Internal Revenue Code:Sec. 509. Private foundation defined
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART II - PRIVATE FOUNDATIONS
Statute
Sec. 509. Private foundation defined
(a) General rule
For purposes of this title, the term ''private foundation'' means
a domestic or foreign organization described in section 501(c)(3)
other than -
(1) an organization described in section 170(b)(1)(A) (other
than in clauses (vii) and (viii));
(2) an organization which -
(A) normally receives more than one-third of its support in
each taxable year from any combination of -
(i) gifts, grants, contributions, or membership fees, and
(ii) gross receipts from admissions, sales of merchandise,
performance of services, or furnishing of facilities, in an
activity which is not an unrelated trade or business (within
the meaning of section 513), not including such receipts from
any person, or from any bureau or similar agency of a
governmental unit (as described in section 170(c)(1)), in any
taxable year to the extent such receipts exceed the greater
of $5,000 or 1 percent of the organization's support in such
taxable year,
from persons other than disqualified persons (as defined in
section 4946) with respect to the organization, from
governmental units described in section 170(c)(1), or from
organizations described in section 170(b)(1)(A) (other than in
clauses (vii) and (viii)), and
(B) normally receives not more than one-third of its support
in each taxable year from the sum of -
(i) gross investment income (as defined in subsection (e))
and
(ii) the excess (if any) of the amount of the unrelated
business taxable income (as defined in section 512) over the
amount of the tax imposed by section 511;
(3) an organization which -
(A) is organized, and at all times thereafter is operated,
exclusively for the benefit of, to perform the functions of, or
to carry out the purposes of one or more specified
organizations described in paragraph (1) or (2),
(B) is--
(i) operated, supervised, or controlled by
one or more organizations described in paragraph
(1) or (2),
(ii) supervised or controlled in connection
with one or more such organizations, or
(iii) operated in connection with one or
more such organizations, and
(C) is not controlled directly or indirectly by one or more
disqualified persons (as defined in section 4946) other than
foundation managers and other than one or more organizations
described in paragraph (1) or (2); and
(4) an organization which is organized and operated exclusively
for testing for public safety.
For purposes of paragraph (3), an organization described in
paragraph (2) shall be deemed to include an organization described
in section 501(c)(4), (5), or (6) which would be described in
paragraph (2) if it were an organization described in section
501(c)(3).
(b) Continuation of private foundation status
For purposes of this title, if an organization is a private
foundation (within the meaning of subsection (a)) on October 9,
1969, or becomes a private foundation on any subsequent date, such
organization shall be treated as a private foundation for all
periods after October 9, 1969, or after such subsequent date,
unless its status as such is terminated under section 507.
(c) Status of organization after termination of private foundation
status
For purposes of this part, an organization the status of which as
a private foundation is terminated under section 507 shall (except
as provided in section 507(b)(2)) be treated as an organization
created on the day after the date of such termination.
(d) Definition of support
For purposes of this part and chapter 42, the term ''support''
includes (but is not limited to) -
(1) gifts, grants, contributions, or membership fees,
(2) gross receipts from admissions, sales of merchandise,
performance of services, or furnishing of facilities in any
activity which is not an unrelated trade or business (within the
meaning of section 513),
(3) net income from unrelated business activities, whether or
not such activities are carried on regularly as a trade or
business,
(4) gross investment income (as defined in subsection (e)),
(5) tax revenues levied for the benefit of an organization and
either paid to or expended on behalf of such organization, and
(6) the value of services or facilities (exclusive of services
or facilities generally furnished to the public without charge)
furnished by a governmental unit referred to in section 170(c)(1)
to an organization without charge.
Such term does not include any gain from the sale or other
disposition of property which would be considered as gain from the
sale or exchange of a capital asset, or the value of exemption from
any Federal, State, or local tax or any similar benefit.
