§4947 Application of taxes to certain nonexempt trusts

Summary

Treats certain non-exempt trusts like charities when every remaining interest is for charitable purposes and the trust got a tax deduction earlier for the donated amounts. When that happens, the trust is treated as if it were a 501(c)(3) organization. For one rule, the trust is treated as having been organized on the day it first qualifies this way. If only some of the trust’s interests are charitable but deductible amounts exist, the trust is treated like a private foundation and many private-foundation tax rules apply (for things like termination, governing documents, self-dealing, excess business holdings, risky investments, and taxable expenditures). That private-foundation treatment does not apply to amounts payable to income beneficiaries unless a special deduction was claimed, to non-deductible amounts that are kept separately from deductible amounts, or to amounts put into the trust before May 27, 1969. Segregated amounts must be separately accounted for, and only those segregated amounts count for certain asset-value tests. The Treasury Secretary must write rules to carry out these points. Two exceptions keep the excess-holding and risky-investment rules from applying if either the income interest is entirely charitable and deductible amounts are no more than 60 percent of the trust’s total value, or deductions were allowed only for amounts payable to every remainder beneficiary. Also, one rule says a distribution of employer stock to an employee stock ownership plan in a qualified gratuitous transfer does not trigger a specific foundation rule.