PROPOSED SALE OF INTEREST IN ADMINISTRATION TRUST NOT SELF-DEALING.

UIL 4941.04-00

We have considered your ruling request dated January 31, 2006, submitted by your legal representatives, requesting rulings regarding the proposed sale of certain property by F to C and D.

As a result of the First Amendment, B resigned as Trustee of the A and C became the successor Trustee. B died on October 5, 2002. As a result of B's death, A became irrevocable and hence, became an Administration Trust.

You state that C, as Trustee of the A and as required by applicable Treasury Regulations, obtained a taxpayer identification number for the Administration Trust.

The purpose and function of the Administration Trust is to do all things necessary to prepare the Administration Trust for distribution to its beneficiaries. Such activities include marshalling all assets, paying all creditors, filing all tax returns, liquidating assets as necessary or appropriate, and making distribution of remaining assets to the beneficiaries of the Administration Trust.

You state that after obtaining a taxpayer identification number for the Administration Trust, C then commenced performing her duties as Trustee and prepare the Administration Trust for eventual distribution and termination. In this regard, you state that C filed an estate tax return, Form 706, which showed no tax due. You state that C received an Estate Tax Closing Document dated June 30, 2004. The A provided for certain pecuniary bequests from the Administration Trust to certain noncharitable beneficiaries. C has distributed all such bequests.

The A provides that the entire residue of the Administration Trust is to be distributed to the E, a Charitable Trust (the "Charitable Trust"). C, as Trustee of the Charitable Trust, filed Form 1023, Application for Recognition of Exemption From Federal Income Tax under section 501(c)(3) of the Internal Revenue Code ("the Code"). You state that you received a favorable determination letter dated March 15, 2005, recognizing the Charitable Trust as exempt under section 501(c)(3) of the Internal Revenue Code and classifying the Charitable Trust as a private foundation under section 509(a) of the Code. The Charitable Trust also received a letter from the I Franchise Tax Board acknowledging that the Charitable Trust is exempt from I franchise and income tax under I Revenue and Taxation Code section 23701d. In addition, the Charitable Trust has registered with the Registry of Charitable Trusts of the Office of the Attorney General of the State of I . The purpose of the Charitable Trust is to make grants to public charities described in sections 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.

You state that the Trustee has made a preliminary and partial distribution of residue of the Administration Trust to the Charitable Trust. The Administration Trust is not in a condition to be fully distributed because of two pieces of ongoing litigation which are not related to this ruling request. The Trustee believes that the litigation will not be resolved in the near future, and the Administration Trust will necessarily continue until all such litigation has been resolved.

The Administration Trustee holds a 33.40% interest in the profits and capital of G, a H limited liability company. G has elected to be treated as a partnership for tax purposes. C and her husband D, individually, own the remaining interests in the profits and capital of G. (The interest of the Administration Trust in G is hereafter referred to as the "Subject Interest").

G owns various interests in four other partnerships (including limited liability companies taxed as partnerships) ( each a "Subsidiary Entity" and collectively the "Subsidiary Entities"). Each Subsidiary Entity owns real property in I. Three of the Subsidiary Entities own multi-tenant apartment projects and one Subsidiary Entity owns an industrial project rented to four tenants. Each project is subject to a mortgage.

Paragraph B. (1) of Article V of the Second Restatement provides that the Trustee has the power to "sell (for cash or on credit), exchange, purchase and retain assets . . . ." The Trustee has the power to sell the Subject Interest without prior consent or approval from any beneficiary or any other person; subject, however, to the limitations of the transfer of the Subject Interest set forth in the Operating Agreement for G (the "Operating Agreement").

The Trustee proposes to sell the Subject Interest to herself, C, individually, and her husband, D, individually. The Subject Interest is not a registered security and cannot be advertised for sale. The Trustee will be required to liquidate the Subject Interest in due course in any event. The Trustee would be required to expend time, effort, and expense in locating a qualified investor willing to invest a substantial sum to purchase an illiquid interest in an entity in which the investor would have no control. C and D are the only other members of G, and therefore, the most likely, logical, and available prospective purchasers.

The limitations on transfer of an interest in G make it unlikely that the Trustee could find a buyer to whom to sell the Subject Interest. Such a buyer could not be assured that he or she would become a Substitute Member and therefore be entitled to all the privileges of a Member. The limitations on transfer are set forth in Articles VI of the Operating Agreement.

Section 3.1 of Article III of the Operating Agreement provides in part that "Additional Members may be admitted with the approval of all Members." [Emphasis added.] Article VI of the Operating Agreement governs the transfer of interests and reads in part as follows:

C, the Trustee, individually, is a member of G. The Trustee may be obligated by some fiduciary duty to consent to the sale by the Administration Trust and to the admission of the buyer of the Subject Interest as a substitute member of G. Even so, D is not subject to any such fiduciary duty and may, in his "sole discretion," decline to admit the buyer as a substitute member and thereby limit the buyer's rights to those of an assignee.

Article VII of the Operating Agreement provides that upon the death a member, the entity is dissolved unless the remaining members consent to the continuation of the entity. If the remaining members do consent to such continuation, the entity or the remaining members have a right to purchase the interest of the decease member. Section 7.2 of the Operating Agreement provides that the "purchase price for the Former Member's Interest shall be the fair market value of the Former Member's Interest as determined by an independent appraiser jointly selected by the Former Member and by Remaining Members holding a majority of the remaining Membership Interests." C, and D, individually, being all the remaining members of G, have not yet exercised this right to purchase and may still be entitled to exercise such right. However, the exercise of the right would be subject to a determination of the "fair market value" of the Subject Interest, which would be determined through an appraisal process which is the same process which the Trustee used and which would presumably determine the very price at which the Trustee proposes to sell the Subject Interest to herself, individually, and to D.