(e) Definition of gross investment income
For purposes of subsection (d), the term ''gross investment
income'' means the gross amount of income from interest, dividends,
payments with respect to securities loans (as defined in section
512(a)(5)), rents, and royalties, but not including any such income
to the extent included in computing the tax imposed by section 511.
(f) Requirements for Supporting Organizations.--
(1) Type iii supporting organizations.--For purposes of
subsection (a)(3)(B)(iii), an organization shall not be
considered to be operated in connection with any organization
described in paragraph (1) or (2) of subsection (a) unless such
organization meets the following requirements:
(A) Responsiveness.--For each taxable year
beginning after the date of the enactment of this
subsection, the organization provides to each supported
organization such information as the Secretary may
require to ensure that such organization is responsive
to the needs or demands of the supported organization.
(B) Foreign supported organizations.--
(i) In general.--The organization is not
operated in connection with any supported
organization that is not organized in the United
States.
(ii) Transition rule for existing
organizations.--If the organization is operated in
connection with an organization that is not
organized in the United States on the date of the
enactment of this subsection, clause (i) shall not
apply until the first day of the third taxable
year of the organization beginning after the date
of the enactment of this subsection.
(2) Organizations controlled by donors.--
(A) In general.--For purposes of subsection
(a)(3)(B), an organization shall not be considered to
be--
(i) operated, supervised, or controlled by
any organization described in paragraph (1) or (2)
of subsection (a), or
(ii) operated in connection with any
organization described in paragraph (1) or (2) of
subsection (a),
if such organization accepts any gift or contribution
from any person described in subparagraph (B).
(B) Person described.--A person is described in
this subparagraph if, with respect to a supported
organization
of an organization described in subparagraph (A), such
person is--
(i) a person (other than an organization
described in paragraph (1), (2), or (4) of section
509(a)) who directly or indirectly controls,
either alone or together with persons described in
clauses (ii) and (iii), the governing body of such
supported organization,
(ii) a member of the family (determined
under section 4958(f)(4)) of an individual
described in clause (i), or
(iii) a 35-percent controlled entity (as
defined in section 4958(f)(3) by substituting
`persons described in clause (i) or (ii) of
section 509(f)(2)(B)' for `persons described in
subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
(3) Supported organization.--For purposes of this
subsection, the term `supported organization' means, with
respect to an organization described in subsection (a)(3), an
organization described in paragraph (1) or (2) of subsection
(a)--
(A) for whose benefit the organization described
in subsection (a)(3) is organized and operated, or
(B) with respect to which the organization
performs the functions of, or carries out the purposes
of.
Sources
(Added Pub. L. 91-172, title I, Sec. 101(a), Dec. 30, 1969, 83
Stat. 496; amended Pub. L. 94-81, Sec. 3(a), Aug. 9, 1975, 89 Stat.
418; Pub. L. 95-345, Sec. 2(a)(1), Aug. 15, 1978, 92 Stat. 481.)
Miscellaneous
AMENDMENTS
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 1241. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.
(a) Types of Supporting Organizations.--Subparagraph (B) of section
509(a)(3) <<NOTE: 26 USC 509.>> is amended to read as follows:
``(B) is--
``(i) operated, supervised, or controlled by
one or more organizations described in paragraph
(1) or (2),
``(ii) supervised or controlled in connection
with one or more such organizations, or
``(iii) operated in connection with one or
more such organizations, and''.
(b) Requirements for Supporting Organizations.--Section 509
(relating to private foundation defined) is amended by adding at the end
the following new subsection:
``(f) Requirements for Supporting Organizations.--
``(1) Type iii supporting organizations.--For purposes of
subsection (a)(3)(B)(iii), an organization shall not be
considered to be operated in connection with any organization
described in paragraph (1) or (2) of subsection (a) unless such
organization meets the following requirements:
``(A) Responsiveness.--For each taxable year
beginning after the date of the enactment of this
subsection, the organization provides to each supported
organization such information as the Secretary may
require to ensure that such organization is responsive
to the needs or demands of the supported organization.
