MERGER WILL NOT TERMINATE PRIVATE FOUNDATION STATUS.

UIL Number(s) 0507.05-00

                                             Date: August 12, 1991

This is in response to your ruling request of October 1, 1990, submitted on your behalf by your authorized representative. You have requested rulings on the effects of Section 507 and Chapter 42 of the Internal Revenue Code on the proposed transfer of all assets and liabilities of X to Y as further described below.

X is an organization recognized exempt from federal income tax under section 501(c)(3) of the Code and is classified as a private foundation pursuant to section 509(a). X makes contributions to a variety of public charities such as educational institutions, museums and local charities in both X's and Y's states.

Y was incorporated in September of 1990, and, pursuant to Rev. Rul. 67-390, 1967-2 C.B. 179, as a new legal entity, separately requested exemption from federal income tax under section 501(c)(3) of the Code and has been recognized exempt under that section and classified as a private foundation under section 509(a).

A, who died in 1982, was the creator of X and X's only substantial contributor. X currently has assets in excess of m, the bulk of which was received from A's estate. There are currently twenty (20) charitable remainder unitrusts within the meaning of section 170 of the Code created under A's will, having aggregate current assets in excess of n. All such unitrusts name X as the remainderman of the assets of each such trust. Currently Y has no assets and will not have any assets until the merger transaction which is the subject of this ruling request is completed.

X and Y have entered into a Merger Agreement. After Y receives a favorable determination letter in respect to its exempt status and its foundation classification, X intends to merge into Y pursuant to the Merger Agreement in a statutory merger as authorized by the laws of both X and Y. Y will be the survivor of the merger, and by operation of law, will succeed to all assets and liabilities of X. The principal office and legal domicile will then be that of Y. The officers and directors of Y are identical to the officers and directors of X. After the transfer of all of its assets is completed, X will elect to terminate its status as a private foundation pursuant to section 507(a)(1) of the Code.

A was a resident of Y's state of domicile until his death in 1982. His principal interest in philanthropic work was in one of the state's major cities. He was also principal benefactor of the city's YWCA. He was also personally involved in the Children's Home in another major city, and with approximately 14 other state charities. The present directors of X have continued the philanthropic work of A, although it is not incumbent on them to do so.

Prior to his death, A planned to have his collection of artifacts, trophies and memorabilia from around the world collected during his many safaris and trips, placed in a museum. Subsequent to the death of A, X funded the construction and operation of such a museum in a major city in Y's state of domicile, now known as the A museum. In addition, X has been the principal donor to a park in the city, which consists of the A Museum, the A Arboretum, a children's playground and petting zoo. The majority of X's efforts are centered in the area of this city. Accordingly, the directors of X believe it to be in X's best interest that its principal office be located in that city.

The Boards of Directors of X and Y are identical.

X has not yet notified the Service that it intends to terminate its private foundation status, nor has it ever received a notification that its status as a private foundation had been terminated.

X has not committed willful repeated acts (or failures to act) or a willful and flagrant act (or failure to act) giving rise to liability under Chapter 42 of the Code.

X will not receive any consideration for the transfer of all its assets to Y.

Section 507(a)(1) of the Code provides that the status of an organization as a private foundation shall be terminated if the organization notifies the Secretary or his delegate in the manner prescribed in the Income Tax Regulations of its intent to accomplish such termination and the organization pays the tax imposed by section 507(c) or the tax is abated under section 507(g).

Section 507(b)(2) of the Code provides that in case of a transfer of assets of any private foundation to another private foundation pursuant to any liquidation, merger, redemption, recapitalization, or other adjustment, organization, or reorganization, the transferee foundation shall not be treated as a newly created organization.

Section 507(c) of the Code imposes a tax on each organization described in section 507(a) equal to the lower of the amount which the private foundation substantiates by adequate records or other corroborating evidence as the aggregate tax benefit resulting from the section 501(c)(3) status of such foundation, or the value of the net assets of the foundation.

Section 1.507-1(b)(9) of the Income Tax Regulations provides that a private foundation which transfers all its assets is required to file the annual information return required by section 6033 of the Code, and the foundation managers are required to file the annual report of a private foundation required by section 6056, for the taxable year in which such transfer occurs. However, neither such foundation nor its foundation managers will be required to file such returns for any taxable year in which the last of such transfers occurred, if at no time during the subsequent taxable years in question the foundation has either legal or equitable title to any assets or engages in any activity.

