---
kind: "section"
citation: "26 U.S.C. § 507"
title: "26"
title_heading: "Internal Revenue Code"
number: "507"
heading: "Termination of private foundation status"
release: "119-102"
url: "https://uscodex.org/usc/26/507"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter F — Exempt Organizations"
  - "Part II — Private Foundations"
---

# §507. Termination of private foundation status

- (a) **General rule—** Except as provided in [subsection (b)](#b), the status of any organization as a [private foundation](/usc/26/509.md?p=a) shall be terminated only if—
  - (1) such organization notifies the [Secretary](/usc/26/7701.md?p=a-11-B) (at such time and in such manner as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations prescribe) of its intent to accomplish such termination, or
  - (2)
    - (A) with respect to such organization, there have been either willful repeated acts (or failures to act), or a willful and flagrant act (or failure to act), giving rise to liability for tax under [chapter 42](/usc/26/chstD-ch42.md), and
    - (B) the [Secretary](/usc/26/7701.md?p=a-11-B) notifies such organization that, by reason of [subparagraph (A)](#a-2-A), such organization is liable for the tax imposed by [subsection (c)](#c),

  and either such organization pays the tax imposed by [subsection (c)](#c) (or any portion not abated under [subsection (g)](#g)) or the entire amount of such tax is abated under [subsection (g)](#g).

- (b) **Special rules—**
  - (1) **Transfer to, or operation as, public charity—** The status as a [private foundation](/usc/26/509.md?p=a) of any organization, with respect to which there have not been either willful repeated acts (or failures to act) or a willful and flagrant act (or failure to act) giving rise to liability for tax under [chapter 42](/usc/26/chstD-ch42.md), shall be terminated if—
    - (A) such organization distributes all of its net assets to one or more organizations described in [section 170(b)(1)(A)](/usc/26/170.md?p=b-1-A) (other than in clauses (vii) and (viii)) each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding such distribution, or
    - (B)
      - (i) such organization meets the requirements of paragraph [(1)](/usc/26/509.md?p=a-1), [(2)](/usc/26/509.md?p=a-2), or [(3)](/usc/26/509.md?p=a-3) of section 509(a) by the end of the 12-month period beginning with its first [taxable year](/usc/26/441.md?p=b) which begins after December 31, 1969, or for a continuous period of 60 calendar months beginning with the first day of any [taxable year](/usc/26/441.md?p=b) which begins after December 31, 1969,
      - (ii) such organization notifies the [Secretary](/usc/26/7701.md?p=a-11-B) (in such manner as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations prescribe) before the commencement of such 12-month or 60-month period (or before the 90th day after the day on which regulations first prescribed under this subsection become final) that it is terminating its [private foundation](/usc/26/509.md?p=a) status, and
      - (iii) such organization establishes to the satisfaction of the [Secretary](/usc/26/7701.md?p=a-11-B) (in such manner as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations prescribe) immediately after the expiration of such 12-month or 60-month period that such organization has complied with [clause (i)](#b-1-B-i).

    If an organization gives notice under [subparagraph (B)(ii)](#b-1-B-ii) of the commencement of a 60-month period and such organization fails to meet the requirements of paragraph [(1)](/usc/26/509.md?p=a-1), [(2)](/usc/26/509.md?p=a-2), or [(3)](/usc/26/509.md?p=a-3) of section 509(a) for the entire 60-month period, this part and [chapter 42](/usc/26/chstD-ch42.md) shall not apply to such organization for any [taxable year](/usc/26/441.md?p=b) within such 60-month period for which it does meet such requirements.