``(B) Foreign supported organizations.--
``(i) In general.--The organization is not
operated in connection with any supported
organization that is not organized in the United
States.
``(ii) Transition rule for existing
organizations.--If the organization is operated in
connection with an organization that is not
organized in the United States on the date of the
enactment of this subsection, clause (i) shall not
apply until the first day of the third taxable
year of the organization beginning after the date
of the enactment of this subsection.
``(2) Organizations controlled by donors.--
``(A) In general.--For purposes of subsection
(a)(3)(B), an organization shall not be considered to
be--
``(i) operated, supervised, or controlled by
any organization described in paragraph (1) or (2)
of subsection (a), or
``(ii) operated in connection with any
organization described in paragraph (1) or (2) of
subsection (a),
if such organization accepts any gift or contribution
from any person described in subparagraph (B).
``(B) Person described.--A person is described in
this subparagraph if, with respect to a supported
organization
of an organization described in subparagraph (A), such
person is--
``(i) a person (other than an organization
described in paragraph (1), (2), or (4) of section
509(a)) who directly or indirectly controls,
either alone or together with persons described in
clauses (ii) and (iii), the governing body of such
supported organization,
``(ii) a member of the family (determined
under section 4958(f)(4)) of an individual
described in clause (i), or
``(iii) a 35-percent controlled entity (as
defined in section 4958(f)(3) by substituting
`persons described in clause (i) or (ii) of
section 509(f)(2)(B)' for `persons described in
subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
``(3) Supported organization.--For purposes of this
subsection, the term `supported organization' means, with
respect to an organization described in subsection (a)(3), an
organization described in paragraph (1) or (2) of subsection
(a)--
``(A) for whose benefit the organization described
in subsection (a)(3) is organized and operated, or
``(B) with respect to which the organization
performs the functions of, or carries out the purposes
of.''.
(c) <<NOTE: 26 USC 509 note.>> Charitable Trusts Which Are Type III
Supporting Organizations.--For purposes of section 509(a)(3)(B)(iii) of
the Internal Revenue Code of 1986, an organization which is a trust
shall not be considered to be operated in connection with any
organization described in paragraph (1) or (2) of section 509(a) of such
Code solely because--
(1) it is a charitable trust under State law,
(2) the supported organization (as defined in section
509(f)(3) of such Code) is a beneficiary of such trust, and
(3) the supported organization (as so defined) has the power
to enforce the trust and compel an accounting.
(d) <<NOTE: 26 USC 509 note.>> Payout Requirements for Type III
Supporting Organizations.--
(1) <<NOTE: Regulations.>> In general.--The Secretary of the
Treasury shall promulgate new regulations under section 509 of
the Internal Revenue Code of 1986 on payments required by type
III supporting organizations which are not functionally
integrated type III supporting organizations. Such regulations
shall require such organizations to make distributions of a
percentage of either income or assets to supported organizations
(as defined in section 509(f)(3) of such Code) in order to
ensure that a significant amount is paid to such organizations.
(2) Type iii supporting organization; functionally
integrated type iii supporting organization.--For purposes of
paragraph (1), the terms ``type III supporting organization''
and ``functionally integrated type III supporting organization''
have the meanings given such terms under subparagraphs (A) and
(B) section 4943(f)(5) of the Internal Revenue Code of 1986 (as
added by this Act), respectively.
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 1226. STUDY ON DONOR ADVISED FUNDS AND SUPPORTING ORGANIZATIONS.
