[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: 26CFR1.507-6]

[Page 89-91]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.507-6  Substantial contributor defined.

    (a) Definition--(1) In general. Except as provided in subparagraph 
(2) of this paragraph, the term substantial contributor means, with 
respect to a private foundation, any person (within the meaning of 
section 7701(a)(1)), whether or not exempt from taxation under section 
501(a), who contributed or bequeathed an aggregate amount of more than 
$5,000 to the private foundation, if such amount is more than 2 percent 
of the total contributions and bequests received by the private 
foundation before the close of the taxable year of the private 
foundation in which a contribution or bequest is received by the 
foundation from such person. In the case of a trust, the term 
substantial contributor also means the creator of the trust. Such term 
does not include a governmental unit described in section 170(c)(1).
    (2) Special rules. For purposes of sections 170(b)(1)(E)(iii), 
507(d)(1), 508(d), 509(a) (1) and (3), and chapter 42, the term 
substantial contributor shall not

[[Page 90]]

include an organization which is described in section 509(a) (1), (2), 
or (3) or any other organization which is wholly owned by such section 
509(a) (1), (2), or (3) organization. Furthermore, taking section 4941 
(relating to taxes on self-dealing) in context, it would unduly restrict 
the activities of private foundations if the term substantial 
contributor were to include any section 501(c)(3) organizations. It was 
not intended, for example, that a large grant for charitable purposes 
from one private foundation to another world forever preclude the latter 
from making any grants to, or otherwise dealing with, the former. 
Accordingly, for purposes of section 4941 only, the term substantial 
contributor shall not only include any organization which is described 
in section 501(c)(3) (other than an organization described in section 
509(a)(4)).
    (b) Determination of substantial contributor--(1) In general. In 
determining under paragraph (a) of this section whether the aggregate of 
contributions and bequests from a person exceeds 2 percent of the total 
contributions and bequests received by a private foundation, both the 
total of such amounts received by the private foundation, and the 
aggregate of such amounts contributed and bequeathed by such person, 
shall be determined as of the last day of each taxable year commencing 
with the first taxable year ending after October 9, 1969. Generally, 
under section 507(d)(2) and this section, except for purposes of 
valuation under section 507(d)(2)(B)(i), all contributions and bequests 
made before October 9, 1969, are deemed to have been made on October 9, 
1969. For purposes of section 509(a)(2) and the support test described 
in Sec. 1.509(a)-3(c), contributions and bequests before October 9, 
1969, will be taken into account in the year when actually made. For 
example, in the case of a contribution or bequest of $6,000 in 1967, 
such contribution or bequest shall be treated as made by a substantial 
contributor in 1967 for purposes of section 509(a)(2) and Sec. 
1.509(a)-3(c) if such person met the $5,000--2 percent test as of 
December 31, 1967, and December 31, 1969 (in the case of a calendar year 
accounting period). Although the determination of the percentage of 
total contributions and bequests represented by a given donor's 
contributions and bequests is not made until the end of the foundation's 
taxable year, a donor is a substantial contributor as of the first date 
when the foundation received from him an amount sufficient to make him a 
substantial contributor. Except as otherwise provided in this 
subparagraph, such amount is treated for all purposes as made by a 
substantial contributor. Thus, the total contributions and bequests 
received by the private foundation from all persons, and the aggregate 
contributions and bequests made by a particular person, are to be 
determined as of December 31, 1969 (in the case of a calendar year 
organization which was in existence on that date), and the amounts 
included in each respective total would be all contributions and 
bequests received by the organization on or before that date, and all 
contributions and bequests made by the person on or before that date. 
Thereafter, a similar determination is to be made with respect to such 
private foundation as of the end of each of its succeeding taxable 
years. Status as a substantial contributor, however, will date from the 
time when the donor first met the $5,000 and 2 percent test. Once a 
person is a substantial contributor with respect to a private 
foundation, he remains a substantial contributor even though he might 
not be so classified if a determination were first made at some later 
date. For instance, even though the aggregate contributions and bequests 
of a person become less than 2 percent of the total received by a 
private foundation (for example, because of subsequent contributions and 
bequests by other persons), such person remains a substantial 
contributor with respect to the foundation.
    (2) Examples. The provisions of paragraph (a) of this section and 
this paragraph (b) may be illustrated by the following examples:

