[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: 26CFR53.4946-1]

[Page 191-196]
 
                       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 G_Definitions and Special Rules
 
Sec. 53.4946-1  Definitions and special rules.


    (a) Disqualified person. (1) For purposes of Chapter 42 and the 
regulations thereunder, the following are disqualified persons with 
respect to a private foundation:
    (i) All substantial contributors to the foundation, as defined in 
section 507 (d)(2) and the regulations thereunder.
    (ii) All foundation managers of the foundation as defined in section 
4946 (b)(1) and paragraph (f)(1)(i) of this section,
    (iii) An owner of more than 20 percent of:
    (a) The total combined voting power of a corporation,
    (b) The profits interest of a partnership,
    (c) The beneficial interest of a trust or unincorporated enterprise.

which is (during such ownership) a substantial contributor to the 
foundation, as defined in section 507(d)(2) and the regulations 
thereunder,
    (iv) A member of the family, as defined in section 4946(d) and 
paragraph (h) of this section, of any of the individuals described in 
subdivision (i), (ii), or (iii) of this subparagraph,
    (v) A corporation of which more than 35 percent of the total 
combined voting power is owned by persons described in subdivision (i), 
(ii), (iii), or (iv) of this subparagraph,
    (vi) A partnership of which more than 35 percent of the profits 
interest is owned by persons described in subdivision (i), (ii), (iii), 
or (iv) of this subparagraph, and
    (vii) A trust, estate, or unincorporated enterprise of which more 
than 35 percent of the beneficial interest is owned by persons described 
in subdivision (i), (ii), (iii), or (iv) of this subparagraph.

[[Page 192]]

    (2) For purposes of subparagraphs (1)(iii) (b) and (vi) of this 
paragraph, the profits interest of a partner shall be equal to his 
distributive share of income of the partnership, as determined under 
section 707(b)(3) and the regulations thereunder as modified by section 
4946(a)(4).
    (3) For purposes of subparagraph (1) (iii)(c) and (vii) of this 
paragraph, the beneficial interest in an unincorporated enterprise 
(other than a trust or estate) includes any right to receive a portion 
of distributions from profits of such enterprise, and, if the portion of 
distributions is not fixed by an agreement among the participants, any 
right to receive a portion of the assets (if any) upon liquidation of 
the enterprise, except as a creditor or employee. For purposes of this 
subparagraph, a right to receive distributions of profits includes a 
right to receive any amount from such profits other than as a creditor 
or employee, whether as a sum certain or as a portion of profits 
realized by the enterprise. Where there is no agreement fixing the 
rights of the participants in such enterprise, the fraction of the 
respective interests of each participant in such enterprise shall be 
determined by dividing the amount of all investments or contributions to 
the capital of the enterprise made or obligated to be made by such 
participant by the amount of all investments or contributions to capital 
made or obligated to be made by all of them.
    (4) For purposes of subparagraph (1) (iii) (c) and (vii) of this 
paragraph, a person's beneficial interest in a trust shall be determined 
in proportion to the actuarial interest of such person in the trust.
    (5) For purposes of subparagraph (1) (iii) (a) and (v) of this 
paragraph, the term ``combined voting power'' includes voting power 
represented by holdings of voting stock, actual or constructive (under 
section 4946(a)(3)), but does not include voting rights held only as a 
director or trustee.
    (6) For purposes of subparagraph (1) (iii) (a) and (v) of this 
paragraph, the term ``voting power'' includes outstanding voting power 
and does not include voting power obtainable but not obtained, such as, 
for example, voting power obtainable by converting securities or 
nonvoting stock into voting stock or by exercising warrants or options 
to obtain voting stock, and voting power which will vest in preferred 
stockholders only if and when the corporation has failed to pay 
preferred dividends for a specified period of time or has otherwise 
failed to meet specified requirements. Similarly, for purposes of 
subparagraph (1)(iii) (b) and (c), (vi), and (vii) of this paragraph, 
the terms ``profits interest'' and ``beneficial interest'' include any 
such interest that is outstanding, but do not include any such interest 
that is obtainable but has not been obtained.
    (7) For purposes of sections 170(b) (1)(E)(iii), 507(d)(1), 508(d), 
509(a) (1) and (3), and Chapter 42, the term ``disqualified person'' 
shall not 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.
    (8) For purposes of section 4941 only, the term ``disqualified 
person'' shall not include any organization which is described in 
section 501(c)(3) (other than an organization described in section 
509(a)(4)).
    (b) Section 4943. (1) For purposes of section 4943 only, the term 
``disqualified person'' includes a private foundation:
    (i) Which is effectively controlled (within the meaning of Sec. 
1.482-1(a)(3) of this chapter), directly or indirectly, by the same 
person or persons (other than a bank, trust company, or similar 
organization acting only as a foundation manager) who control the 
private foundation in question, or
    (ii) Substantially all the contributions to which were made, 
directly or indirectly, by persons described in subdivision (i), (ii), 
(iii), or (iv) of paragraph (a)(1) of this section who made, directly or 
indirectly, substantially all of the contributions to the private 
foundation in question.
    (2) For purposes of subparagraph (1)(ii) of this paragraph, one or 
more persons will be considered to have made substantially all of the 
contributions to a private foundation, if such persons have contributed 
or bequeathed at least 85 percent (and each

