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§ 12.9 PRIVATE FOUNDATION RULESwhich was created by an agreement dated January 15, 1969. The donor acquiredall of the interest by July 13, 1977. The sole asset of the joint venture was anapartment complex, which was subject to a nonrecourse mortgage indebtedness.The mortgage indebtedness was placed on the real property in 1970.Because it was a nonrecourse debt, none of the venturers had any personal liabilitywith respect to the indebtedness. Furthermore, under the terms of theagreement, all other debts, obligations, or liabilities of the venture were to beborne severally, according to the percentage ownership interest. Thus, no venturerwas personally liable for the venture debt or any of the debts or obligationsof any of the other venturers. Each venturer was liable for any future cashcalls in the event the venture needed additional capital and did not borrow themoney from commercial sources.The joint venture agreement required that any transferor of venture interestswould remain primarily and directly liable for the performance of any obligationsof the transferee. The proposed gift agreement stated that the donor“agrees to indemnify and hold harmless the trust from and against all expenses,losses, and payments, or obligations which might arise as a result of its ownershipof the venture interest.”The owner of the joint venture interest wanted to contribute the interest tocharity by means of a CRUT. The trustee would not be restricted from investingthe trust assets in a manner that could result in the annual realization of a reasonableamount of income or gain. The grantor remained primarily liable for anyobligation arising under the venture agreement for which the trust might otherwisebe liable. The trust did not assume any portion of the venture debt, as thedebt was nonrecourse and the trust was without personal liability.The IRS reasoned that, inasmuch as the venture debt was placed on the ventureproperty in 1970, and because the joint venture was not a disqualified person398 with respect to the donor, the transfer of the venture interest by thegrantor to the trust would not constitute a sale or exchange of property for purposesof the self-dealing rules. Thus, the gift of the venture interest would notconstitute an act of self-dealing between the trust and the grantor.The IRS ruled, however, that reformation of a CRUT to switch the incomepayment method, from a net-income approach to a fixed percentage of trustassets, would be an act of self-dealing. 399 According to the IRS, the switch wouldconstitute an unwarranted use by disqualified persons (here, the grantor andtrustee) of the income and assets of the trust. 400 The agency said: “Reforming thetrust in the manner proposed will remove interests in the trust which were previouslydedicated to charity and transfer them to the benefit of a disqualifiedperson.” As discussed, however, this type of conversion has since been sanctionedby the law, albeit only under certain circumstances. 401In another instance, the IRS ruled that the contribution of assets to a CRT forthe purpose of using the remainder interest to satisfy an outstanding and legallyenforceable pledge balance owed by the donor (a disqualified person with398 IRC § 4946. See Private Foundations ch. 4.399 Priv. Ltr. Rul. 9522021.400 IRC § 4941(d)(1)(E).401 See § 12.3(a), text accompanied by notes 157–162. 467