Redemption of Family Corporations' Interests Not Self-Dealing

Contact Person: * * *

This responds to your request for rulings under § 4941 of the Internal Revenue Code and related Foundation and Similar Excise Taxes Regulations.

M is a non-profit corporation exempt from federal income tax under § 501(a) as an organization described in § 501(c)(3), and is classified as a private foundation within the meaning of § 509(a). M provides funding to other non-profit organizations described in § 501(c)(3).

B is a son of one of M's founders. C is the wife of B. D is the widow of B's deceased brother. E is the widower of a daughter of one of M's founders. F is the wife of E.

Substantial contributors to M include descendants of M's founders, their spouses, and trusts of which one or more of them were grantors or beneficiaries. Accordingly, B, C, D, E, and F, the living descendants of M's founders and their spouses (each a "Family Member" and, collectively, the "Family" or the "Family Members"), trusts in which such individuals hold more than 35 percent of the beneficial interests (collectively, the "Family Trusts"), corporations in which such individuals own more than 35 percent of the total combined voting power (each a "Family Corporation" and, collectively, the "Family Corporations"), and partnerships and limited liability companies in which such individuals own more than 35 percent of the profits interest (each a "Family Partnership" and, collectively, the "Family Partnerships"), are all disqualified persons (within the meaning of § 4946(a)) with respect to M.

The Family Corporations and Family Partnerships are each sometimes called a "Family Company" and are, collectively, the "Family Companies." The Family Companies, Family Members, and Family Trusts are each sometimes called a "Family Party" and are, collectively, the "Family Parties."

D's late spouse created a trust under his will for D's benefit which qualified for the marital deduction for estate tax purposes (the "D Trust"). D has a general power of appointment over the D Trust. Under D's current estate plan, she exercises her general power of appointment over the D Trust in favor of her estate. After the payment of certain specific bequests and all debts, expenses, and taxes, the residue of D's estate will pass to M.

E has created a trust (the "E Trust"), which will receive assets on the death of E, regardless of whether his spouse, F, survives him. If F survives E, the E Trust will qualify as a QTIP Trust if a QTIP election is made with respect thereto. At the death of the survivor of E and F, substantially all of the remaining balance of the E Trust will pass to M.

Hereinafter, the B/C Trust and, if F survives E, the E Trust are referred to, collectively, as the "QTIP Trusts" and, individually, as a "QTIP Trust."

The period during which each option on a Demand Loan may be exercised ends 60 days after the Cash Fund has been notified by the Estate representative of the outstanding balance thereof (including principal and accrued unpaid interest) and of the interest rate to be used in determining the per diem interest from the date such notice is given.

Each option on a Restricted Security, which, because of restrictions imposed by the Federal securities law, may be sold only during certain limited time periods (each a "Window Period"), is exercisable within 120 days after the decedent's death, and the sale must take place on the first business day of the first Window Period that is at least 10 days after the date the option is exercised.

The period during which each option on a Family Asset may be exercised ends 60 days after the option holder has been notified of the filing of the Federal estate tax return for the decedent's estate.

When an option is exercised, the Estate representative is required to sell the Demand Loan, Restricted Security, or Family Asset to which the option applies (the "Optioned" Demand Loan, Restricted Security, or Family Asset) in accordance with the terms of the applicable option, and the sale must be closed within 30 days after the exercise. It is expected that each option on a Demand Loan, Restricted Security, or Family Asset will be exercised in a timely manner; thus, the exercise of these options is part of the proposed transaction.

The purchase price for each Optioned Restricted Security is the fair market value of the Restricted Security on the day the sale is closed determined as provided in § 20.2031-2 and without any discount due to the restrictions that limit sales to Window Periods.

