Title 26 — Internal Revenue CodeRelease 119-73
§509 Private foundation defined
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter F— - Exempt Organizations › Part PART II— - PRIVATE FOUNDATIONS › § 509
Summary
Defines when a 501(c)(3) charity is a "private foundation" and who is not. A private foundation is any domestic or foreign 501(c)(3) that does not meet the listed public-charity tests. Groups that are NOT private foundations include public charities that meet the rules in law, organizations that normally get more than one-third of their yearly support from the public (like gifts, grants, membership fees, or non‑business receipts such as admissions or sales) and not more than one-third from investment and unrelated business income, organizations set up to benefit or run the work of one or more public charities (and that are not controlled by certain disqualified people, except managers or other allowed charities), and groups organized only to test for public safety. When counting public receipts, government money over the greater of $5,000 or 1 percent of support is treated specially. An organization that is a private foundation on October 9, 1969, or that becomes one later, stays a private foundation unless its status is ended under other rules. If private‑foundation status is ended, the group is treated as newly created the day after that end (with some exceptions). Key defined words: "support" means things like gifts, non‑business receipts, unrelated business net income, investment income, government taxes paid for the nonprofit, and government‑provided services or facilities; "gross investment income" means interest, dividends, rents, royalties, payments for securities loans, and similar income; "supported organization" means a public charity that the organization is set up to benefit or to carry out purposes for. Additional rules say a group operated "in connection with" a supported charity must give information to that charity each year and generally must be organized in the United States, with a short transition rule for existing foreign connections.
Full Legal Text
Title 26, §509
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this title, the term “private foundation” means a domestic or foreign organization described in section 501(c)(3) other than—
(1)an organization described in section 170(b)(1)(A) (other than in clauses (vii) and (viii));
(2)an organization which—
(A)normally receives more than one-third of its support in each taxable year from any combination of—
(i)gifts, grants, contributions, or membership fees, and
(ii)gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business (within the meaning of section 513), not including such receipts from any person, or from any bureau or similar agency of a governmental unit (as described in section 170(c)(1)), in any taxable year to the extent such receipts exceed the greater of $5,000 or 1 percent of the organization’s support in such taxable year,
(B)normally receives not more than one-third of its support in each taxable year from the sum of—
(i)gross investment income (as defined in subsection (e)) and
(ii)the excess (if any) of the amount of the unrelated business taxable income (as defined in section 512) over the amount of the tax imposed by section 511;
(3)an organization which—
(A)is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations described in paragraph (1) or (2),
(B)is—
(i)operated, supervised, or controlled by one or more organizations described in paragraph (1) or (2),
(ii)supervised or controlled in connection with one or more such organizations, or
(iii)operated in connection with one or more such organizations, and
(C)is not controlled directly or indirectly by one or more disqualified persons (as defined in section 4946) other than foundation managers and other than one or more organizations described in paragraph (1) or (2); and
(4)an organization which is organized and operated exclusively for testing for public safety.
(b)For purposes of this title, if an organization is a private foundation (within the meaning of subsection (a)) on October 9, 1969, or becomes a private foundation on any subsequent date, such organization shall be treated as a private foundation for all periods after October 9, 1969, or after such subsequent date, unless its status as such is terminated under section 507.
(c)For purposes of this part, an organization the status of which as a private foundation is terminated under section 507 shall (except as provided in section 507(b)(2)) be treated as an organization created on the day after the date of such termination.
(d)For purposes of this part and chapter 42, the term “support” includes (but is not limited to)—
(1)gifts, grants, contributions, or membership fees,
(2)gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities in any activity which is not an unrelated trade or business (within the meaning of section 513),
(3)net income from unrelated business activities, whether or not such activities are carried on regularly as a trade or business,
(4)gross investment income (as defined in subsection (e)),
(5)tax revenues levied for the benefit of an organization and either paid to or expended on behalf of such organization, and
(6)the value of services or facilities (exclusive of services or facilities generally furnished to the public without charge) furnished by a governmental unit referred to in section 170(c)(1) to an organization without charge.
(e)For purposes of subsection (d), the term “gross investment income” means the gross amount of income from interest, dividends, payments with respect to securities loans (as defined in section 512(a)(5)), rents, and royalties, but not including any such income to the extent included in computing the tax imposed by section 511. Such term shall also include income from sources similar to those in the preceding sentence.
(f)(1)For purposes of subsection (a)(3)(B)(iii), an organization shall not be considered to be operated in connection with any organization described in paragraph (1) or (2) of subsection (a) unless such organization meets the following requirements:
(A)For each taxable year beginning after the date of the enactment of this subsection, the organization provides to each supported organization such information as the Secretary may require to ensure that such organization is responsive to the needs or demands of the supported organization.
(B)(i)The organization is not operated in connection with any supported organization that is not organized in the United States.
(ii)If the organization is operated in connection with an organization that is not organized in the United States on the date of the enactment of this subsection, clause (i) shall not apply until the first day of the third taxable year of the organization beginning after the date of the enactment of this subsection.
