vi) or under section 509(a)(2) 
``normally'' meets the requirements set forth under such sections, 
support received in taxable years prior to the commencement of the 60-
month period shall not be taken into consideration, except as otherwise 
provided in this section. Therefore, in such cases rules similar to the 
rules applicable to new organizations would apply.
    (ii) For purposes of section 507(b)(1)(B), an organization will be 
considered to be a section 509(a)(1) organization described in section 
170(b)(1)(A)(vi) for a continuous period of 60 calendar months only if 
the organization satisfies the provisions of Sec. 1.170A-9(e) based 
upon aggregate data for such entire period, rather than for any shorter 
period set forth in Sec. 1.170A-9(e). Except for the substitution of 
such 60-month period for the periods described in Sec. 1.170A-9(e), all 
other provisions of such regulations pertinent to determining an 
organization's normal sources of support shall remain applicable.
    (iii) For purposes of section 507(b)(1)(B), an organization will be 
considered to be a section 509(a)(2) organization only if such 
organization meets the support requirements set forth in section 
509(a)(2) (A) and (B) for the continuous period of 60 calendar months 
prescribed under section 507(b)(1)(B), rather than for any shorter 
period set forth in the regulations under section 509(a)(2). Except for 
the substitution of such 60-month period for the periods described in 
the regulations under section 509(a)(2), all other provisions of such 
regulations pertinent to determining an organization's normal sources of 
support shall remain applicable.
    (2) Organizational and operational tests. In order to meet the 
requirements of section 507(b)(1)(B) for the 60-month termination period 
as an organization described in section 170(b)(1)(A) (i), (ii), (iii), 
(iv), or (v) or section 509(a)(3), as the case may be, an organization 
must meet the requirements of the applicable provision for a continuous 
period of at least 60 calendar months. For purposes of section 
507(b)(1)(B), an organization will be considered to be such an 
organization only if it satisfies the requirements of the applicable 
provision (including with respect to section 509(a)(3), the 
organizational and operational test set forth in subparagraph (A) 
thereof) at the commencement of such 60-month period and continuously 
thereafter during such period.
    (e) Advance rulings for 60-month terminations--(1) In general. An 
organization which files the notification required by section 
507(b)(1)(B)(ii) that it is commencing a 60-month termination may obtain 
an advance ruling from the Commissioner that it can be expected to 
satisfy the requirements of section 507(b)(1)(B)(i) during the 60-month 
period. Such an advance ruling may be issued if the organization can 
reasonably be expected to meet the requirements of section 
507(b)(1)(B)(i) during the 60-month period. The issuance of a ruling 
will be discretionary with the Commissioner.
    (2) Basic consideration. In determining whether an organization can 
reasonably be expected (within the meaning of subparagraph (1) of this 
paragraph) to meet the requirements of section 507(b)(1)(B)(i) for the 
60-month period, the basic consideration is whether its organizational 
structure (taking into account any revisions made prior to the beginning 
of the 60-month period), proposed programs or activities, intended 
method of operation, and projected sources of support are such as to 
indicate that the organization is likely to satisfy the requirements of 
section 509(a) (1), (2), or (3) and paragraph (d) of this section during 
the 60-month period. In making such a determination, all pertinent facts 
and circumstances shall be considered.

[[Page 81]]

