§4947 Application of Taxes to Certain Nonexempt Trusts

Summary

A trust that is not a tax-exempt charity but is devoted entirely to charitable purposes, and that produced a charitable tax deduction, is treated as if it were a 501(c)(3) charity. That means the private foundation rules and excise taxes apply to it. A split-interest trust, one that is only partly charitable, also faces key private foundation rules if deductions were allowed for the charitable amounts: the bans on self-dealing, excess business holdings, risky investments, and improper spending, plus the termination and governing-instrument rules. These rules do not reach amounts payable to income beneficiaries (unless a deduction was allowed for those amounts), amounts kept segregated from the deductible charitable funds, or amounts transferred in trust before May 27, 1969. The business-holdings and risky-investment rules also do not apply when the deductible amounts are worth no more than 60 percent of the trust's total value in certain income-only arrangements, or when deductions covered every remainder beneficiary but no income beneficiary.