    Example 1. On January 1, 1968, A, an individual, gave $4,500 to M, a 
private foundation on a calendar year basis. On June 1, 1969, A gave M 
the further sum of $1,500. Throughout its existence, through December 
31, 1969, M has received $250,000 in contributions and bequests from all 
sources. As of June 1, 1969, A is a substantial contributor to M for 
purposes of section 509(a)(2).

[[Page 91]]

    Example 2. On September 9, 1966, B, an individual, gave $3,500 to N, 
a private foundation on a calendar year basis. On March 15, 1970, B gave 
N the further sum of $3,500. Throughout its existence, through December 
31, 1970, N has received $200,000 in contributions and bequests from all 
sources. B is a substantial contributor to N as of March 15, 1970, since 
that is the first date on which his contributions met the 2 percent-
$5,000 test.
    Example 3. On July 21, 1964, X, a corporation, gave $2,000 to O, a 
private foundation on a calendar year basis. As of December 31, 1969, O 
had received $150,000 from all sources. On September 17, 1970, X gave O 
the further sum of $3,100. Through September 17, 1970, O had received 
$245,000 from all sources as total contributions and bequests. Between 
September 17, 1970, and December 31, 1970, however, O received $50,000 
in contributions and bequests from others. X is not a substantial 
contributor to O, since X's contributions to O were not more than 2 
percent of the total contributions and bequests received by O by 
December 31, 1970, the end of O's taxable year, even though X's 
contributions met that test at one point during the year.
    Example 4. On September 16, 1970, C, an individual, gave $10,000 to 
P, a private foundation on a calendar year basis. Throughout its 
existence, and through December 31, 1970, the close of its taxable year, 
P had received a total of $100,000 in contributions and bequests. On 
January 3, 1971, P received a bequest of $1 million. C is a substantial 
contributor to P since he was a substantial contributor as of September 
16, 1970, and therefore remains one even though he no longer meets the 
2-percent test on a later date after the end of the taxable year of the 
foundation in which he first became a substantial contributor.

    (c) Special rules--(1) Contributions defined. The term contribution 
shall, for purposes of section 507(d)(2), have the same meaning as such 
term has under section 170(c) and also include bequests, legacies, 
devises, and transfers within the meaning of section 2055 or 2106(a)(2). 
Thus, for purposes of section 507(d)(2), any payment of money or 
transfer of property without adequate consideration shall be considered 
a contribution. Where payment is made or property transferred as 
consideration for admissions, sales of merchandise, performance of 
services, or furnishing of facilities to the donor, the qualification of 
all or any part of such payment or transfer as a contribution under 
section 170(c) shall determine whether and to what extent such payment 
or transfer constitutes a contribution under section 507(d)(2).
    (2) Valuation of contributions and bequests. Each contribution or 
bequest to a private foundation shall be valued at fair market value 
when actually received by the private foundation.
    (3) Contributions and bequests by a spouse. An individual shall be 
considered, for purposes of this section, to have made all contributions 
and bequests made by his spouse during the period of their marriage. 
Thus, for example, where W contributed $500,000 to P, a private 
foundation, in 1941 and that amount exceeded 2 percent of the total 
contributions received by P as of the end of P's first taxable year 
ending after October 9, 1969, H (W's spouse at the time of the 1941 
gift) is considered to have made such contribution (even if W died prior 
to October 9, 1969, or their marriage was otherwise terminated prior to 
such date). Similarly, any bequest or devise shall be treated as having 
been made by the decedent's surviving spouse.

[T.D. 7241, 37 FR 28743, Dec. 29, 1972; 38 FR 24206, Sept. 6, 1973]