    (3) Reliance by grantors and contributors. For purposes of sections 
170, 545(b)(2), 556(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 
2522, grants or contributions to an organization which has obtained a 
ruling referred to in this paragraph will be treated as made to an 
organization described in section 509(a) (1), (2), or (3), as the case 
may be, until notice that such advance ruling is being revoked is made 
to the public (such as by publication in the Internal Revenue Bulletin). 
The preceding sentence shall not apply, however, if the grantor or 
contributor was responsible for, or aware of, the act or failure to act 
that resulted in the organization's failure to meet the requirements of 
section 509(a) (1), (2), or (3), or acquired knowledge that the Internal 
Revenue Service had given notice to such organization that its advance 
ruling would be revoked. Prior to the making of any grant or 
contribution which allegedly will not result in the grantee's failure to 
meet the requirements of section 509(a) (1), (2), or (3), a potential 
grantee organization may request a ruling whether such grant or 
contribution may be made without such failure. A request for such ruling 
may be filed by the grantee organization with the district director. The 
issuance of such ruling will be at the sole discretion of the 
Commissioner. The organization must submit all information necessary to 
make a determination on the factors referred to in subparagraph (2) of 
this paragraph. If a favorable ruling is issued, such ruling may be 
relied upon by the grantor or contributor of the particular contribution 
in question for purposes of sections 170, 507, 545(b)(2), 556(b)(2), 
642(c), 4942, 4945, 2055, 2106(a)(2), and 2522.
    (4) Reliance by organization. An organization obtaining an advance 
ruling pursuant to this paragraph cannot rely on such a ruling. 
Consequently, if the organization does not pay the tax imposed by 
section 4940 for any taxable year or years during the 60-month period, 
and it is subsequently determined that such tax is due for such year or 
years (because the organization did not in fact complete a successful 
termination pursuant to section 507(b)(1)(B) and was not treated as an 
organization described in section 509(a) (1), (2), or (3) for such year 
or years), the organization is liable for interest in accordance with 
section 6601 if any amount of tax under section 4940 has not been paid 
on or before the last date prescribed for payment. However, since any 
failure to pay such tax during the 60-month period (or prior to the 
revocation of such ruling) is due to reasonable cause, the penalty under 
section 6651 with respect to the tax imposed by section 4940 shall not 
apply.
    (5) Extension of time to assess deficiencies. The advance ruling 
described in subparagraph (1) of this paragraph shall be issued only if 
such organization's request for an advance ruling is filed with a 
consent under section 6501(c)(4) to the effect that the period of 
limitation upon assessment under section 4940 for any taxable year 
within the advance ruling period shall not expire prior to 1 year after 
the date of the expiration of the time prescribed by law for the 
assessment of a deficiency for the last taxable year within the 60-month 
period.
    (f) Effect on grantors or contributors and on the organization 
itself--(1) Effect of satisfaction of requirements for termination--(i) 
Treatment during the termination period. In the event that an 
organization satisfies the requirements of section 507(b)(1)(B) for 
termination of its private foundation status by the end of the 12-month 
period or during the continuous 60-month period, such organization shall 
be treated for such entire 12-month or 60-month period in the same 
manner as an organization described in section 509(a) (1), (2), or (3).
    (ii) Twelve-month terminations by fiscal year organizations. In the 
case of an organization which operates on a fiscal year basis and 
terminates its private foundation status by the end of the 12-month 
period beginning with its first taxable year which begins after December 
31, 1969, such 12-month period shall, for purposes of this paragraph, be 
treated as including the period between January 1, 1970, and the last 
day of the taxable year immediately preceding its first taxable year 
which begins after December 31, 1969, so long as the requirements of 
section 507(b)(1)(B) and paragraph (c) of this section are met by the 
end of the 12-month period (including such additional period).

[[Page 82]]

    (2) Failure to meet termination requirements--(i) In general. Except 
as otherwise provided in subdivision (ii) of this subparagraph and 
paragraph (e) of this section, any organization which fails to satisfy 
the requirements of section 507(b)(1)(B) for termination of its private 
foundation status by the end of the 12-month period or during the 
continuous 60-month period shall be treated as a private foundation for 
the entire 12-month or 60-month period, for purposes of sections 507 
through 509 and chapter 42, and grants or contributions to such an 
organization shall be treated as made to a private foundation for 
purposes of sections 170, 507(b)(1)(A), 4942, and 4945.
    (ii) Certain 60-month terminations. Notwithstanding subdivision (i) 
of this subparagraph, if an organization fails to satisfy the 
requirements of section 509(a) (1), (2), or (3) for the continuous 60-
month period but does satisfy the requirements of section 509(a) (1), 
(2), or (3), as the case may be, for any taxable year or years during 
such 60-month period, the organization shall be treated as a section 
509(a) (1), (2), or (3) organization for such taxable year or years and 
grants or contributions made during such taxable year or years shall be 
treated as made to an organization described in section 509(a) (1), (2), 
or (3). In addition, sections 507 through 509 and chapter 42 shall not 
apply to such organization for any taxable year within such 60-month 
period for which it does meet such requirements. For purposes of 
determining whether an organization satisfies the requirements of 
section 509(a) (1), (2), or (3) for any taxable year in the 60-month 
period, the organization shall 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. Thus, for example, if an 
organization were attempting to terminate its private foundation status 
under section 507(b)(1)(B) by meeting the requirements of section 
170(b)(1)(A)(vi), the rules under Sec. 1.170A-9(e) relating to the 
initial determination of status of a new organization would apply.
    (iii) Aggregate tax benefit. For purposes of section 507(d), the 
organization's aggregate tax benefit resulting from the organization's 
section 501(c)(3) status shall 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 60-month period for which such organization meets the 
requirements of section 509(a) (1), (2), or (3) shall be excluded from 
such computations.
    (iv) Excess business holdings. See section 4943 and the regulations 
thereunder for rules relating to decreases in a private foundation's 
holdings in a business enterprise which are caused by the foundation's 
failure to terminate its private foundation status after giving the 
notification for termination under section 507(b)(1)(B)(ii).
    (3) Example. The provisions of this paragraph may be illustrated by 
the following example:

    Example. Y, a calendar year private foundation, notifies the 
district director that it intends to terminate its private foundation 
status by converting into a publicly supported organization described in 
section 170(b)(1)(A)(vi) and that its 60-month termination period will 
commence on January 1, 1974. Y does not obtain a ruling described in 
paragraph (e) of this section. Based upon its support for 1974 Y does 
not qualify as a publicly supported organization within the meaning of 
Sec. 1.170A-9(e) and this paragraph. Consequently, in order to avoid 
the risks of penalties and interest if Y fails to terminate within the 
60-month period, Y files its return as a private foundation and pays the 
tax imposed by section 4940. Similarly, based upon its support for the 
period 1974 through 1975, fails to qualify as such a publicly supported 
organization and files its return and pays the tax imposed by section 
4940 for both 1975 and 1976. Since a consent (described in paragraph 
(b)(7) of this section) which would prevent the period of limitation 
from expiring is not in effect, in order to be able to file a claim for 
refund, Y and the district director agree to extend the period of 
limitation for all taxes imposed under chapter 42. However, based upon 
its support for the period 1974 through 1976 Y does qualify as a 
publicly supported organization, and therefore shall not be treated as a 
private foundation for either 1977 or 1978 even if it fails to terminate 
within the 60-month period. However, based upon the aggregate data for 
the entire 60-month period (1974 through 1978), Y does qualify as an 
organization described in section 170(b)(1)(A)(vi). Consequently, 
pursuant to this paragraph, Y is treated as if it had been a publicly 
supported organization for the entire 60-month period. Y files claim for 
refund

