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ify as a hospital as defined in section 170(b)(1)(A)(iii). §1.170A-9. (Sec. 170, ’86 Code.) Rev. Rul. 76-452, 1976–2 C.B. 60. 214.33 Hospital; classifi1ation. A hospital described in section 170(b)(1)(A)(iii) is not prevented by reg. 1.170A-9(e)(1) from qualifying as a publicly supported organization under section 170(b)(1)(A)(vi) if it desires that additional classification. §1.170A-9. (Sec. 170, ’86 Code.) Rev. Rul. 70-416, 1976-2 C.B. 57. 214.34 Income; deferred incentive compensation plan. A private foundation receiving annual payments, as beneficiary of a decedent’s deferred incentive compensation income plan, includes each payment as gross income to the extent that it exceeds the amount attributable to the value of the right to receive the payment on the decedent’s date of the death. §53.4942(a)-2. (Sec. 4942, ’86 Code.) Rev. Rul. 75-442, 1975–2 C.B. 448. 214.35 Investment and adjusted net income; amortizable bond premium deduction. An exempt private foundation that amortizes bond premium pursuant to section 171 may deduct the amortized amount in computing its net investment income and its adjusted net income. §§53.4940–1, 53.4942(a)-2. (Secs. 4940, 4942; ’86 Code.) Rev. Rul. 76-248, 1976-1 C.B. 353. 214.36 Investment income; audit fees. Audit fees paid by an exempt private foundation must be apportioned between its investment and exempt activities and only that portion of the fees attributable to the investment activities is deductible in computing the foundation’s net investment income. §53.4940-1. (Sec. 4940, ’86 Code.) Rev. Rul. 75-410, 1975–2 C.B. 446. 214.37 Investment income; basis of depletable property. An exempt private foundation that, prior to 1970, was not subject to tax and claimed no depletion deduction on its royalty interest in oil and gas properties recorded depletion on its books using the percentage method. The foundation need only decrease its original basis in the properties by the amount of the cost depletion allowable, and not the percentage depletion show on its books, for purposes of determining the net investment income under section 4940. §53.4940-1. (Sec. 4940, ’54 code.) Rev. Rul. 79–200, 1979–1 C.B. 364. 214.38 Investment income; basis; residuary interest in pre-1969 estate. Appreciated stock distributed to a private foundation in 1971, in satisfaction of a specific bequest and a percentage of the residuary estate of an individual who died in 1967, will reconsidered held by the foundation on December 31, 1969, and the basis of the stock for purposes of computing capital gain includable in net investment income will be the fair market value of the stock as of December 31, 1969. §53.4940-1. (Sec. 4940, ’86 Code.) Rev. Rul. 76-424, 1976-2 C.B. 367. 214.39 Investment income; Belgian foundation. A Belgian private foundation, whose only business activities in the U.S. are investments from which it derives interest income, is not exempt from the excise tax on gross investment income. §§1.881–2, 1.894-1. (Secs. 881, 894, 4940, 4948; ’86 Code.) Rev. Rul. 76-330, 1976-2 C.B. 488. 214.40 Investment income; Canadian foundation. A Canadian private foundation, exempt from the Canadian income tax and exempt from U.S. income tax under section 501(c)(3), is also exempt from the tax imposed on gross investment income by section 4948(a) by virtue of Article X of the U.S.-Canada Income Tax Convention. §53.4948–1. (Sec. 4948, ’86 Code.) Rev. Rul. 74-183, 1974-1 C.B. 328. 214.41 Investment income; capital gain computation; sale of listed stock. For purposes of computing a private foundation’s tax on net investment income, the net capital gain on the sale of a listed common stock purchased before December 31, 1969 is the difference between the selling price and the greater of (1) the foundation’s basis in the stock, or (2) the mean average of the highest and lowest quotations on December 31, 1969 plus or minus subsequent adjustment to the date of sale. §53.4940-1. (Sec. 4940, ’86 Code.) Rev. Rul. 74-403, 1974-2 C.B. 381. 