[[Page 193]]

such person has contributed or bequeathed at least 2 percent) of the 
total contributions and bequests (within the meaning of section 
507(d)(2) and the regulations thereunder) which have been received by 
such private foundation during its entire existence.
    (3) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). A, a private foundation, has a board of directors made 
up of X, Y, Z, M, N, and O. Foundation B's board of directors is made up 
of Y, M, N, and O. The board of directors in each case has plenary power 
to determine the manner in which the foundation is operated. For 
purposes of section 4943, foundation A is a disqualified person with 
respect to foundation B, and foundation B, is a disqualified person with 
respect to foundation A.
    Example (2). Private foundation A has received contributions of 
$100,000 throughout its existence: $35,000 from X, $51,000 from Y (who 
is X's father), and $14,000 from Z (an unrelated person). Private 
foundation B has received $100,000 in contributions during its 
existence: $50,000 from X and $50,000 from W, X's wife.


For purposes of section 4943, private foundation A is a disqualified 
person with respect to private foundation B, and private foundation B is 
a disqualified person with respect to private foundation A.

    (c) Section 4941. For purposes of section 4941, a government 
official, as defined in section 4946(c) and paragraph (g) of this 
section, is a disqualified person.
    (d) Attribution of stockholdings. (1) For purposes of paragraph 
(a)(1)(iii) (a) and (v) of this section, indirect stockholdings shall be 
taken into account under section 267(c) and the regulations thereunder. 
However, for purposes of this paragraph:
    (i) Section 267(c)(4) shall be treated as though it provided that 
the members of the family of an individual are the members within the 
meaning of section 4946(d) and paragraph (h) of this section; and
    (ii) Any stockholdings which have been counted once (whether by 
reason of actual or constructive ownership) in applying section 
4946(a)(1)(E) shall not be counted a second time.

For purposes of paragraph (a)(1)(v) or this section, section 267(c) 
shall be applied without regard to section 267(c)(3), and stock 
constructively owned by an individual by reason of the application of 
section 267(c)(2) shall not be treated as owned by him if he is 
described in section 4946(a)(1)(D) but not also in section 4946(a)(1) 
(A), (B), or (C).
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). D is a substantial contributor to private foundation Y. 
D owns 20 percent of the outstanding stock of corporation P. E, D's 
wife, owns none of the outstanding stock of P. F, E's father, owns 10 
percent of the outstanding stock of P. E is treated under section 
507(d)(2) as a substantial contributor to Y. E is also treated under 
section 267(c)(2) as owning both D's 20 percent and F's 10 percent of P, 
but E is treated as owning nothing for purposes of section 4946(a)(1)(E) 
because D's 20 percent and F's 10 percent have already been taken into 
account once (because of their actual ownership of the stock of P) for 
such purposes. Hence, corporation P is not a disqualified person under 
section 4946(a)(1)(E) with respect to private foundation Y because 
persons described in section 4946(a)(1) (A), (B), (C), and (D) own only 
30 percent of the stock of P.
    Example (2). I, a substantial contributor to private foundation X, 
is the son of J. I owns 100 percent of the stock of corporation R, which 
in turn owns 18 percent of the stock of corporation S. J owns 18 percent 
of the stock of S. I constructively owns 36 percent of the stock of S 
(J's 18 percent plus R's 18 percent). Both J's actual holdings and R's 
actual holdings are counted in determining I's constructive holdings 
because this does not result in counting either of the holdings more 
than once for purposes of section 4946 (a)(1)(E). Therefore, S is a 
disqualified person with respect to private foundation X, since I, a 
substantial contributor, constructively owns more than 35 percent of S's 
stock.

