Contents

§ 13.2 QUALIFYING POOLED INCOME FUNDSThe fund must not include property transferred under arrangements otherthan those specified in these rules. 30 For example, if a contribution to a pooledincome fund is made subject to a provision that the income interest of the designatedbeneficiary is to be measured by the life of another individual, that contributionwould be a transfer in violation of this requirement. 31A fund will not be disqualified as a pooled income fund under these rules,however, because any portion of its properties is invested or reinvested jointlywith other properties, not a part of the pooled income fund, which are held by,or for the use of, the public charity that maintains the fund. An example of thispractice, which is frequently used to “seed” a pooled income fund, is transferringsecurities from the general endowment fund of the public charity to or forthe use of which the remainder interest is contributed. When this type of jointinvestment or reinvestment of properties occurs, records must be maintainedthat sufficiently identify the portion of the total fund that is owned by thepooled income fund and the income earned by, and attributable to, that portion.This type of joint investment or reinvestment of properties is not treated as anassociation or partnership for federal tax purposes. 32A bank that serves as trustee of more than one pooled income fund maymaintain a common trust fund 33 for the collective investment and reinvestmentof moneys of the funds. 34(d) Prohibition as to Exempt SecuritiesThe property transferred to a pooled income fund by a donor must not includeany securities the income from which is exempt from federal income tax, and thefund must not invest in this type of security. 35 The governing instrument of thefund must contain specific prohibitions against accepting or investing in thesesecurities. 36(e) MaintenanceA qualifying pooled income fund must be maintained by the same public charityto or for the use of which the irrevocable remainder interest is contributed. 37 Thisrequirement of maintenance is satisfied when the public charity exercises control,directly or indirectly, over the fund. For example, this requirement of controlis ordinarily met when the public charity has the power to remove the trustee ortrustees of the fund and designate a new trustee or trustees. 3830 IRC § 642(c)(5)(D); Reg. § 1.642(c)-5(b)(3).31 Rev. Rul. 79-81, 1979-1 C.B. 220.32 Reg. § 1.642(c)-5(b)(3).33 These common trust funds are the subject of IRC § 584.34 Reg. § 1.642(c)-5(b)(3).35 IRC § 642(c)(5)(C); Reg. § 1.642(c)-5(b)(4). This prohibition is chiefly aimed at tax-exempt municipal bonds,the income from which is exempt from federal income taxation by IRC § 103.36 Reg. § 1.642(c)-5(b)(4).37 IRC § 642(c)(5)(E); Reg. § 1.642(c)-5(b)(5). It is because of this requirement that the pooled income funds ofdifferent public charities cannot be merged, although pooled income funds maintained by the same publiccharity may be merged. See, e.g., Priv. Ltr. Rul. 9642020. Cf. text accompanied by note 41.38 Reg. § 1.642(c)-5(b)(5). 481