214.42 Investment income; capital gain dividends from a regulated investment company. Capital gain dividends received by a private foundation from a regulated investment company described in section 851 are includible in the foundation’s net investment income in the year received for purposes of determining the excise taxes imposed by section 4940(a), but are excluded from the foundation’s adjusted net income for purposes of section 4942(f). §§53.4940-1, 53.4942(a)-2. (Secs. 4940, 4942; ’86 Code.) Rev. Rul. 73-320, 1973-2 C.B. 385. 214.43 Investment income; capital gain from sale of donated stock. Capital gain realized by an exempt private foundation from the sale of stock donated to it during its taxable years 1970 through 1972 and immediately disposed of upon receipt will not be taken into account for purposes of the tax on net investment income. §53.4940-1. (Sec. 4940, ’86 Code.) Rev. Rul. 74-404, 1974-2 C.B. 382. 214.44 Investment income; interest paid for funds reloaned interest free. An exempt private foundation that obtained a loan from a commercial lending institution, made an interest-free temporary construction loan to an exempt university, made no attempt to collect the loan, and forgave a portion of it, may not deduct or otherwise take into account the interest it paid for its loan in computing its net investment income. §53.4940-1. (Sec. 4940, ’86 Code.) Rev. Rul. 74-579, 1974-2 C.B. 383. 214.45 Investment income; U.S. savings bonds; unreported interest. A private foundation derived interest income upon redemption of Series E U.S. savings bonds that were received from the estate of the purchaser. The interest is includible in the computation of gross investment income if neither the individual nor the estate elected to report as income the periodic increases in bond value. §53.4940-1. (Sec. 4940, ’86 Code.) Rev. Rul. 80-118, 1980-1 C.B. 254. 214.46 Jeopardizing investment; life insurance policy. A whole-life insurance policy that was subject to a loan to the donor-insured was donated to a private foundation. The face value of the policy, less any outstanding loan principal or interest, was payable to the donee upon the donor’s death. The combined interest and premimum payments made by the donee over the life expectancy of the donor would exceed the amount it would receive under the policy and were, therefore, jeopardizing investments. §53.4944–1. (Sec. 4944, ’86 Code.) Rev. Rul. 80-133, 1980-1 C.B. 258. 214.47 Minimum investment return; computation; portion of office building commercially used. A private foundation owns a building, a portion of which is used directly in carrying out its exempt purposes, with the remainder leased to commercial tenants. The percentage of exempt use of the building, for purposes of determining the foundation’s minimum investment return Exempt organizations under section 4942(e), should be determined by dividing the fair rental value of that portion of the building used for exempt purposes by the fair rental value of the entire building. §53.4942(a)–2. (Sec. 4942, ’86 Code.) Rev. Rul. 82-137, 1982-2 C.B. 303. 214.48 Minimum investment return; island preserved for educational purposes. The value of an island, owned by a private foundation dedicated to preserve the natural ecosystems and historical and archaeological remains on the island that has no residential use and to which present access is limited to invited public and private researchers, may be excluded from the foundation’s minimum investment return. §53.4942(a)–2. (Sec. 4942, ’86 Code.) Rev. Rul. 75-207, 1975-1 C.B. 361. 214.49 Minimum investment return; paintings for public exhibitions. A collection of paintings, owned by a private foundation formed to further the arts, that are loaned under an active loan program for exhibition in museums, universities, and similar institutions, are being used directly in carrying out the foundation’s exempt purposes, and the value of the paintings is excludable in computing the foundation’s minimum investment return. §53.4942(a)–2. (Sec. 4942, ’86 Code.) Rev. Rul. 74-498, 1974-2 C.B. 387. 