The purchase price for each Optioned Family Asset (whether it is sold or redeemed) is equal to the fair market value of the Family Asset as finally determined for Federal estate tax purposes. Initially the purchase price is based on the value of the Optioned Family Asset as reported on the estate tax return, with a later adjustment, upwards or downwards, if the value as so reported differs from the value of that Family Asset as finally determined. If the Optioned Family Asset is an interest in a pass-through entity, the purchase price is adjusted to reflect any cash transactions (such as capital contributions made by the decedent's estate, distributions made to the decedent's estate, and income tax payments made by the decedent's estate with respect to its distributive share of income accrued after the decedent's death) that occur between the date of the decedent's death and the date of closing so that, as nearly as possible, the parties will be in the same economic position as if the sale had occurred on the date of the decedent's death.

Upon the exercise of an option to purchase a Family Interest or a Non-Family Interest, the transaction is effective as of the date of the decedent's death, and the purchase price is payable at the election of the purchaser either in cash or in equal, annual installments under the purchaser's negotiable promissory note, with the first payment due on the date of the closing and the remaining payments due annually for 9 or 29 years, respectively. A note issued pursuant to a redemption of a Family Interest or a Non-Family Interest is referred to as a "Company Note." Any other note issued with respect to a Family Interest or Non-Family Interest is referred to as a "Family Note."

If the fair market value of any Optioned Family Asset as reported on the decedent's Federal estate tax return differs from the fair market value thereof as finally determined for Federal estate tax purposes, then the purchase price for that Optioned Family Asset, and the remaining annual payments due under any Note with respect to the purchase, are adjusted accordingly. In addition, in the case of an increase in the purchase price, the purchaser will make an immediate cash payment to the seller equal to the excess of the cash that the purchaser would have paid through the date of payment if the initial purchase price would have been equal to the increased purchase price, over the cash the purchaser has actually paid.

Each Note may be prepaid in whole or in part at any time, without any premium or penalty. The obligor under each Family Note is required to pay to the holder of that Note, as a mandatory prepayment of the principal due on that Note, (A) fifty percent of any ordinary cash distribution received with respect to the Family Interest or Non-Family Interest purchased, (B) one hundred percent of any extraordinary cash distribution received with respect to that Interest, and (C) one hundred percent of the cash received from any sale or exchange of that Interest.

Each Family Note is secured by a pledge of the Family Interest or Non-Family Interest that is being purchased and contains customary commercial terms to protect the Note holder if the Note goes into default.

Each Company Note is an unsecured obligation of the purchasing Company.

I.R.C. § 501(c)(3) describes organizations organized and operated exclusively for charitable and other specified exempt purposes.

I.R.C. § 509(a) provides that, unless specifically excepted, any organization described in § 501(c)(3) is a private foundation.

I.R.C. § 4941(a) imposes an excise tax on each act of self-dealing between a disqualified person and a private foundation. The initial tax is equal to ten percent of the amount involved in the act of self-dealing for each year (or part thereof) in the taxable period.

I.R.C. § 4941(b) imposes an additional tax equal to 200 percent of the amount involved in the act of self-dealing if the act is not corrected within the taxable period.

I.R.C. § 4941(d)(1)(A) provides that the term "self-dealing" means any direct or indirect sale or exchange, or leasing, of property between a private foundation and a disqualified person.

I.R.C. § 4941(d)(1)(B) provides that the term "self-dealing" means any direct or indirect lending of money or other extension of credit between a private foundation and a disqualified person.

I.R.C. § 4941(d)(2)(F) provides that, for purposes of paragraph (1), any transaction between a private foundation and a corporation which is a disqualified person (as defined in § 4946(a)), pursuant to any liquidation, merger, redemption, recapitalization, or other corporate adjustment, organization, or reorganization, shall not be an act of self-dealing if all of the securities of the same class as that held by the foundation are subject to the same terms and such terms provide for receipt by the foundation of no less than fair market value.

I.R.C. § 4946(a)(1) provides that the term "disqualified person" means, with respect to a private foundation, a person who is --

I.R.C. § 4946(b)(1) provides that the term "foundation manager" means, with respect to any private foundation, an officer, director, or trustee of a foundation (or an individual having powers or responsibilities similar to those of officers, directors, or trustees of the foundation).

