PLR: Transfer of assets between private foundations | KPMG | GLOBAL

PLR: Transfer of assets between private foundations

PLR: Transfer of assets between private foundations

The IRS released a private letter ruling* concluding that a significant distribution of assets from one private foundation to another private foundation, within the meaning of section 507(b)(2), does not result in a termination tax under section 507(c) or in excise taxes under chapter 42.


Related content

Read PLR 201603033 [PDF 11.3 MB] and PLR 201603034 [PDF 7.75 MB], both released January 15, 2016 and dated October 14, 2015

*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.


A private foundation proposed to transfer approximately 78% of its net assets to another private foundation, effectively controlled by the same persons. After the transfer, both organizations would continue to operate exclusively for charitable purposes. 


The letter ruling concludes that because the foundation sought to transfer 25% or more of its assets to another private foundation, the proposed transfer would constitute a significant distribution of assets described in section 507(b)(2). As a result, the transferor private foundation would not be subject to the section 507(c) termination tax.

Moreover, the IRS held that the recipient foundation would not be treated as a newly created organization, resulting in such organization possessing certain attributes and characteristics of the transferor foundation (e.g., aggregate tax benefit, substantial contributors, and unsatisfied chapter 42 liabilities).  

Finally, with respect to the private foundation excise taxes, the IRS ruled as follows:

  • Pursuant to the rationale in Rev. Rul. 2002-28 [PDF 127 KB], the transfer would not constitute an investment; therefore, there would not be any net investment income tax under section 4940 or a jeopardizing investment under section 4944.
  • Because the transfer would be to another organization described in section 501(c)(3), the IRS held that it would not give rise to an act of self-dealing under section 4941. 
  • Assuming the transferee foundation met the pass-through rules (i.e., made distributions for charitable purposes out of corpus by the end of its tax year following the year of the transfer), the IRS found that the transfer would constitute a qualifying distribution under section 4942. In addition, the foundations could claim qualifying distributions under section 4942 for the reasonable legal, accounting, and other expenses associated with the transfer and request for a letter ruling. 
  • So long as the transferor foundation exercised expenditure responsibility with respect to the funds, such transfer would not constitute a taxable expenditure under section 4945. 

KPMG observation

This ruling serves as a useful reminder of the rules described over a decade ago in Rev. Rul. 2002-28 and how they apply in a “real-life” situation.


For more information, contact the Managing Director-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group

D. Greg Goller |  +1 (703) 286- 8391 |

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