214.50 Minimum investment return; per centage. The applicable percentage to be used by private foundations in determining minimum investment return for a taxable year beginning in 1972 has been changed, in the case of private foundations organized after May 26, 1969, from 6.0 percent to 5.5 percent, and for foundations organized before May 27, 1969, from 4.5 percent to 4.125 percent. The applicable percentages for determining the minimum investment return for a taxable year beginning in 1973 are changed to 5.25 and 4.375 respectively; the applicable percentages for a taxable year beginning in 1974 are changed to 6.0 and 5.5 respectively. §53.4942(a)–2. - (Sec. 4942, ’86 Code.) Rev. Rul. 72–625, 1972–2 C.B. 604; Rev. Rul. 73-235, 1973–1 C.B. 519; Rev. Rul. 74-238, 1974-1 C.B. 326. 214.51 Minimum investment return; percentage. The percentage to be used by private foundations, organized before May 27, 1969, in determining minimum investment return for a taxable year beginning in 1975, has been changed to six percent, the same percentage as for those organized after May 26, 1969. The applicable percentage for determining the minimum investment return for a taxable year beginning in 1976 is changed to 6.75 percent. §53.4942(a)–2. (Sec. 4942, ’86 Code.) Rev. Rul. 75–270, 1975–2 C.B. 449; Rev. Rul. 76-193, 1976-1 C.B. 357. 214.52 Minimum investment return; reasonable cash balances. In determining its minimum investment return, a private foundation whose average cash balances during the taxable year represented one percent of the fair market value of its assets may exclude an amount equal to one and one-half percent of its assets’ fair market value as reasonable cash balances used or held for use directly in carrying out its exempt purpose. §53.4942(a)-2. (Sec. 4942, ’86 Code.) Rev. Rul. 75-392, 1975-2 C.B. 447. 214.53 Minimum investment return; unrelated trade or business. In determining its minimum investment return, a private foundation need not take into account assets used in a trade or business for which substantially all the work is performed without compensation. §53.4942(a)-2. (Sec. 4942, ’86 Code.) Rev. Rul. 76-85, 1970-1 C.B. 357. 214.54 Operating foundation; qualifying distributions. An otherwise qualifying trust whose
Exempt organizations sole activity is the operation of a cultural center makes distributions qualifying it as an operating foundation under section 4942(j)(3)(A) when it turns over substantially all of its adjusted net income each year to a separate corporation that, acting only in a fiduciary capacity on behalf of the trust, disburses such amount in a timely manner in the operation of the cultural center. §53.4942(b)-1. (Sec. 4942, ’86 Code.) Rev. Rul. 78-315, 1978–2 C.B. 271. 214.55 Preincorporation period. In determining whether an incorporated organization meets the time requirement provided by regs. 1.170A-9(e)(4)(vi) and 1.509(a)–3(c)(1)(iv) to entitle it to be issued a ruling on the question whether it is publicly supported, the period of time a predecessor unincorporated association operated will be taken into consideration where incorporation has been the only significant change in the organization. §§1.170A-9, 1.509(a)–3. (Secs. 170, 509; ’86 Code.) Rev. Rul. 73-422, 1973-2 C.B. 70. 214.56 Professional standards review. An organization was established to perform the services of a professional standards review organization (PSRO) pursuant to section 249F of the Social Security Amendments of 1972, and was designated as a PSRO for a particular area by the Department of Health and Human Services (HHS). It derives all of its support from contracts with HHS which provide for payment for all reasonable and necessary expenses incurred by it in the performance of its functions. The organization qualifies for exemption under section 501(c)(3) of the Code and is not a private foundation under section 509(a) because it is described in section 170(b)(1)(A)(vi). Rev. Rul. 74-553 distinguished. §§1.170A-9, 1.501(c)(3)-1, 1.509(a)-2. (Secs. 170, 501, 509; ’86 Code.) Rev. Rul. 81-276, 1981–2 C.B. 128. 214.57 Program related investments; low-interest loans to the blind. Low interest rate loans by a private foundation, established to aid the blind in securing employment, that are made to blind persons who desire to establish themselves in business but who are unable to obtain funds through commercial sources constitute program related investments and are also qualifying distributions. §§53.4942(a)–3, 53.4944–3. (Secs. 4942, 4944; ’86 Code.) Rev. Rul. 78-90, 1978-1 C.B. 380. 