I.R.C. § 4946(d) provides that, for purposes of subsection (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.

I.R.C. § 4947(a)(1) provides that, for purposes of Chapter 42, a trust which is not exempt from tax under § 501(a), all of the unexpired interests in which are devoted to one or more of the purposes described in § 170(c)(2)(B), and for which a deduction was allowed under § 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, shall be treated as an organization described in § 501(c)(3).

I.R.C. § 4947(a)(2) provides, in part, that, in the case of a trust which is not exempt from tax under § 501(a), not all of the unexpired interests in which are devoted to one or more of the purposes described in § 170(c)(2)(B), and which has amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522, certain provisions of the Code, including § 4941, shall apply as if such trust were a private foundation. This paragraph shall not apply with respect to --

Treas. Reg. § 53.4941(d)-1(b)(3) provides that the term "indirect self-dealing" shall not include a transaction with respect to a private foundation's interest or expectancy in property (whether or not encumbered) held by an estate (or revocable trust, including a trust which has become irrevocable on a grantor's death), regardless of when title to the property vests under local law, if --

Treas. Reg. § 53.4941(d)-1(b)(8) provides examples to illustrate the provisions of this paragraph (b). In Example (4), A, a substantial contributor to P, a private foundation, bequeathed one-half of his estate to his spouse and one-half of his estate to P. Included in A's estate is one-third interest in AB, a partnership. The other two-thirds interest in AB is owned by B, a disqualified person with respect to P. The one-third interest in AB was subject to an option agreement when it was acquired by the estate. The executor of A's estate sells the one-third interest in AB to B pursuant to such option agreement at the price fixed in such option agreement in a sale which meets the requirements of § 53.4941(d)-1(b)(3). Under these circumstances, the sale does not constitute an indirect act of self-dealing between B and P.

Treas. Reg. § 53.4941(d)-2(c)(1) provides that, except in the case of the receipt and holding of a note pursuant to a transaction described in § 53.4941(d)-1(b)(3), an act of self-dealing occurs where a note, the obligor of which is a disqualified person, is transferred by a third party to a private foundation which becomes the creditor under the note.

Treas. Reg. § 53.4941(d)-3(d)(1) provides that, for purposes of § 4941(d)(2)(F), any transaction between a private foundation and a corporation which is a disqualified person will not be an act of self-dealing if such transaction is engaged in pursuant to a liquidation, merger, redemption, recapitalization, or other corporate adjustment, organization, or reorganization, so long as all the securities of the same class as that held (prior to such transaction) by the foundation are subject to the same terms and such terms provide for receipt by the foundation of no less than fair market value. For purposes of this paragraph, all of the securities are not subject to the same terms unless, pursuant to such transaction, the corporation makes a bona fide offer on a uniform basis to the foundation and every other person who holds such securities.

Treas. Reg. § 53.4941(d)-3(d)(2) provides examples to illustrate the provisions of the previous paragraph. In Example (2), private foundation Y, which is on a calendar year basis, acquires 60 percent of the class A preferred stock of corporation N by will on January 10, 1970. N, which is also on a calendar year basis, is a disqualified person with respect to Y. In 1971, N offers to redeem all of the class A preferred stock for a consideration equal to 100 percent of the face amount of such stock by the issuance of debentures. The offer expires January 2, 1972. Both Y and all other holders of the class A preferred stock accept the offer and enter into the transaction on January 2, 1972, at which time it is determined that the fair market value of the debentures is no less than the fair market value of the preferred stock. The transaction on January 2, 1972, shall not be treated as an act of self-dealing for 1972. However, because under § 53.4941(e)-1(e)(1)(i) an act of self-dealing occurs on the first day of each taxable year or portion of a taxable year that an extension of credit from a foundation to a disqualified person goes uncorrected, if such debentures are held by Y after December 31, 1972, except as provided in § 53.4941(d)-4(c)(4), such extension of credit shall not be excepted from the definition of an act of self-dealing by reason of the January 2, 1972, transaction.