(2)(A)For purposes of subsection (a)(3)(B), an organization shall not be considered to be—
(i)operated, supervised, or controlled by any organization described in paragraph (1) or (2) of subsection (a), or
(ii)operated in connection with any organization described in paragraph (1) or (2) of subsection (a),
(B)A person is described in this subparagraph if, with respect to a supported organization of an organization described in subparagraph (A), such person is—
(i)a person (other than an organization described in paragraph (1), (2), or (4) of section 509(a)) who directly or indirectly controls, either alone or together with persons described in clauses (ii) and (iii), the governing body of such supported organization,
(ii)a member of the family (determined under section 4958(f)(4)) of an individual described in clause (i), or
(iii)a 35-percent controlled entity (as defined in section 4958(f)(3) by substituting “persons described in clause (i) or (ii) of section 509(f)(2)(B)” for “persons described in subparagraph (A) or (B) of paragraph (1)” in subparagraph (A)(i) thereof).
(3)For purposes of this subsection, the term “supported organization” means, with respect to an organization described in subsection (a)(3), an organization described in paragraph (1) or (2) of subsection (a)—
(A)for whose benefit the organization described in subsection (a)(3) is organized and operated, or
(B)with respect to which the organization performs the functions of, or carries out the purposes of.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The date of the enactment of this subsection, referred to in subsec. (f)(1)(A), (B)(ii), is the date of enactment of Pub. L. 109–280, which was approved Aug. 17, 2006. Codification section 1221(a)(2) and 1241(a), (b) of Pub. L. 109–280, which directed the amendment of section 509 without specifying the act to be amended, were executed to this section, which is section 509 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress. See 2006 Amendment notes below.
Amendments
2006—Subsec. (a)(3)(B). Pub. L. 109–280, § 1241(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “is operated, supervised, or controlled by or in connection with one or more organizations described in paragraph (1) or (2), and”. See Codification note above. Subsec. (e). Pub. L. 109–280, § 1221(a)(2), inserted at end “Such term shall also include income from sources similar to those in the preceding sentence.” See Codification note above. Subsec. (f). Pub. L. 109–280, § 1241(b), added subsec. (f). See Codification note above. 1978—Subsec. (e). Pub. L. 95–345 inserted provision relating to payments with respect to securities loans. 1975—Subsec. (a)(2)(B). Pub. L. 94–81 designated existing provisions as cl. (i) and added cl. (ii).
Statutory Notes and Related Subsidiaries
Effective Date
of 2006 Amendment Pub. L. 109–280, title XII, § 1221(c), Aug. 17, 2006, 120 Stat. 1089, provided that: “The
Amendments
made by this section [amending this section and section 4940 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 17, 2006].” Pub. L. 109–280, title XII, § 1241(e), Aug. 17, 2006, 120 Stat. 1103, provided that: “(1) In general.—The
Amendments
made by subsections (a) and (b) [amending this section] shall take effect on the date of the enactment of this Act [Aug. 17, 2006]. “(2) Charitable trusts which are type iii supporting organizations.—Subsection (c) [enacting provisions set out as a note below] shall take effect—“(A) in the case of trusts operated in connection with an organization described in paragraph (1) or (2) of section 509(a) of the Internal Revenue Code of 1986 on the date of the enactment of this Act, on the date that is one year after the date of the enactment of this Act, and “(B) in the case of any other trust, on the date of the enactment of this Act.”
Effective Date
of 1978 Amendment Pub. L. 95–345, § 2(e), Aug. 15, 1978, 92 Stat. 483, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The
Amendments
made by this section [enacting section 1058 of this title and amending section 509, 512, 514, 851, and 4940 of this title] apply with respect to— “(1) amounts received after December 31, 1976, as payments with respect to securities loans (as defined in section 512(a)(5) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), and “(2) transfers of securities, under agreements described in section 1058 of such Code, occurring after such date.”
Effective Date
of 1975 Amendment Pub. L. 94–81, § 3(b), Aug. 9, 1975, 89 Stat. 418, provided that: “The amendment made by this section [amending this section] shall apply to unrelated business taxable income derived from trades and businesses which are acquired by the organization after June 30, 1975.”
Effective Date
Section effective Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91–172, set out as a note under section 4940 of this title.
Savings Provision
Applicability of subsec. (a) of this section to testamentary trusts, see section 101(l)(7) of Pub. L. 91–172, set out as a note under section 4940 of this title. Charitable Trusts Which Are Type III Supporting Organizations Pub. L. 109–280, title XII, § 1241(c), Aug. 17, 2006, 120 Stat. 1103, provided that: “For purposes of section 509(a)(3)(B)(iii) of the Internal Revenue Code of 1986, an organization which is a trust shall not be considered to be operated in connection with any organization described in paragraph (1) or (2) of section 509(a) of such Code solely because— “(1) it is a charitable trust under State law, “(2) the supported organization (as defined in section 509(f)(3) of such Code) is a beneficiary of such trust, and “(3) the supported organization (as so defined) has the power to enforce the trust and compel an accounting.” Payout Requirements for Type III Supporting Organizations Pub. L. 109–280, title XII, § 1241(d), Aug. 17, 2006, 120 Stat. 1103, provided that: “(1) In general.—The Secretary of the Treasury shall promulgate new
Regulations
under section 509 of the Internal Revenue Code of 1986 on payments required by type III supporting organizations which are not functionally integrated type III supporting organizations. Such
Regulations
shall require such organizations to make distributions of a percentage of either income or assets to supported organizations (as defined in section 509(f)(3) of such Code) in order to ensure that a significant amount is paid to such organizations. “(2) Type iii supporting organization; functionally integrated type iii supporting organization.—For purposes of paragraph (1), the terms ‘type III supporting organization’ and ‘functionally integrated type III supporting organization’ have the meanings given such terms under subparagraphs (A) and (B) section 4943(f)(5) of the Internal Revenue Code of 1986 (as added by this Act), respectively.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 509
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73