In a sale of property by a private foundation to a disqualified person for cash, undoing the transaction includes, but is not limited to, rescinding the sale if possible. However, to avoid placing the foundation in a position worse than it would be if rescission were not required, the amount returned to the disqualified person must be the lesser of the cash received by the foundation or the fair market value of the property received by the disqualified person.
Fair market value is determined either at the time of the act of self-dealing or at the time of rescission, whichever results in the lesser fair market value. In addition, the disqualified person must pay the foundation any net profits realized from the property while it was in the disqualified person's possession.
For example, the disqualified person must pay the foundation any net profits realized from the property during the correction period, but only to the extent the income is greater than the income received by the foundation during the correction period from the cash originally paid to the foundation.
If, before the end of the correction period, the disqualified person resells the property in an arm's length transaction to a bona fide buyer who is not the foundation or another disqualified person, no rescission is required. The disqualified person must pay the foundation any excess of the greater of the fair market value of the property on the date of correction or the amount realized in the arm's length resale over the amount that would have been returned to the disqualified person if rescission had been required. In addition, the disqualified person must pay the foundation any net profits realized as described in the preceding paragraph.