26 U.S.C. § 509 — Private foundation defined

Page 1693 TITLE 26—INTERNAL REVENUE CODE § 509 whether such organization maintains or intends to maintain donor advised funds (as defined in section 4966(d)(2)) and the manner in which such organization plans to operate such funds. (Added Pub. L. 91–172, title I, § 101(a), Dec. 30, 1969, 83 Stat. 494; amended Pub. L. 94–455, title XIX, §§ 1901(a)(71), (b)(8)(E), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1794, 1834; Pub. L. 108–357, title IV, § 413(c)(30), Oct. 22, 2004, 118 Stat. 1509; Pub. L. 109–280, title XII, § 1235(b)(1), Aug. 17, 2006, 120 Stat. 1101.) Editorial Notes AMENDMENTS 2006—Subsec. (f). Pub. L. 109–280, which directed the addition of subsec. (f) to section 508, without specifying the act to be amended, was executed by making the ad- dition to this section, which is section 508 of the Inter- nal Revenue Code of 1986, to reflect the probable intent of Congress. 2004—Subsec. (d)(1), (2). Pub. L. 108–357 struck out ‘‘556(b)(2),’’ after ‘‘545(b)(2),’’. 1976—Subsec. (a). Pub. L. 94–455, § 1901(a)(71)(A), struck out last sentence providing that for purposes of paragraph (2), the time prescribed for giving notice under this subsection shall not expire before the 90th day after the day on which regulations first prescribed under this subsection become final. Subsec. (a)(1), (2). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ in three places after ‘‘Sec- retary’’. Subsec. (b). Pub. L. 94–455, §§ 1901(a)(71)(A), 1906(b)(13)(A), struck out ‘‘or his delegate’’ in two places after ‘‘Secretary’’ and ‘‘The time prescribed for giving notice under this subsection shall not expire be- fore the 90th day after the day on which regulations first prescribed under this subsection become final’’ after ‘‘a private foundation’’. Subsec. (c)(2). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (c)(2)(A). Pub. L. 94–455, § 1901(b)(8)(E), sub- stituted ‘‘(A) educational organizations described in section 170(b)(1)(A)(ii), and’’ for ‘‘(A) educational orga- nizations which normally maintain a regular faculty and curriculum and normally have a regularly enrolled body of pupils or students in attendance at the place where their educational activities are regularly carried on; and’’ after ‘‘(b) or both—’’. Subsec. (c)(2)(B). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (d)(2)(A). Pub. L. 94–455, § 1901(a)(71)(C), sub- stituted ‘‘(e)(2)’’ for ‘‘(e)(2)(B) and (C)’’ after ‘‘regard to subsection’’. Subsec. (d)(3). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (e)(2)(A). Pub. L. 94–455, § 1901(a)(71)(B), struck out subpar. (A) relating to taxable years beginning be- fore 1972, and redesignated subpars. (B) and (C) as (A) and (B), respectively. Subsec. (e)(2)(B). Pub. L. 94–455, § 1901(a)(71)(B), redes- ignated subpar. (C) as (B) and substituted ‘‘(A)’’ for ‘‘(B)’’ after ‘‘described in subparagraph’’. Subsec. (e)(2)(C). Pub. L. 94–455, § 1901(a)(71)(B), redes- ignated subpar. (C) as (B). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–280, title XII, § 1235(b)(2), Aug. 17, 2006, 120 Stat. 1102, provided that: ‘‘The amendment made by this subsection [amending this section] shall apply to organizations applying for tax-exempt status after the date of the enactment of this Act [Aug. 17, 2006].’’ EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(71)(A)–(C), (b)(8)(E) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE Section effective Jan. 1, 1970, except that subsecs. (a), (b), and (c) effective Oct. 9, 1969, see section 101(k)(1), (3) of Pub. L. 91–172, set out as a note under section 4940 of this title. SAVINGS PROVISION Limits on inclusion of provisions inconsistent with subsec. (e) of this section in governing instruments, see section 101(l)(6) of Pub. L. 91–172, set out as a note under section 4940 of this title. § 509. Private foundation defined (a) General rule For purposes of this title, the term ‘‘private foundation’’ means a domestic or foreign organi- zation 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 mem- bership 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 in- cluding 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 organi- zations 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 there- after is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified or- ganizations described in paragraph (1) or (2), Page 1694 TITLE 26—INTERNAL REVENUE CODE § 509 (B) is— (i) operated, supervised, or controlled by one or more organizations described in paragraph (1) or (2), (ii) supervised or controlled in connec- tion 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 de- fined in section 4946) other than foundation managers and other than one or more orga- nizations 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 in- clude an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization de- scribed 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 sub- section (a)) on October 9, 1969, or becomes a pri- vate foundation on any subsequent date, such organization shall be treated as a private foun- dation 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 termi- nated under section 507 shall (except as provided in section 507(b)(2)) be treated as an organiza- tion 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 member- ship fees, (2) gross receipts from admissions, sales of merchandise, performance of services, or fur- nishing 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 ac- tivities, 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 (exclu- sive of services or facilities generally fur- nished 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 ex- change of a capital asset, or the value of exemp- tion 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 com- puting the tax imposed by section 511. Such term shall also include income from sources similar to those in the preceding sentence. (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 op- erated in connection with any organization de- scribed 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 or- ganization such information as the Sec- retary may require to ensure that such orga- nization is responsive to the needs or de- mands of the supported organization. (B) Foreign supported organizations (i) In general The organization is not operated in con- nection with any supported organization that is not organized in the United States. (ii) Transition rule for existing organiza- tions If the organization is operated in connec- tion with an organization that is not orga- nized 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 be- ginning 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 or- ganization 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 or- ganization described in paragraph (1) or (2) of subsection (a), if such organization accepts any gift or con- tribution from any person described in sub- paragraph (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 sec- tion 509(a)) who directly or indirectly con- Page 1695 TITLE 26—INTERNAL REVENUE CODE § 509 trols, either alone or together with persons described in clauses (ii) and (iii), the gov- erning body of such supported organiza- tion, (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 de- fined 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 de- scribed 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. (Added Pub. L. 91–172, title I, § 101(a), Dec. 30, 1969, 83 Stat. 496; amended Pub. L. 94–81, § 3(a), Aug. 9, 1975, 89 Stat. 418; Pub. L. 95–345, § 2(a)(1), Aug. 15, 1978, 92 Stat. 481; Pub. L. 109–280, title XII, §§ 1221(a)(2), 1241(a), (b), Aug. 17, 2006, 120 Stat. 1089, 1102.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this subsection, referred to in subsec. (f)(1)(A), (B)(ii), is the date of enactment of Pub. L. 109–280, which was approved Aug. 17, 2006. CODIFICATION Sections 1221(a)(2) and 1241(a), (b) of Pub. L. 109–280, which directed the amendment of section 509 without specifying the act to be amended, were executed to this section, which is section 509 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below. AMENDMENTS 2006—Subsec. (a)(3)(B). Pub. L. 109–280, § 1241(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: ‘‘is operated, supervised, or controlled by or in connection with one or more organi- zations described in paragraph (1) or (2), and’’. See Codification note above. Subsec. (e). Pub. L. 109–280, § 1221(a)(2), inserted at end ‘‘Such term shall also include income from sources similar to those in the preceding sentence.’’ See Codi- fication note above. Subsec. (f). Pub. L. 109–280, § 1241(b), added subsec. (f). See Codification note above. 1978—Subsec. (e). Pub. L. 95–345 inserted provision re- lating to payments with respect to securities loans. 1975—Subsec. (a)(2)(B). Pub. L. 94–81 designated exist- ing provisions as cl. (i) and added cl. (ii). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–280, title XII, § 1221(c), Aug. 17, 2006, 120 Stat. 1089, provided that: ‘‘The amendments made by this section [amending this section and section 4940 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 17, 2006].’’ Pub. L. 109–280, title XII, § 1241(e), Aug. 17, 2006, 120 Stat. 1103, provided that: ‘‘(1) IN GENERAL.—The amendments made by sub- sections (a) and (b) [amending this section] shall take effect on the date of the enactment of this Act [Aug. 17, 2006]. ‘‘(2) CHARITABLE TRUSTS WHICH ARE TYPE III SUP- PORTING ORGANIZATIONS.—Subsection (c) [enacting pro- visions set out as a note below] 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 1978 AMENDMENT Pub. L. 95–345, § 2(e), Aug. 15, 1978, 92 Stat. 483, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendments made by this section [enacting section 1058 of this title and amend- ing 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 de- scribed in section 1058 of such Code, occurring after such date.’’ EFFECTIVE DATE OF 1975 AMENDMENT Pub. L. 94–81, § 3(b), Aug. 9, 1975, 89 Stat. 418, 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 testa- mentary trusts, see section 101(l)(7) of Pub. L. 91–172, set out as a note under section 4940 of this title. CHARITABLE TRUSTS WHICH ARE TYPE III SUPPORTING ORGANIZATIONS Pub. L. 109–280, title XII, § 1241(c), Aug. 17, 2006, 120 Stat. 1103, provided that: ‘‘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 de- scribed 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 sec- tion 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 ac- counting.’’ PAYOUT REQUIREMENTS FOR TYPE III SUPPORTING ORGANIZATIONS Pub. L. 109–280, title XII, § 1241(d), Aug. 17, 2006, 120 Stat. 1103, provided that: ‘‘(1) IN GENERAL.—The Secretary of the Treasury shall promulgate new regulations under section 509 of the In- ternal Revenue Code of 1986 on payments required by type III supporting organizations which are not func- tionally integrated type III supporting organizations. Such regulations shall require such organizations to make distributions of a percentage of either income or Page 1696 TITLE 26—INTERNAL REVENUE CODE § 511 assets to supported organizations (as defined in section 509(f)(3) of such Code) in order to ensure that a signifi- cant 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 sup- porting 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.’’ PART III—TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS Sec. 511. Imposition of tax on unrelated business in- come of charitable, etc., organizations. 512. Unrelated business taxable income. 513. Unrelated trade or business. 514. Unrelated debt-financed income. 515. Taxes of foreign countries and possessions of the United States. Editorial Notes AMENDMENTS 2018—Pub. L. 115–141, div. U, title IV, § 401(a)(125), Mar. 23, 2018, 132 Stat. 1190, substituted ‘‘Imposition of tax on unrelated business income of charitable, etc., or- ganizations.’’ for ‘‘Imposition of tax on unrelated busi- ness income of charitable organizations, etc.’’ in item 511. 1969—Pub. L. 91–172, title I, §§ 101(a), 121(d)(3)(C), Dec. 30, 1969, 83 Stat. 492, 548, substituted ‘‘PART III’’ for ‘‘PART II’’ as part designation and substituted ‘‘Unre- lated debt-financed income’’ for ‘‘Business leases’’ in item 514. § 511. Imposition of tax on unrelated business in- come of charitable, etc., organizations (a) Charitable, etc., organizations taxable at cor- poration rates (1) Imposition of tax There is hereby imposed for each taxable year on the unrelated business taxable income (as defined in section 512) of every organiza- tion described in paragraph (2) a tax computed as provided in section 11. In making such com- putation for purposes of this section, the term ‘‘taxable income’’ as used in section 11 shall be read as ‘‘unrelated business taxable income’’. (2) Organizations subject to tax (A) Organizations described in sections 401(a) and 501(c) The tax imposed by paragraph (1) shall apply in the case of any organization (other than a trust described in subsection (b) or an organization described in section 501(c)(1)) which is exempt, except as provided in this part or part II (relating to private founda- tions), from taxation under this subtitle by reason of section 501(a). (B) State colleges and universities The tax imposed by paragraph (1) shall apply in the case of any college or university which is an agency or instrumentality of any government or any political subdivision thereof, or which is owned or operated by a government or any political subdivision thereof, or by any agency or instrumentality of one or more governments or political sub- divisions. Such tax shall also apply in the case of any corporation wholly owned by one or more such colleges or universities. (b) Tax on charitable, etc., trusts (1) Imposition of tax There is hereby imposed for each taxable year on the unrelated business taxable income of every trust described in paragraph (2) a tax computed as provided in section 1(e). In mak- ing such computation for purposes of this sec- tion, the term ‘‘taxable income’’ as used in section 1 shall be read as ‘‘unrelated business taxable income’’ as defined in section 512. (2) Charitable, etc., trusts subject to tax The tax imposed by paragraph (1) shall apply in the case of any trust which is exempt, ex- cept as provided in this part or part II (relat- ing to private foundations), from taxation under this subtitle by reason of section 501(a) and which, if it were not for such exemption, would be subject to subchapter J (sec. 641 and following, relating to estates, trusts, bene- ficiaries, and decedents). (c) Special rule for section 501(c)(2) corporations If a corporation described in section 501(c)(2)— (1) pays any amount of its net income for a taxable year to an organization exempt from taxation under section 501(a) (or which would pay such an amount but for the fact that the expenses of collecting its income exceed its in- come), and (2) such corporation and such organization file a consolidated return for the taxable year, such corporation shall be treated, for purposes of the tax imposed by subsection (a), as being or- ganized and operated for the same purposes as such organization, in addition to the purposes described in section 501(c)(2). (Aug. 16, 1954, ch. 736, 68A Stat. 169; Pub. L. 86–667, § 3, July 14, 1960, 74 Stat. 535; Pub. L. 89–352, § 2, Feb. 2, 1966, 80 Stat. 4; Pub. L. 91–172, title I, § 121(a)(1)–(3), title III, § 301(b)(8), title VIII, § 803(d)(2), Dec. 30, 1969, 83 Stat. 536, 585, 684; Pub. L. 95–30, title I, § 101(d)(6), May 23, 1977, 91 Stat. 133; Pub. L. 95–600, title III, § 301(b)(5), title IV, § 421(e)(3), Nov. 6, 1978, 92 Stat. 2821, 2876; Pub. L. 97–248, title II, § 201(d)(5), formerly § 201(c)(5), Sept. 3, 1982, 96 Stat. 419, renumbered § 201(d)(5), Pub. L. 97–448, title III, § 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 100–647, title I, § 1007(g)(6), Nov. 10, 1988, 102 Stat. 3435.) Editorial Notes AMENDMENTS 1988—Subsec. (d). Pub. L. 100–647 struck out subsec. (d) which read as follows: ‘‘TAX PREFERENCES.— ‘‘(1) ORGANIZATIONS TAXABLE AT CORPORATE RATES.— If an organization is subject to tax on unrelated busi- ness taxable income pursuant to subsection (a), the tax imposed by section 56 shall apply to such organi- zations with respect to items of tax preference which enter into the computation of unrelated business tax- able income in the same manner as section 56 applies to corporations. ‘‘(2) ORGANIZATIONS TAXABLE AS TRUSTS.—If an orga- nization is subject to tax on unrelated business tax- able income pursuant to subsection (b), the taxes im-