214.58 Promoting science or art of ceramics. A foundation was established under the decedent’s will providing primarily for the continuance of the pyrometric cone manufacturing business and secondarily for the advancement of the ceramic arts and industries. Under the will, approximately 80 percent of the business gross in come would be required to meet manufacturing costs and other expenses and the remaining 20 percent would be spent in research in the field of ceramics through fellowships granted to selected graduate students. Held, the foundation was not a feeder organization; it carried on exempt activities through its fellowship and grant programs and was not obligated to distribute funds or equipment to or through specific institutions. (Sec. 502, ’86 Code.) Edward Orton, Jr. Ceramic Foundation, 56 T.C. 147, Acq., 1972-1 C.B. 3. 214.59 Publicly supported; business league contribution limitation. Contributions made by a section 501(c)(6) business league to a section 501(c)(3) organization seeking to be classified as other than a private foundation under section 509(a)(1) because it is publicly supported under section 170(b)(1)(A)(vi) are subject to the two percent limitation imposed by reg. 1.170A-9(e)(6). §§1.170A-9, 1.509(a)–2. (Secs. 170, 509; ’86 Code.) Rev. Rul. 77-255, 1977-2 C.B. 74. 214.60 Publicly supported; substantial and material changes in support. Guidelines set forth the circumstances under which grantors or contributors will not be considered responsible for “substantial and material” changes in sources of financial support. §§1.170A-9, 1.509(a)–3. (Sec. 601.105 S.P.R.; Secs. 170, 509, ’86 Code.) Rev. Proc. 81-6, 1981-1 C.B. 615. 214.61 Publicly supported; unusual grants. Guidelines set forth the circumstances under which grants or contributions will be considered “unusual grants” without benefit of an advance ruling. §§1.170A-9, 1.509(a)–3. (Sec. 601.105, S.P.R.; Secs. 170, 509, ’86 Code.) Rev. Proc. 81-7, 1981-1 C.B. 615. 214.62 Publicly supported organization; limitation of support received from churches. The two percent limitation prescribed by reg. 1.170A-9(e)(6)(i) does not apply to the support received by an exempt organization described in section 170(c)(2) from individual churches described in section 170(b)(1)(A)(i) that are publicly supported and entitled to section 170(b)(1)(A)(vi) status. §1.170A-9. (Sec. 170, ’86 Code.) Rev. Rul. 78-95, 1978-1 C.B. 71. 214.63 Publicly supported organization; unusual contribution. A large inter vivos gift of undeveloped land from a disinterested donor to a normally publicly supported organization exempt under section 501(c)(3), conditioned on the land’s being used in perpetuity to further the exempt organization’s purposes of preserving natural resources, constitutes an unusual grant and will not adversely affect the status of the organization as a publicly supported organization under section 170(b)(1)(A)(vi). §§1.170A-9, 1.509(a)-3. (Secs. 170, 509; ’86 Code.) Rev. Rul. 76-440, 1976-2 C.B. 58. 214.64 Qualifying distributions; carryover of transferor. A private foundation that had a carryover of excess qualifying distributions as described in section 4942(i) transferred all its assets to another private foundation that was controlled by the same persons who controlled the first foundation. The transferee foundation may reduce its distributable amount under section 4942(d) by such carryover. §§1.507-3, 53.4942(a)-3. (Secs. 507, 4942; ’86 Code.) Rev. Rul. 78-387, 1978-2 C.B. 270. 214.65 Qualifying distributions; contribution to exempt cemetery company. An unrestricted contribution made by a private foundation to an exempt cemetery company that is not described in section 170(c)(2)(B) is not a qualifying distribution within the meaning of section 4942(g) and is a taxable expenditure within the meaning of section 4945(d)(5). §§1.170A-1, 53.4942(a)-3, 53.4945-1. (Secs. 170, 4942, 4945; ’86 Code.) Rev. Rul. 80-97, 1980-1 C.B. 257. 