[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR53.4944-5]

[Page 159-160]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 53_FOUNDATION AND SIMILAR EXCISE TAXES--Table of Contents
 
   Subpart E_Taxes on Investments Which Jeopardize Charitable Purpose
 
Sec. 53.4944-5  Definitions.

    (a) Taxable period--(1) In general. For purposes of section 4944, 
the term ``taxable period'' means, with respect to any investment which 
jeopardizes the carrying out of a private foundation's exempt purposes, 
the period beginning with the date on which the amount is invested and 
ending on the earliest of:
    (i) The date of mailing of a notice of deficiency under section 6212 
with respect to the tax imposed on the making of the investment by 
section 4944(a)(1);
    (ii) The date on which the amount invested is removed from jeopardy; 
or
    (iii) The date on which the tax imposed by section 4944(a)(1) is 
assessed.
    (2) Special rule. Where a notice of deficiency referred to in 
subparagraph (1) (i) of this paragraph is not mailed because there is a 
waiver of the restrictions on assessment and collection of a deficiency, 
or because the deficiency is paid, the date of filing of the waiver or 
the date of such payment, respectively, shall be treated as the end of 
the taxable period.
    (b) Removal from jeopardy. An investment which jeopardizes the 
carrying out of a private foundation's exempt purposes shall be 
considered to be removed from jeopardy when:
    (1) The foundation sells or otherwise disposes of the investment, 
and
    (2) The proceeds of such sale or other disposition are not 
themselves investments which jeopardize the carrying out of such 
foundation's exempt purposes.

A change by a private foundation in the form or terms of a jeopardizing 
investment shall result in the removal of the investment from jeopardy 
if, after such change, the investment no longer jeopardizes the carrying 
out of such foundation's exempt purposes. For purposes of section 4944, 
the making by a private foundation of one jeopardizing investment and a 
subsequent exchange by the foundation of such investment for another 
jeopardizing investment will be treated as only one jeopardizing 
investment, except as provided in Sec. 53.4944-6 (b) and (c). For the 
treatment of a jeopardizing investment which is removed from jeopardy or 
otherwise transferred by a private foundation by the making of a grant 
or by bargain-sale, see sections 4941 and 4945 and the regulations 
thereunder. A jeopardizing investment cannot be removed from jeopardy by 
a transfer from a private foundation to another private foundation which 
is related to the transferor foundation within the meaning of section 
4946(a) (1)(H) (i) or (ii), unless the investment is a program-related 
investment in the hands of the transferee foundation.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example (1). X, a private foundation on the calendar year basis, 
makes a $1,000 jeopardizing investment on January 1, 1970. X thereafter 
sells the investment for $1,000 on January 3, 1971. The taxable period 
is from January 1, 1970, to January 3, 1971. X will be liable for an 
initial tax of $100, that is, a tax of 5 percent of the amount of the 
investment for each year (or part thereof) in the taxable period.
    Example (2). Assume that both C and D are investments which 
jeopardize exempt purposes. X, a private foundation, purchases C

[[Page 160]]

in 1971 and later exchanges C for D. Such exchange does not constitute a 
removal of C from jeopardy. In addition, no new taxable period will 
arise with respect to D, since, for purposes of section 4944, only one 
jeopardizing investment has been made.
    Example (3). Assume the facts as stated in Example (2), except that 
X sells C for cash and later reinvests such cash in D. Two separate 
investments jeopardizing exempt purposes have resulted. Since the cash 
received in the interim is not of a jeopardizing nature, the amount 
invested in C has been removed from jeopardy and, thus, the taxable 
period with respect to C has been terminated. The subsequent 
reinvestment of such cash in D gives rise to a new taxable period with 
respect to D.

    (d) Cross reference. For rules relating to taxable events that are 
corrected within the correction period, defined in section 4963(e), see 
section 4961(a) and the regulations thereunder.

[T.D. 7240, 37 FR 28747, Dec. 27, 1972, as amended by T.D. 8084, 51 FR 
16303, May 2, 1986]