[[Page 83]]

for the taxes paid under section 4940 for the years 1974, 1975, and 
1976, and such taxes are refunded.

    (g) Special transitional rules for organizations operating as public 
charities. Section 4940 imposes a tax upon private foundations with 
respect to the carrying on of activities for each taxable year. For 
purposes of section 4940, an organization which terminates its private 
foundation status under section 507(b)(1)(B) by the end of the period 
described in paragraph (a)(5)(ii) of this section will not be considered 
as carrying on activities within the meaning of section 4940 during such 
period. Such organization will therefore not be subject to the tax 
imposed under section 4940 for such period. Consequently, in the case of 
an organization seeking to terminate its private foundation status under 
section 507(b)(1)(B) if the period described in paragraph (a)(5)(ii) of 
this section has not expired prior to the due date for the 
organization's annual return required to be filed under section 6033 or 
6012 (determined with regard to any extension of time for filing the 
return) for its first taxable year which begins after December 31, 1969 
(or any other taxable year ending before the expiration of the period 
described in paragraph (a)(5)(ii) of this paragraph) and if the 
organization has not terminated its private foundation status under 
section 507(b)(1)(B) by such date, then notwithstanding the provisions 
of paragraph (f) of this section, the organization must take either of 
the following courses of action:
    (1) Complete and file its annual return including the line relating 
to excise taxes on investment income, by such date, and pay the tax on 
investment income imposed under section 4940 at the time it files its 
annual return. If such organization subsequently terminates its private 
foundation status under section 507(b)(1)(B) within a period specified 
in paragraph (c)(3)(i) of this section, it may file a claim for refund 
of the tax paid under section 4940; or
    (2) Complete and file its annual return, except for the line 
relating to excise taxes on investment income, by such date, and in lieu 
of paying the tax on investment income imposed under section 4940, file 
a statement with its annual return which establishes that the 
organization has taken affirmative action by such date to terminate its 
private foundation status under section 507(b)(1)(B). Such statement 
must indicate the type of affirmative action taken and explain how such 
action will result in the termination of its private foundation status 
under section 507(b)(1)(B). Such affirmative action may include making 
application to the appropriate State court for approval to amend the 
provisions of the organization's trust instrument to limit payments to 
specified section 509(a) (1) or (2) beneficiaries pursuant to section 
509(a)(3) in the case of a charitable trust; commencing a fund-raising 
drive among the general public in the case of an organization seeking to 
become a section 170(b)(1)(A)(vi) or 509(a)(2) organization; or the 
passage of a resolution by the organization's governing body or the 
filing of an amendment to the organization's articles of incorporation 
permitting a change in the operations of the organization to enable it 
to conform to the provisions of section 509(a) (1), (2), or (3) in the 
case of a not-for-profit corporation. An organization may take such 
affirmative action and may terminate its private foundation status under 
section 507(b)(1)(B) in reliance upon 26 CFR 13.12 (rev. as of Jan. 1, 
1972) and upon the provisions of the notices of proposed rulemaking 
under sections 170(b)(1)(A), 507(b)(1), and 509. Thus, if an 
organization meets the requirement of the provisions of the notice of 
proposed rulemaking as a section 509(a)(3) organization, such 
organization may terminate its private foundation status under section 
507(b)(1)(B) in reliance upon such provisions prior to the expiration of 
the period described in paragraph (a)(5)(ii) of this section. If such 
organization, however, fails to terminate its private foundation status 
under section 507(b)(1)(B) within the period specified in paragraph 
(a)(5)(ii) of this section by failing to meet the requirements of either 
the notices of proposed rulemaking under section 170(b)(1)(A), 
507(b)(1), or 509 or the final regulations published under these Code 
sections, the tax imposed under section 4940 shall be treated as if due 
from the due date for its annual return (determined without regard to

[[Page 84]]

any extension of time, for filing its return).

[T.D. 7248, 38 FR 861, Jan. 5, 1973; 38 FR 3598, Feb. 8, 1973; 38 FR 
4259, Feb. 12, 1973, as amended by T.D. 7290, 38 FR 31833, Nov. 19, 
1973; T.D. 7440, 41 FR 50654, Nov. 17, 1976; 41 FR 52454, Nov. 30, 1976; 
T.D. 7465, 42 FR 4437, Jan. 25, 1977; T.D. 7784, 46 FR 37889, July 23, 
1981]