An organization’s private foundation status shall be involuntarily terminated if the IRS notifies the organization that because of willful, flagrant or repeated acts (or failures to act) or a willful and flagrant act (or failure to act), giving rise to liability for private foundation excise taxes, the organization is liable for the termination tax.
Willful repeated acts (or failures to act) are at least two acts or failures to act which are voluntarily, consciously and intentionally committed. A willful and flagrant act (or failure to act) is an act which is voluntarily, consciously and knowingly committed in violation of the excise tax provisions, and which appears to a reasonable person to be a gross violation of these provisions.
The act or failure to act may be attributed to the private foundation even though the tax is imposed on the foundation’s managers rather than on the foundation itself. Furthermore, the failure to correct the act or acts (or failure or failures to act) that gave rise to excise tax liability may itself be considered a willful and flagrant act or failure to act.
No motive to avoid legal restrictions or incur tax is necessary to make the act or failure to act willful. However, a foundation’s act or failure to act is not willful if the foundation or its manager, if applicable, does not know that the act or failure to act is an act of self-dealing, a taxable expenditure, or otherwise gives rise to liability for excise taxes.
Although the section 507(c) tax resulting from an involuntary termination may be abated, this is not true for any excise tax liability attributable to the acts or failures to act that caused the involuntary termination.