Rev. Rul. 74-132

Advice has been requested whether the otherwise qualified fund described below is maintained by a public charity so that it qualifies as a pooled income fund under the provisions of section 642(c)(5) of the Internal Revenue Code of 1954.

The functions of an exempt foundation are to foster and support the activities and purposes of an exempt hospital corporation and to advance the hospital's objectives, including, subject to approval by the hospital's board of directors, the sponsorship of specific projects and programs to improve the hospital's services to its patients and to support and promote the hospital's education, training and research programs. Except for reasonable expenses incurred in carrying out the purposes of the foundation, all payments must be made exclusively to the hospital. Members of the foundation's board of directors are appointed by the hospital's board of directors, that may, in its discretion, remove any director or officer of the foundation from office. Both the hospital and the foundation qualify as organizations described in section 501(c)(3) of the Code that are exempt from Federal income tax. The hospital is excluded from the definition of a "private foundation" under the provisions of section 509(a)(1) of the Code, and the foundation is excluded from such definition under the provisions of section 509(a)(3) of the Code.

In 1971, the foundation became the trustee of a fund intended to qualify as a "pooled income fund" under section 642(c)(5) of the Code. The provisions of the fund's declaration of trust and instrument of transfer are in accordance with the requirements of sections 508(e) and 642(c)(5) of the Code and the Income Tax Regulations thereunder, including the requirement that each donor transferring property to the fund must contribute an irrevocable remainder interest in such property to or for the use of the hospital. In the event that the foundation shall become an organization other than one described in section 509(a)(3) or the corresponding provisions of any subsequent Federal tax law, or shall no longer be controlled by the hospital, or shall resign as trustee, the hospital shall become the trustee of the fund.

Section 642(c)(5) of the Code, in defining a pooled income fund, provides, in pertinent part, that a pooled income fund is a trust to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A), other than certain private foundations referred to in clauses (vii) or (viii) of that section.

Section 1.642(c)-5(b)(5) of the regulations provides, in part, that a pooled income fund must be maintained by the same public charity to or for the use of which the irrevocable remainder interest is contributed. The requirement of maintenance will be satisfied where the public charity exercises control directly or indirectly over the fund. For example, this requirement of control shall ordinarily be met when the public charity has the power to remove the trustee or trustees of the fund and designate a new trustee or trustees.

The power of the hospital's board of directors to remove the members of the foundation's board of directors and appoint new directors is substantially equivalent to the power to remove the foundation as trustee of the fund and designate a new trustee.

Thus, in the instant case, the hospital exercises control, directly or indirectly, over the fund and therefore, the requirement of section 642(c)(5) of the Code that the fund be maintained by a public charity is met.

Accordingly, it is held that the fund qualifies as a pooled income fund defined in section 642(c)(5) of the Code, and the regulations thereunder, since it meets all of the requirements of a pooled income fund, including the requirement that it be maintained by a public charity.

It is further held that contributions or transfers to the fund will be deductible under the provisions of sections 170, 545, 556, 2055, 2106, and 2522 of the Code, subject to the restrictions and limitations applicable to those sections.