Treas. Reg. § 53.4941(e)-1(e)(1)(i) provides that if a transaction between a private foundation and a disqualified person is determined to be self-dealing (as defined in § 4941(d)), for purposes of § 4941 there is generally one act of self-dealing. If, however, such transaction relates to the leasing of property, the lending of money or other extension of credit, other use of money or property, or payment of compensation, the transaction will generally be treated (for purposes of § 4941 but not § 507 or § 6684) as giving rise to an act of self-dealing on the day the transaction occurs plus an act of self-dealing of the first day of each taxable year or portion of a taxable year which is within the taxable period and which begins after the taxable year in which the transaction occurs.

Treas. Reg. § 53.4941(e)-1(f) provides that, for purposes of §§ 53.4941(a)-1 through 53.4941(f)-1, fair market value shall be determined pursuant to the provisions of § 53.4942(a)-2(c)(4).

Treas. Reg. § 53.4947-1(a) provides that the basic purpose of § 4947 is to prevent trusts which are not exempt from tax under § 501(a), all or part of the unexpired interests in which are devoted to one or more of the purposes described in § 170(c)(2)(B), and which have amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2) or 2522, from being used to avoid the requirements and restrictions applicable to private foundations. For purposes of this section, a trust shall be presumed (in the absence of proof to the contrary) to have amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 if a deduction would have been allowable under one of these sections.

Treas. Reg. § 53.4947-1(b)(1)(i) provides that, for purposes of this section and § 53.4947-2, a "charitable trust," within the meaning of § 4947(a)(1), is a trust which is not exempt from taxation under § 501(a), all of the unexpired interests in which are devoted to one or more of the purposes described in § 170(c)(2)(B), and for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2) or 2522. A charitable trust (as defined in this paragraph) shall be treated as an organization described in § 501(c)(3), and, if it is determined under § 509 that the trust is a private foundation, then Chapter 42, including § 4941, shall apply to the trust.

Treas. Reg. § 53.4947-1(b)(2)(ii)(A) provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust for charitable beneficiaries, or free of trust to such beneficiaries, is considered terminated for Federal income tax purposes under § 1.641(b)-3(a), then the estate will be treated as a charitable trust under § 4947(a)(1) between the date on which the estate is considered terminated under § 1.641(b)-3(a) and the date final distribution of all of the net assets is made to or for the benefit of the charitable beneficiaries.

Treas. Reg. § 53.4947-1(b)(2)(iv) provides, in part, that, for purposes of this paragraph, the term "reasonable period of settlement" means that period reasonably required (or, if shorter, actually required) by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust. These duties include, for example, the collection of assets, the payment of debts, taxes, and distributions, and the determination of the rights of the subsequent beneficiaries.

Treas. Reg. § 53.4947-1(b)(2)(v) provides that a revocable trust that becomes irrevocable upon the death of the decedent-grantor, or a trust created by will, from which the trustee is required to distribute all of the net assets in trust for, or free of trust to, charitable beneficiaries is not considered a charitable trust under § 4947(a)(1) for a reasonable period of settlement (within the meaning of paragraph (b)(2)(iv) of this section) after becoming irrevocable. After that period, the trust is considered a charitable trust under § 4947(a)(1).

Treas. Reg. § 53.4947-1(b)(2)(vi) provides that a revocable trust that becomes irrevocable upon the death of the decedent-grantor in which all of the unexpired interests are charitable and under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable solely for charitable beneficiaries is not considered a trust under § 4947(a)(1) for a reasonable period of settlement (within the meaning of paragraph (b)(2)(iv) of this section) after becoming irrevocable except that § 4941 may apply if the requirements of § 53.4941(d)-1(b)(3) are not met. After that period, the trust is considered a charitable trust under § 4947(a)(1).

