Private Foundation Termination Tax: Limit to segregated amounts


If any amounts held in trust are segregated, the value of the net assets will be limited to the segregated amounts for which a charitable deduction was allowed, for two purposes:

  1. Determining the tax imposed on the termination of private foundation status, and
  2. Determining the amount of tax to be abated.

Split-interest trusts are not subject to the restrictions on excess business holdings and investments that jeopardize charitable purpose if :

  1. All the trust's income interest (and none of the remainder interest) is devoted solely to one or more charitable purposes, and
  2. All amounts for which a charitable deduction was allowed have a combined value at the time of the deduction of not more than 60 percent of the fair market value of the entire trust (after the payment of estate taxes and all other liabilities). In addition, these two restrictions will not apply if a charitable contribution deduction was allowed for amounts payable under the terms of the trust to every remainder beneficiary, but not to any income beneficiary.

However, in the latter case, the trust will become a charitable trust when the income interests expire.

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