    (e) Attribution of profits or beneficial interests. (1) For purposes 
of paragraph (a) (1) (iii) (b), (iii) (c), (vi), and (vii) of this 
section, ownership of profits or beneficial interests shall be taken 
into account as though such ownership related to stockholdings, if such 
stockholdings would be taken into account under section 267(c) and the 
regulations thereunder, except that section 267(c)(3) shall not apply to 
attribute the ownership of one partner to another solely by reason of 
such partner relationship. However, for purposes of this paragraph:

[[Page 194]]

    (i) Section 267(c)(4) shall be treated as though it provided that 
the members of the family of an individual are the members within the 
meaning of section 4946(d) and paragraph (h) of this section; and
    (ii) Any profits interest or beneficial interest which has been 
counted once (whether by reason of actual or constructive ownership) in 
applying section 4946(a)(1) (F) or (G) shall not be counted a second 
time.

For purposes of paragraph (a)(1) (vi) and (vii) of this section, profits 
or beneficial interests constructively owned by an individual by reason 
of the application of section 267(c)(2) shall not be treated as owned by 
him if he is described in section 4946(a)(1)(D) but not in section 
4946(a)(1)(A), (B) or (C).
    (2) Example. The provisions of this paragraph may be illustrated by 
the following example:

    Example. Partnership S is a substantial contributor to private 
foundation X. Trust T, of which G is sole beneficiary, owns 12 percent 
of the profits interest of S. G's husband, H, owns 10 percent of the 
profits interest of S. H is a disqualified person with respect to X 
(under section 4946(a)(1)(C)) because he is considered to own 22 percent 
of the profits interest of S (10 percent actual ownership, plus G's 12 
percent constructively under section 267(c)(2)). G is a disqualified 
person with respect to X (under section 4946(a)(1)(C) because she is 
considered to own 22 percent of the profits interest of S (12 percent 
constructively by reason of her beneficial interest in trust T, plus 10 
percent constructively under section 267(c)(2) by reason of being a 
member of the family of H).

    (f) Foundation manager. (1) For purposes of Chapter 42 and the 
regulations thereunder, the term ``foundation manager'' means:
    (i) An officer, director, or trustee of a foundation (or a person 
having powers or responsibilities similar to those of officers, 
directors, or trustees of the foundation), and
    (ii) With respect to any act or failure to act, any employee of the 
foundation having final authority or responsibility (either officially 
or effectively) with respect to such act or failure to act.
    (2) For purposes of subparagraph (1)(i) of this paragraph, a person 
shall be considered an officer of a foundation if:
    (i) He is specifically so designated under the certificate of 
incorporation, bylaws, or other constitutive documents of the 
foundation; or
    (ii) He regularly exercises general authority to make administrative 
or policy decisions on behalf of the foundation.

With respect to any act or failure to act, any person described in 
subdivision (ii) of this subparagraph who has authority merely to 
recommend particular administrative or policy decisions, but not to 
implement them without approval of a superior, is not an officer. 
Moreover, such independent contractors as attorneys, accountants, and 
investment managers and advisers, acting in their capacities as such, 
are not officers within the meaning of subparagraph (1)(i) of this 
paragraph.
    (3) For purposes of subparagraph (1)(ii) of this paragraph, an 
individual rendering services to a private foundation shall be 
considered an employee of the foundation only if he is an employee 
within the meaning of section 3121(d)(2).
    (4) Since the definition of the term ``disqualified person'' 
contained in section 4946(a)(1)(B) incorporates only so much of the 
definition of the term ``foundation manager'' as is found in section 
4946(b)(1) and subparagraph (1)(i) of this paragraph, any references, in 
section 4946 and this section, to ``disqualified persons'' do not 
constitute references to persons who are ``foundation managers'' solely 
by reason of the definition of that term contained in section 4946(b)(2) 
and subparagraph (1)(ii) of this paragraph.
    (g) Government official--(1) In general. Except as provided in 
subparagraph (3) of this paragraph, for purposes of section 4941 and 
paragraph (c) of this section, the term ``government official'' means, 
with respect to an act of selfdealing described in section 4941, an 
individual who, at the time of such act, is described in subdivision 
(i), (ii), (iii), (iv), or (v) of this subparagraph (other than a 
``special Government employee'' as defined in 18 U.S.C. 202(a)):
    (i)(a) An individual who holds an elective public office in the 
executive or legislative branch of the Government of the United States.