Treas. Reg. § 53.4947-1(c)(1)(i) provides that, for purposes of this section and § 53.4947-2, a "split-interest trust," within the meaning of § 4947(a)(2), is a trust which is not exempt from taxation under § 501(a), not all of the unexpired interests in which are devoted to one or more of the purposes described in § 170(c)(2)(B), and which has amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522.

Treas. Reg. § 53.4947-1(c)(1)(ii) provides that a split-interest trust is, with certain exceptions, subject to the provisions of § 4941 in the same manner as if such trust were a private foundation.

Treas. Reg. § 53.4947-1(c)(6)(ii) provides that when an estate from which the executor or administrator is required to distribute all of the net assets in trust or free of trust to both charitable and non-charitable beneficiaries is considered terminated for Federal income tax purposes under § 1.641(b)-3(a), then the estate will be treated as a split-interest trust under § 4947(a)(2) (or a charitable trust under § 4947(a)(1), if applicable) between the date on which the estate is considered terminated under § 1.641(b)-3(a) and the date on which final distribution of the net assets to the last remaining charitable beneficiary is made.

Treas. Reg. § 53.4947-1(c)(6)(iii) provides that a revocable trust that becomes irrevocable upon the death of the decedent-grantor under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable for both charitable and non-charitable beneficiaries is not considered a split-interest trust under § 4947(a)(2) for a reasonable period of settlement after becoming irrevocable, except that § 4941 may apply if the requirements of § 53.4941(d)-1(b)(3) are not met. After that period, the trust is considered a split-interest trust under § 4947(a)(2). For the purposes of this (iii), the term "reasonable period of settlement" means that period reasonably required (or, if shorter, actually required) by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust. These duties include, for example, the collection of assets, the payment of debts, taxes, and distributions, and the determination of rights of the subsequent beneficiaries.

Section 4941(a) imposes an excise tax on each act of self-dealing between a disqualified person and a private foundation. Section 4941(d)(1)(A) and (B) provide that self-dealing includes a direct or indirect sale or exchange, or leasing, of property, or lending of money or other extension of credit, between a private foundation and a disqualified person. While neither the Code nor the regulations defines the term "indirect self-dealing," § 53.4941(d)-1(b) describes certain transactions that are specifically excluded from indirect self-dealing.

Ruling (1)

I.R.C. § 4941(d)(2)(F) and Treas. Reg. § 53.4941(d)-3(d)(1) provide that a stock redemption between a private foundation and a corporation is not an act of self-dealing so long as the corporation makes a bona fide offer on a uniform basis to redeem the stock held by the foundation and the stock of the same class held by every other stockholder, and the foundation receives no less than the fair market value of its stock.

Under the provisions of § 53.4941(d)-1(b)(7), a disqualified person may do whatever a private foundation could do by reason of § 4941(d)(2)(F) without being in violation of indirect self-dealing under § 4941(d)(1).

The redemption by any Family Corporation of the interest in that Corporation held by a decedent's Estate, the D Trust, the B/C Trust, or the E Trust will not constitute an act of indirect self-dealing and need not comply with § 53.4941(d)-1(b)(3) so long as the Corporation offers to redeem all interests held by every other person that are of the same class as that held (prior to the redemption) by the Estate or Trust on the same terms, the Estate or Trust receives the Redemption Price for its interest, and there is no extension of credit with respect to the redeemed interest between the Estate or such Trust and such Family Corporation on January 1 of the year following the year in which the redemption occurred.