Section 1.507-3(d) of the regulations provides that if a private foundation transfers all or part of its assets to one or more other private foundations pursuant to a transfer described in section 507(b)(2) of the Code, such transferor foundation will not have terminated its private foundation status under section 507(a)(1).

Section 1.507-3(c)(1) of the regulations provides that for purposes of section 507(b)(2) of the Code the terms "other adjustment, organization or reorganization" shall include a significant disposition of assets. Section 1.507-3(c)(2) provides that the term "significant disposition of assets" includes any distribution by a foundation in a taxable year to one or more other private foundations which is 25 percent or more of the fair market value of the net assets of the distributing foundation at the beginning of the taxable year.

Section 1.507-3(a)(1) of the regulations provides that a section 507(b)(2) transfer results in a carryover of certain tax attributes and characteristics of the transferor foundation to the transferee foundation.

Section 1.507-3(a)(2) of the regulations provides that a transferee private foundation succeeds to the part of the transferor's "aggregate tax benefit" that is attributable to the assets transferred, based on the transferor's assets held just before the transfer. The fair market value of assets held and transferred is determined at the time of transfer.

Section 1.507-3(a)(3) of the regulations provides that for purposes of section 507(b)(2) of the Code, in the event of a transfer of assets described in section 507(b)(2), any person who is a "substantial contributor" with respect to the transferor foundation shall be treated as such with respect to the transferee, regardless of whether the person meets the $5,000-two percent limit with respect to the transferee organization at any time.

Section 1.507-3(a)(4) of the regulations provides that if a private foundation incurs liability for one or more of the taxes imposed under Chapter 42 (or any penalty resulting therefrom) prior to, or as a result of, making a transfer of assets described in section 507(b)(2) to one or more private foundations, in any case where transferee liability applies each transferee foundation shall be treated as receiving the transferred assets subject to such liability to the extent that the transferor foundation does not satisfy such liability.

Section 1.507-3(a)(5) of the regulations provides that [except as provided in subparagraph 1.507-3(a)(9)] a private foundation is required to meet the distribution requirements of section 4942 of the Code for any taxable year in which it makes a section 507(b)(2) transfer of all or part of its net assets to another private foundation. Such transfer shall itself be counted toward satisfaction of the requirements to the extent the amount transferred meets the requirements of section 4942(g).

Section 1.507-3(a)(8) of the regulations specifies that the provisions cited therein shall apply, with certain exceptions set forth, to the transferee foundation with respect to the assets transferred to the same extent and in the same manner that they would have to the transferor foundation had the transfer described in section 507(b)(2) not been effected.

Section 1.507-4(b) of the regulations provides that private foundations that make transfers described in section 507(b)(2) of the Code are not subject to the tax imposed under section 507(c) with respect to such transfers unless the provisions of section 507(a) become applicable.

Section 4940 of the Code imposes a tax on the net investment income of a private foundation.

Section 4941(a) of the Code imposes a tax on acts of self- dealing between a disqualified person and a private foundation.

Section 53.4946-1(a)(8) of the Foundation and Similar Excise Taxes Regulations provides that for the purposes of section 4941 of the Code only, the term "disqualified person" does not include any organization described in section 501(c)(3) (other than an organization described in section 509(a)(4).

Section 4944(a) of the Code imposes a tax on a private foundation if it invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes. Section 4944(c) contains an exception for program-related investments which are investments made to accomplish one or more purposes described in section 170(c)(2)(B).

Section 4945(a) of the Code imposes a tax on the taxable expenditures made by a private foundation. Section 4945(d)(4) provides, in part, that the term "taxable expenditure" means any amount paid or incurred by a private foundation as a grant to an organization [other than a public charity described in section 509(a)(1), (2), or (3)], unless the private foundation exercises expenditure responsibility in accordance with section 4945(h). Section 53.4945-5(b)(7) of the regulations provides that for rules relating to the extent to which the expenditure responsibility rules contained in sections 4945(d)(4) and (h) and this section relate to transfers of assets described in section 507(b)(2), see sections 1.507-3(a)(7), 1.507-3(a)(8)(ii)(f) and 1.507-3(a)(9).

Section 4945(h) of the Code provides that expenditure responsibility means the private foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made, to obtain full and complete reports from the grantee on how the funds are spent, and to make full and detailed reports with respect to such expenditures to the Secretary.

