Distributions in Redemption of Stock - Gross Investment Income of Private Foundations
Any distribution by a corporation that is a disqualified person in redemption of stock held by a private foundation in a business enterprise will be treated as not essentially equivalent to a dividend if all the following conditions are met:
- The stock was owned by the private foundation on May 26,1969,
- The foundation is required to dispose of the stock in order not to be liable for the tax on excess business holdings, and
- The foundation receives in return an amount that equals or exceeds the fair market value of the stock at the time of disposition (or at the time a contract for the disposition was previously executed) in a transaction that would not be a prohibited transaction (under section 503(b) of the Code).
For purposes of (1) above, if a private foundation acquired stock under the terms of a trust that was irrevocable on May 26, 1969, or under the terms of a will executed by that date, which is in effect on that date and at all times thereafter, the foundation will be considered as owning the stock on that date.