(a) Study.--The Secretary of the Treasury shall undertake a study on
the organization and operation of donor advised funds (as defined in
section 4966(d)(2) of the Internal Revenue Code of 1986, as added by
this Act) and of organizations described in section 509(a)(3) of such
Code. The study shall specifically con- sider--
(1) whether the deductions allowed for the income, gift, or
estate taxes for charitable contributions to sponsoring
organizations (as defined in section 4966(d)(1) of such Code, as
added by this Act) of donor advised funds or to organizations
described in section 509(a)(3) of such Code are appropriate in
consideration of--
(A) the use of contributed assets (including the
type, extent, and timing of such use), or
(B) the use of the assets of such organizations for
the benefit of the person making the charitable
contribution (or a person related to such person),
(2) whether donor advised funds should be required to
distribute for charitable purposes a specified amount (whether
based on the income or assets of the fund) in order to ensure
that the sponsoring organization with respect to such donor
advised fund is operating consistent with the purposes or
functions constituting the basis for its exemption under section
501, or its status as an organization described in section
509(a), of such Code,
(3) whether the retention by donors to organizations
described in paragraph (1) of rights or privileges with respect
to amounts transferred to such organizations (including advisory
rights or privileges with respect to the making of grants or the
investment of assets) is consistent with the treatment of such
transfers as completed gifts that qualify for a deduction for
income, gift, or estate taxes, and
(4) whether the issues raised by paragraphs (1), (2), and
(3) are also issues with respect to other forms of charities or
charitable donations.
(b) Report.--Not later than 1 year after the date of the enactment
of this Act, the Secretary of the Treasury shall submit to the Committee
on Finance of the Senate and the Committee on Ways and Means of the
House of Representatives a report on the study conducted under
subsection (a) and make such recommendations as the Secretary of the
Treasury considers appropriate.
1978 - Subsec. (e). Pub. L. 95-345 inserted provision relating to
payments with respect to securities loans.
1975 - Subsec. (a)(2)(B). Pub. L. 94-81 designated existing
provisions as cl. (i) and added cl. (ii).
EFFECTIVE DATE OF 2006 AMENDMENT
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 1241. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.
(e) <<NOTE: 26 USC 509 note.>> Effective Dates.--
(1) In general.--The amendments made by subsections (a) and
(b) shall take effect on the date of the enactment of this Act.
(2) Charitable trusts which are type iii supporting
organizations.--Subsection (c) shall take effect--
(A) in the case of trusts operated in connection
with an organization described in paragraph (1) or (2)
of section 509(a) of the Internal Revenue Code of 1986
on the date of the enactment of this Act, on the date
that is one year after the date of the enactment of this
Act, and
(B) in the case of any other trust, on the date of
the enactment of this Act.
EFFECTIVE DATE OF 2006 AMENDMENT
2006 - Pension Protection Act of 2006 (P.L. 109-280)
Section 1221(c) <<NOTE: 26 USC 509 note.>> Effective Date.--The amendments made
by this section shall apply to taxable years beginning after the date of
the enactment of this Act.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 2(e) of Pub. L. 95-345, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendments made by this section (enacting section 1058 of this
title and amending sections 509, 512, 514, 851, and 4940 of this
title) apply with respect to -
''(1) amounts received after December 31, 1976, as payments
with respect to securities loans (as defined in section 512(a)(5)
of the Internal Revenue Code of 1986 (formerly I.R.C. 1954)), and
''(2) transfers of securities, under agreements described in
section 1058 of such Code, occurring after such date.''
EFFECTIVE DATE OF 1975 AMENDMENT
Section 3(b) of Pub. L. 94-81 provided that: ''The amendment made
by this section (amending this section) shall apply to unrelated
business taxable income derived from trades and businesses which
are acquired by the organization after June 30, 1975.''
EFFECTIVE DATE
Section effective Jan. 1, 1970, see section 101(k)(1) of Pub. L.
91-172, set out as a note under section 4940 of this title.
SAVINGS PROVISION
Applicability of subsec. (a) of this section to testamentary
trusts, see section 101(l)(7) of Pub. L. 91-172, set out as a note
under section 4940 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 501, 507, 508, 514,
527, 542, 2055, 2503, 3121, 4940, 4942, 4945, 4947, 4958, 6033,
6043, 6104, 6111, 7428 of this title; title 42 section 410.