Ruling (2)

Treas. Reg. § 53.4941(d)-1(b) describes certain transactions that will not be treated as indirect self-dealing, among which are certain transactions during the administration of an estate or trust. Specifically, § 53.4941(d)-1(b)(3), commonly referred to as the "estate administration exception," provides that indirect self-dealing does not include a transaction with respect to a private foundation's interest or expectancy in property held by an estate or a revocable trust that has become irrevocable at the grantor's death if the following five conditions are satisfied: (i) the administrator or executor of the estate or the trustee of the trust either possesses a power of sale with respect to the property, has the power to allocate the property to another beneficiary, or is required to sell the property under the terms of any option subject to which the property was acquired by the estate (or trust); (ii) the transaction is approved by the probate court having jurisdiction over the estate (or by another court having jurisdiction over the estate (or trust), or over the private foundation); (iii) the transaction occurs before the estate is considered terminated for Federal income tax purposes (or before the trust is considered subject to § 4947); (iv) the estate (or trust) receives an amount which equals or exceeds the fair market value of the foundation's interest or expectancy in such property at the time of the transaction, taking into account the terms of any option subject to which the property was acquired by the estate (or trust); and (v) the transaction results in the foundation either receiving an interest or expectancy at least as liquid as the one it gave up or an asset related to the active carrying out of its exempt purposes, or is required under the terms of any option which is binding on the estate (or trust).

This estate administration exception applies to transactions with respect to a private foundation's "interest or expectancy" in property held by an estate (or a revocable trust that has become irrevocable at the grantor's death). The reference in § 53.4941(d)-1(b)(3) to a "revocable trust, including a trust which has become irrevocable on a grantor's death," is intended to include certain other trusts where the assets of the trust are included in the decedent's gross estate. On D's death, the D Trust will be included in D's gross estate. The B/C Trust will be included in the gross estate of the survivor of B and C. Likewise, the E Trust will be included in the gross estate of the survivor of E and F.

The regulations do not address the issue of when a private foundation has an "interest or expectancy" in property held by an estate or a trust. Therefore, solely for purposes of this ruling request, and based on the understanding that the determination of when M will have an "interest or expectancy" in property held by the Estate of any Interested Party or by the D Trust, the B/C Trust, or the E Trust is to be made under the law of the state of M's incorporation, each of B, C, D, and E has represented that, under his or her current estate plan, M will have an "interest or expectancy" in property held by his or her Estate, D has represented that M will have an "interest or expectancy" in property held in the D Trust after her death, B and C have represented that M will have an "interest or expectancy" in the B/C Trust during the lifetime of the survivor of B and C and after his or her death, and E has represented that M will have an "interest or expectancy" in the E Trust beginning with E's death.

In order for a transaction between the D Trust, the B/C Trust, or the E Trust and a disqualified person with respect to M to meet the estate administration exception under § 53.4941(d)-1(b)(3), the transaction must occur before the trust is considered subject to § 4947. Section 4947 apples to only two types of trusts: charitable trusts described in § 53.4947-1(b)(1)(i) and split-interest trusts described in § 53.4947-1(c)(1)(i). A charitable trust is a trust for which, among other requirements, a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522. A split-interest trust is a trust which, among other requirements, has amounts in trust for which a deduction was allowed under § 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522. The element common to both charitable trusts and split-interest trusts is that it has amounts in trust for which a charitable deduction has been allowed, whether it be for income, gift, or estate tax purposes. Section 4947 does not apply to a trust for which no charitable deduction has been allowed.

D has represented that no charitable deduction was claimed by, or allowed to, her late husband's estate with respect to property that passed to the D Trust. Therefore, the D Trust is not subject to § 4947 during D's lifetime. Likewise, each of B, C, and E has represented that if he or she is survived by his or her spouse, no charitable deduction will be claimed by, or allowable to, his or her estate with respect to any property that passes to his or her spouse's QTIP Trust. Therefore, the B/C Trust will not be subject to § 4947 during the lifetime of the survivor of B and C, and the E Trust will not be subject to § 4947 during F's lifetime.

On the death of the survivor of B and C, unless he or she designates otherwise, the B/C Trust will be distributable solely to charitable beneficiaries. Under § 53.4947-1(b)(2)(v), the B/C Trust will not be considered a charitable trust under § 4947(a)(1) for a reasonable period of settlement after the survivor's death. Likewise, the E Trust will not be considered a charitable trust under § 4947(a)(1) for a reasonable period after the death of the survivor of E and F.