214.66 Qualifying distributions; contribution to other private foundation. An amount contributed by a private foundation to another private foundation that, in the taxable year following the taxable year in which it received the contribution, established an approved set-aside in the amount of the contribution and made a valid election to treat the entire amount of the set-aside as a distribution out of corpus may be treated by the donor foundation as a qualifying distribution. §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 78-45, 1978–1 C.B. 378. 214.67 Qualifying distributions; depreciation. For its fiscal year after 1970, a private foundation may not treat as a qualifying distribution under section 4942(g)(1)(B) an amount equal to straight line depreciation on a building it constructed for purposes described in section 170(c)(2)(B). §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 74-560, 1974–2 C.B. 389. 214.68 Qualifying distributions; legal fees. Legal fees not excessive in amount, paid by an exempt charitable trust in a suit to determine the proper beneficiary of a portion of its net income are qualifying distributions. §53.4942(a)–3. (Sec. 4942, ’86 Code.) Rev. Rul. 75-495, 1975-2 C.B. 449. 214.69 Qualifying distributions; property converted from nonexempt to exempt use; conversion date. The correct conversion date of real property converted by a private operating foundation from nonexempt to exempt uses, for purposes of treating the conversion as a qualifying distribution, is the date the foundation adopts and immediately proceeds to implement a plan for the exempt use of the property, even though the actual conversion is not completed until the following year. §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 78-102, 1978-1 C.B. 379. 214.70 Qualifying distributions; retention of control. A private foundation agreed to help fund a museum to be built by a public charity but, in order to retain control of the funds and receive income therefrom during the 3 year period before construction was to begin, deferred payment on the commitment. The amount set aside may not be treated as a qualifying distribution under section 4942(g). §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 79-319, 1979-2 C.B. 388. 214.71 Qualifying distributions; second distribution of same asset. If a private foundation that has made a qualifying distribution equal to the purchase price of an asset donates the asset to a publicly supported charity, it will be allowed a second qualifying distribution to the extent that the fair market value of the asset on the date of contribution exceeds the amount of the first qualifying distribution. §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 79–375, 1979–2 C.B. 389. 214.72 Qualifying distributions; separate filing of election. An election under section 4942(h)(2), with respect to treatment of a qualifying distribution, that is not filed with the return required to be filed under section 6033 should be filed with the District Director of the appropriate key district. §53.4942(a)-3. (Sec. 601.201, S.P.R.; Sec. 4942, ’86 Code.) Rev. Proc. 74-41, 1974–2 C.B. 495. 214.73 Qualifying distributions; set-aside; capable of current funding. A private foundation, whose primary activity is the making of renewable scholarships and fixed sum research grants that normally run for three years, for which payments have been made annually from current income, may not treat set-aside amounts representing the maximum for each grantee from which the annual payments will be made as qualifying distributions under section §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 75-511, 1975-2 C.B. 450. 4942(g)(2). 214.74 Qualifying distributions; set-aside; “specific project”. The accumulation of setaside funds to endow a specific building project of an unrelated public charity is a “specific project” within the meaning of reg. 53.4942(a)–3(b)(2). §53.4942(a)-3. (Sec. 4942, ’86 Code.) Rev. Rul. 77-7, 1977-1 C.B. 354. 214.75 Qualifying distributions; set-aside; undistributed income; wildlife sanctuary enlarged. An operating private foundation’s conversion of a portion of its newly acquired land into an extension of its existing wildlife sanctuary and the remainder into a public park under a four-year construction contract under which payments are mainly during the last two years constitutes a
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