You represent that as purchasers, C and D will pay the purchase price in cash.

The Trustee has caused the value of the Subject Interest to be determined by professional appraisers and valuation experts. The report of J was lodged with the court under notice of lodging dated May 25, 2006. The report of J shows that the value of the Subject Interest, as of May 11, 2006, was xx. You state that the report of J was based in part on appraisals of the four parcels of real property held in the four Subsidiary Entities. The real property appraisals were prepared by K, licensed real estate appraisers who are unrelated to the Trustee and who were recommended to the Trustee by her attorneys. The appraisals show valuation dates of December 8, 2005, December 13, 2005, and December 14, 2005, those dates being the dates the appraisers physically inspected the subject property. The Trustee received the last completed appraisal report on January 24, 2006.

The report of J shows that J first determined the fair market value of all of the assets of each Subsidiary Entity (other than the real property already appraised by K ). J then determined the net fair market value of the assets of each of the Subsidiary Entities, which constituted the fair market value of each such entity. J then determined the fair market value of the interests of G in the Subsidiary Entities and brought the resulting values up to G. J then used those values to determine the net fair market value of G and then determined the fair market value of the Subject Interest. You state that in the application of this process, J applied proper discounts or premiums as appropriate to determine the fair market value of the interests of G in the Subsidiary Entities and the fair market value of the Subject Interests.

You state that the Trustee believes the value so determined for the Subject Interest is the fair market value of the Subject Interest within the meaning of Treasury Regulations section 20.2031-1(b), which is "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts."

The Trustee proposes that the sale price shall be the fair market value, determined as described in the report of J, plus xx. Accordingly, the sale price will be an amount in excess of the fair market Value of the Subject Interest. The Cash which the Administration Trust will receive as a result of the sale to C and D will be much more liquid than the Subject Interest which the Administration Trust will give up in the transaction.

You represent that proceedings concerning the administration of the Administration Trust fall under the jurisdiction of the M Probate Court (the Probate Court). Contemporaneously with the filing of this ruling request, the Trustee filed a petition (the Petition) with the Probate Court requesting approval of the sale of the Subject Interest to C and D. Notice of the hearing of the Petition and a copy of the Petition has been served on the Attorney General for the State of I.

Recently, you have provided a copy of a letter dated May 23, 2006, from the Office of the Attorney General for the State of I expressing no objection to the proposed sale and consenting to the petition filed. In addition, you have recently provided a copy of an Order dated June 29, 2006, from the Probate Court approving the sale of the Subject Interest to C and D expressly conditioned on the issuance of a favorable ruling from the Internal Revenue Service.

You state that because of the litigation mentioned above, the administration of the Administration Trust is not complete and has not been unduly prolonged. You further state that the Administration Trust has not been terminated within the meaning of section 1.641(b)- 3(b) of the Regulations and pursuant to sections 53.4947-1(b)(2)(i) and 53.4947-1(b)(2)(v) of the Regulations, the Administration Trust is not yet subject to section 4947 of the Code.

Based on the foregoing and other information submitted you have requested the following rulings:

Section 4941(d)(1) of the Code provides, in part, that the term "self-dealing" means any direct or indirect -- (A) sale or exchange, or leasing, of property between a private foundation and a disqualified person; and (e) transfers to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation.

Section 4946(a)(1) of the Code provides, in part, that the term "disqualified person" means, with respect to a private foundation, a person who is: (A) a substantial contributor to the foundation, (B) a foundation manager, (D) a member of the family of any individual described in subparagraph (A) or (B), or (G) a trust or estate in which persons described in subparagraph (A), (B), or (D) holds more than 35% of the beneficial interest.

Section 4946(b) of the Code provides that a "foundation manager" is an officer, director, or trustee of a foundation.

Section 4946(d) of the Code provides that for purposes of section 4946(a)(1), the family of any individual shall include only his spouse, ancestors, children, grandchildren, great grandchildren, and the spouses of children, grandchildren, and great grandchildren.

Section 507(d)(2) of the Code provides that the term "substantial contributor" includes the creator of the trust.

Section 53.4941(d)-1(b)(3) of the Regulations provides that the term indirect self-dealing shall not include a transaction with respect to a private foundation's interest or expectancy in property held by a revocable trust which has become irrevocable on the grantor's death, if the following conditions are met:

In Rockefeller v. U.S., 718 F.2d 290 (8^th Cir. 1983), cert. den., 104 S.Ct. 2180 (1984), the Court of Appeals affirmed a lower court decision holding that the purchase of stock from an estate by a son of the decedent constituted an indirect act of self-dealing between a disqualified person and a private foundation that was established by a decedent's bequest.

The prohibition against indirect self-dealing applies here to the proposed sale of the Subject Interest by the Administration Trust to C, individually, and to D, individually. See Rockefeller v. U.S., supra. However, the proposed sale of the Subject Interest does not constitute a prohibited act of self-dealing under section 4941 of the Code because it meets all of the requirements of section 53.4941(d)-1(b)(3) of the Regulations, as follows:

Therefore, neither the Administration Trust nor C, as Trustee of the Administration Trust, will be subject to excise taxes under section 4941 of the Code with respect to the proposed sale of the Subject Interest.

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

If you have any questions about this ruling, please contact the person whose name and telephone number are shown in the heading of this letter.