Thus, based on the above representations, the estate administration exception to indirect self-dealing under § 53.4941(d)-1(b)(3) will be available with respect to any property held in the Estate of each of B, C, D, and E, the D Trust following D's death, the B/C Trust following the death of the survivor of B and C, and the E Trust following the death of the survivor of E and F.

Ruling (3)

Where the sale of property from a decedent's estate or a trust to a disqualified person meets all of the requirements of § 53.4941(d)-1(b)(3), § 53.4941(d)-2(c)(1) specifically excepts the receipt and holding of the purchaser's note by a private foundation from the definition of self-dealing.

The Interested Parties have represented that in the case of any transaction between a Family Party (on the one hand) and an Estate, the D Trust following D's death, the B/C Trust following the death of the survivor of B and C, or the E Trust following the death of the survivor of E and F (on the other) which would otherwise constitute indirect self-dealing, all of the requirements of § 53.4941-1(b)(3) will be met.

With respect to each transaction meeting the requirements of § 53.4941(d)-1(b)(3) where the executor or trustee is required to sell a Demand Loan, Units in an Investment Fund, any Restricted Securities, or any Family Asset or other property pursuant to an option or redemption agreement subject to which such property was acquired by the Estate or Trust and which is binding on the Estate or Trust, the Interested Parties have represented that the Estate or Trust will receive, in exchange, cash or the purchaser's Note, or both, in an amount which equals or exceeds the fair market value of M's interest or expectancy in such property at the time of the transaction, taking into account the terms of the option subject to which such property was acquired by the Estate or Trust.

Based on these representations, the proposed transactions, including the sale or redemption of any property held in an Estate, the D Trust, the B/C Trust, or the E Trust to the option holder for cash or the purchaser's Note, or both, each of which is required under an option or redemption agreement which is binding on such Estate or Trust, will meet all of the five conditions specified in § 53.4941(d)-1(b)(3) and, therefore, none of said transactions will be treated as an act of indirect self-dealing between M and a disqualified person.

Rulings (4) and (5)

I.R.C. § 53.4941(d)-2(c)(1) provides that, except in the case of the receipt and holding of a note pursuant to a transaction described in § 53.4941(d)-1(b)(3), an act of self-dealing occurs where a note, the obligor of which is a disqualified person, is transferred by a third party to a private foundation which becomes the creditor under the note.

The Interested Parties have represented that each transaction by the executor of a decedent's Estate, or by the trustee of the D Trust, the B/C Trust, or the E Trust, with respect to M's interest or expectancy in property held by such Estate or Trust whereby the Estate or such Trust receives in exchange a note the obligor of which is a disqualified person with respect to M will meet all of the requirements of § 53.4941(d)-1(b)(3). Based on these representations, the distribution by an Estate or the D Trust to M of any Family Note or Company Note, M's receipt of the same, and the holding of and receipt by M of payments under any such Note, will not constitute an act of direct or indirect self-dealing under § 4941.

Similarly, the distribution by the Estate of the first to die of B and C or by E's Estate to, and the receipt by, the B/C Trust or the E Trust, respectively, of any Family Note or Company Note, the holding of and the receipt of payments under any such Note by such QTIP Trust, and the distribution by such QTIP Trust to M of any such Note, M's receipt of the same, and its receipt and holding of payments under such Note, will not constitute an act of direct or indirect self-dealing under § 4941 where the transaction has been approved by a local state court and is otherwise excepted from self-dealing under § 53.4941(d)-1(b)(3).

This ruling will be made available for public inspection under section 6110 of the Code after certain deletions of identifying information are made. For details, see enclosed Notice 437, Notice of Intention to Disclose. A copy of this ruling with deletions that we intend to make available for public inspection is attached to Notice 437. If you disagree with our proposed deletions, you should follow the instructions in Notice 437.

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.

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