Section 53.4945-6(c)(3) of the regulations provides that a transfer of assets of a private foundation under section 507(b)(2) of the Code is not a taxable expenditure if such transfer is to an organization described in section 501(c)(3).

The transfer of assets by X to Y will be a total transfer of X's assets for which X will receive no consideration. Since Y is exempt under section 501(c)(3) of the Code and is classified as a private foundation, the transfer of all of X's assets to Y will be a transfer described in section 507(b)(2). As such, the transfer will not cause a termination of X's private foundation status. In addition, because X has not notified the Service of its intent to accomplish a termination at the time of the transfer and because X has not been notified of any involuntary termination and has not committed any acts which could trigger an involuntary termination, the transfer of X's assets to Y will not cause the imposition of the termination tax under section 507(c). If X later terminates its private foundation status, there will be no liability under section 507(c) because X will have no assets.

Since Y has been recognized exempt under section 501(c)(3) of the Code, the transfer of assets to Y will not be considered a taxable expenditure.

Section 53.4946-1(a)(8) of the regulations indicates that for purposes of section 4941, the term "disqualified person" does not include any organization described in section 501(c)(3) of the Code. Since Y is described in section 501(c)(3), it will not be treated as a disqualified person for purposes of section 4941. Thus, the transfer of assets by X to Y will not constitute an act of self- dealing under section 4941 of the Code. The fact that X's governing body is also Y's governing body does not affect this conclusion.

The making of an investment implies that the investor will receive a return on such investment. The proposed transfer of all assets from X to Y will not be considered an investment because X will receive no consideration for the transfer. Therefore, the transfer will not give rise to the tax imposed by section 4940(a), nor will it be considered a jeopardizing investment under section 4944(c).

Based on the information submitted and the representations made therein, we rule as follows:

(1) That the merger of X into Y , including without limitation, the transfer of assets to and the assumption of liabilities by Y, will not adversely affect the status of X or Y as organizations exempt from federal income tax under section 501(c)(3) of the Code.

(2) The transfer of assets pursuant to the merger will not cause a termination of X's status as a private foundation and will be a transfer described in section 507(b)(2) of the Code.

(3) After the merger, Y will be treated as possessing all the attributes and characteristics of X. Specifically;

a. Y will be treated as if it were X for purposes of Chapter 42 and sections 507 through 509 of the Code.

b. Y will succeed to the aggregate tax benefit of X under section 507(d) of the Code.

c. Any person who is a "substantial contributor" with respect to the X will be treated as such with respect to Y.

d. Y will take the assets of X subject to any and all liabilities of X imposed by chapter 42 of the Code.

e. Y's holding period under section 4943 of the Code with respect to assets received pursuant to the merger will include the period during which such assets were held by X.

f. Y will report the investment income of X for the year of the merger and pay any excise tax imposed under section 4940 of the Code.

g. Y will succeed to X's distribution requirements under section 4942 of the Code for the taxable year, may satisfy such requirements, and may also reduce the amount of required distributions by any excess qualifying distributions of X as such distributions are defined in section 4942(i) of the Code.

h. X's transfer of all of its to Y pursuant to the merger can be counted toward satisfaction of X's charitable distribution requirements under section 4942 of the Code, if, and to the extent, that section 4942(g) is met by Y.

i. Y will be permitted to take advantage of any special rules or savings provisions with respect to chapter 42 of the Code to the same extent that X could have had it continued in existence.

4. The transfer of assets by X to Y pursuant to the proposed merger will not constitute an act of self-dealing under section 4941 of the Code, nor will it constitute a jeopardy investment under section 4944 of the Code.

5. The transfer of assets by X pursuant to the proposed merger will not constitute a taxable expenditure under section 4945 of the Code, nor will Y be required to exercise expenditure responsibility with respect to such transfers under section 4945(h) of the Code.

6. If, after the transfer of all its assets and liabilities pursuant to the merger, X notifies the Service of its intent to terminate private foundation status, and should the value of X's net assets equal zero at such time as X gives the notice and terminates its private foundation status, then X will not be liable for any termination tax under section 507(c).

We are providing your key District Director with a copy of this ruling. You should keep a copy with your permanent records.

This ruling is directed only to the organization that requested it. Section 6110(j)(3) of the Code provides that it may not be used or cited as precedent.

                                   Sincerely yours,