[[Page 195]]

    (b) An individual who holds an office in the executive or judicial 
branch of the Government of the United States, appointment to which was 
made by the President.
    (ii) An individual who holds a position in the executive, 
legislative or judicial branch of the Government of the United States:
    (a) Which is listed in schedule C of rule VI of the Civil Service 
Rules, or
    (b) The compensation for which is equal to or greater than the 
lowest rate prescribed for GS-16 of the General Schedule under 5 U.S.C. 
5332.
    (iii) An individual who holds a position under the House of 
Representatives or the Senate of the United States, as an employee of 
either of such bodies, who receives gross compensation therefrom at an 
annual rate of $15,000 or more.
    (iv) The holder of an elective or appointive public office in the 
executive, legislative, or judicial branch of the government of a State, 
possession of the United States, or political subdivision or other area 
of any of the foregoing, or of the District of Columbia, for which the 
gross compensation is at an annual rate of $15,000 or more, who is 
described in subparagraph (2) of this paragraph.
    (v) The holder of a position as personal or executive assistant or 
secretary to any individual described in subdivision (i), (ii), (iii), 
or (iv) of this subparagraph.
    (2) Public office--(i) Definition. In defining the term ``public 
office'' for purposes of section 4946(c)(5) and subparagraph (1)(iv) of 
this paragraph, such term must be distinguished from mere public 
employment. Although holding a public office is one form of public 
employment, not every position in the employ of a State or other 
governmental subdivision (as described in section 4946 (c)(5)) 
constitutes a ``public office''. Although a determination whether a 
public employee holds a public office depends on the facts and 
circumstances of the case, the essential element is whether a 
significant part of the activities of a public employee is the 
independent performance of policymaking functions. In applying this 
subparagraph, several factors may be considered as indications that a 
position in the executive, legislative, or judicial branch of the 
government of a State, possession of the United States, or political 
subdivision or other area of any of the foregoing, or of the District of 
Columbia, constitutes a ``public office''. Among such factors to be 
considered in addition to that set forth above, are that the office is 
created by the Congress, a State constitution, or the State legislature, 
or by a municipality or other governmental body pursuant to authority 
conferred by the Congress, State constitution, or State legislature, and 
the powers conferred on the office and the duties to be discharged by 
such office are defined either directly or indirectly by the Congress, 
State constitution, or State legislature, or through legislative 
authority.
    (ii) Illustrations. The following are illustrations of positions of 
public employment which do not involve policymaking functions within the 
meaning of subdivision (i) of this subparagraph and which are thus not a 
``public office'' for purposes of section 4946(c)(5) and subparagraph 
(1)(iv) of this paragraph:
    (a) The chancellor, president, provost, dean, and other officers of 
a State university who are appointed, elected, or otherwise hired by a 
State Board of Regents or equivalent public body and who are subject to 
the direction and supervision of such body;
    (b) Professors, instructors, and other members of the faculty of a 
State educational institution who are appointed, elected, or otherwise 
hired by the officers of the institution or by the State Board of 
Regents or equivalent public body;
    (c) The superintendent of public schools and other public school 
officials who are appointed, elected, or otherwise hired by a Board of 
Education or equivalent public body and who are subject to the direction 
and supervision of such body;
    (d) Public school teachers who are appointed, elected, or otherwise 
hired by the superintendent of public schools or by a Board of Education 
or equivalent public body;
    (e) Physicians, nurses, and other professional persons associated 
with public hospitals and State boards of health

[[Page 196]]

who are appointed, elected, or otherwise hired by the governing board or 
officers of such hospitals or agencies; and
    (f) Members of police and fire departments, except for those 
department heads who, under the facts and circumstances of the case, 
independently perform policymaking functions as a significant part of 
their activities.
    (3) Certain government officials on leave of absence. For purposes 
of this paragraph, an individual who is otherwise described in section 
4946(c) and this paragraph who was on leave of absence without pay on 
December 31, 1969, from his position or office pursuant to a commitment 
entered into on or before such date to engage in certain activities for 
which he is paid by one or more private foundations, is not to be 
treated as holding such position or office for any continuous period 
after December 31, 1969, and prior to January 1, 1971, during which such 
individual remains on leave of absence to engage in the same activities 
for which he is paid by such foundations. For purposes of this 
subparagraph, a commitment is considered entered into on or before 
December 31, 1969, if on or before such date, the amount and nature of 
the payments to be made and the name of the individual receiving such 
payments were entered on the records of the payor, or were otherwise 
adequately evidenced, or the notice of the payment to be received was 
communicated to the payee orally or in writing.
    (h) Members of the family. For purposes of this section, the members 
of the family of an individual include only:
    (1) His spouse,
    (2) His ancestors,
    (3) His lineal descendants, and
    (4) Spouses of his lineal descendants.

For example, a brother or sister of an individual is not a member of his 
family for purposes of this section. However, for example, the wife of a 
grandchild of an individual is a member of his family for such purposes. 
For purposes of this paragraph, a legally adopted child of an individual 
shall be treated as a child of such individual by blood.

[T.D. 7241, 37 FR 28744, Dec. 29, 1972]