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§ 13.5 MANDATORY PROVISIONSEXAMPLE 13.4(CONTINUED)The fair market value of the property in the fund at the time of C’s contribution was $40,000.The fair market value of the property in the fund was $100,000 on December 31, 2005. Theincome of the fund for the second quarter ending December 31, 2005, was $2,000. Theincome was shared by the income beneficiaries and X Hospital as follows:BeneficiaryAllocation of IncomeA, B, and C 90 % ($90,000 ÷ $100,000)X Hospital 10 % ($10,000 ÷ $100,000)For the quarter ending December 31, 2005, each unit of participation was allocated $2 (90 % ×$2,000 ÷ 900) of the income earned for that quarter. A, B, C, and X Hospital shared in theincome as follows:BeneficiaryShare of IncomeA $200 (100 × $2)B 400 (200 × $2)C 1,200 (600 × $2)X Hospital 200 (10 % × $2,000) aaReg. § 1.642(c)-5(c)(4), Example (3).§ 13.4 RECOGNITION OF GAIN OR LOSS ON TRANSFERSNo gain or loss is recognized to a donor as a result of the transfer of property toa pooled income fund. 57 The basis of the fund and its holding period withrespect to property transferred to the fund by a donor are determined pursuantto the general rules concerning the basis of property acquired by gift and transferredin trust. 58 If, however, a donor transfers property to a pooled income fundand, in addition to creating or retaining a life income interest in the fund,receives property from the fund, or transfers to the fund property that is subjectto an indebtedness, this rule does not apply to the gain realized by reason of thereceipt of the property or the amount of the indebtedness (whether or notassumed by the pooled income fund). Such gain is required to be treated as anamount realized on the transfer. 59§ 13.5 MANDATORY PROVISIONSAs references throughout the foregoing portions of this chapter indicate, a varietyof provisions must appear in a pooled income fund instrument, as a conditionfor qualification of the fund under the applicable federal tax rules. Many ofthese mandatory provisions are required by the tax regulations. The IRS publishedsample provisions for inclusion in a pooled income fund declaration oftrust and instrument of transfer. 60 Subsequently, the IRS published sample formsof a declaration of trust and instruments of transfer that meet the requirementsfor a qualified pooled income fund. 6157 Reg. § 1.642(c)-(5)(a)(3).58 Id. These rules are the subject of IRC §§ 1015(b) and 1223(2).59 Reg. § 1.642(c)-5(a)(3). See § 9.19 for a discussion of the bargain sale rules.60 Rev. Rul. 82-38, 1982-1 C.B. 96; Rev. Rul. 85-57, 1985-1 C.B. 182.61 Rev. Proc. 88-53, 1988-2 C.B. 712. See Appendix F. 487