  - (2) **Transferee foundations—** For purposes of this part, in the case of a transfer of assets of any [private foundation](/usc/26/509.md?p=a) to another [private foundation](/usc/26/509.md?p=a) pursuant to any liquidation, merger, redemption, recapitalization, or other adjustment, organization, or reorganization, the transferee foundation shall not be treated as a newly created organization.
- (c) **Imposition of tax—** There is hereby imposed on each organization which is referred to in [subsection (a)](#a) a tax equal to the lower of—
  - (1) the amount which the [private foundation](/usc/26/509.md?p=a) substantiates by adequate records or other corroborating evidence as the aggregate tax benefit resulting from the [section 501(c)(3)](/usc/26/501.md?p=c-3) status of such foundation, or
  - (2) the value of the net assets of such foundation.
- (d) **Aggregate tax benefit—**
  - (1) **In general—** For purposes of [subsection (c)](#c), the aggregate tax benefit resulting from the [section 501(c)(3)](/usc/26/501.md?p=c-3) status of any [private foundation](/usc/26/509.md?p=a) is the sum of—
    - (A) the aggregate increases in tax under chapters [1](/usc/26/chstA-ch1.md), [11](/usc/26/chstB-ch11.md), and [12](/usc/26/chstB-ch12.md) (or the corresponding provisions of prior law) which would have been imposed with respect to all [substantial contributors](#d-2-A) to the foundation if deductions for all contributions made by such contributors to the foundation after February 28, 1913, had been disallowed, and
    - (B) the aggregate increases in tax under [chapter 1](/usc/26/chstA-ch1.md) (or the corresponding provisions of prior law) which would have been imposed with respect to the income of the [private foundation](/usc/26/509.md?p=a) for [taxable years](/usc/26/441.md?p=b) beginning after December 31, 1912, if (i) it had not been exempt from tax under [section 501(a)](/usc/26/501.md?p=a) (or the corresponding provisions of prior law), and (ii) in the case of a trust, deductions under [section 642(c)](/usc/26/642.md?p=c) (or the corresponding provisions of prior law) had been limited to 20 percent of the [taxable income](/usc/26/63.md?p=b) of the trust (computed without the benefit of [section 642(c)](/usc/26/642.md?p=c) but with the benefit of [section 170(b)(1)(A)](/usc/26/170.md?p=b-1-A)), and
    - (C) [interest](/usc/26/856.md?p=f-1) on the increases in tax determined under subparagraphs [(A)](#d-1-A) and [(B)](#d-1-B) from the first date on which each such increase would have been due and payable to the date on which the organization ceases to be a [private foundation](/usc/26/509.md?p=a).
  - (2) **Substantial contributor—**
    - (A) **Definition—** For purposes of [paragraph (1)](#d-1), the term “substantial contributor” means any [person](/usc/26/7701.md?p=a-1) who contributed or bequeathed an aggregate amount of more than $5,000 to the [private foundation](/usc/26/509.md?p=a), if such amount is more than 2 percent of the total contributions and bequests received by the foundation before the close of the [taxable year](/usc/26/441.md?p=b) of the foundation in which the contribution or bequest is received by the foundation from such [person](/usc/26/7701.md?p=a-1). In the case of a trust, the term “substantial contributor” also means the creator of the trust.
    - (B) **Special rules—** For purposes of [subparagraph (A)](#d-2-A)—
      - (i) each contribution or bequest shall be valued at fair market value on the date it was received,
      - (ii) in the case of a foundation which is in existence on October 9, 1969, all contributions and bequests received on or before such date shall be treated (except for purposes of [clause (i)](#d-2-B-i)) as if received on such date,
      - (iii) an individual shall be treated as making all contributions and bequests made by his spouse, and
      - (iv) any [person](/usc/26/7701.md?p=a-1) who is a [substantial contributor](#d-2-A) on any date shall remain a [substantial contributor](#d-2-A) for all subsequent periods.
    - (C) **Person ceases to be substantial contributor in certain cases—**
      - (i) **In general—** A [person](/usc/26/7701.md?p=a-1) shall cease to be treated as a [substantial contributor](#d-2-A) with respect to any [private foundation](/usc/26/509.md?p=a) as of the close of any [taxable year](/usc/26/441.md?p=b) of such foundation if—
        - (I) during the 10-year period ending at the close of such [taxable year](/usc/26/441.md?p=b) such [person](/usc/26/7701.md?p=a-1) (and all [related persons](#d-2-C-ii)) have not made any contribution to such [private foundation](/usc/26/509.md?p=a),
        - (II) at no time during such 10-year period was such [person](/usc/26/7701.md?p=a-1) (or any [related person](#d-2-C-ii)) a foundation manager of such [private foundation](/usc/26/509.md?p=a), and
        - (III) the aggregate contributions made by such [person](/usc/26/7701.md?p=a-1) (and [related persons](#d-2-C-ii)) are determined by the [Secretary](/usc/26/7701.md?p=a-11-B) to be insignificant when compared to the aggregate amount of contributions to such foundation by one other [person](/usc/26/7701.md?p=a-1).

      For purposes of subclause (III), appreciation on contributions while held by the foundation shall be taken into account.

      - (ii) **Related person—** For purposes of [clause (i)](#d-2-C-i), the term “related person” means, with respect to any [person](/usc/26/7701.md?p=a-1), any other [person](/usc/26/7701.md?p=a-1) who would be a disqualified [person](/usc/26/7701.md?p=a-1) (within the meaning of [section 4946](/usc/26/4946.md)) by reason of his relationship to such [person](/usc/26/7701.md?p=a-1). In the case of a contributor which is a [corporation](/usc/26/7701.md?p=a-3), the term also [includes](/usc/26/7701.md?p=c) any officer or director of such [corporation](/usc/26/7701.md?p=a-3).
  - (3) **Regulations—** For purposes of this section, the [determination](/usc/26/1377.md?p=b-2) as to whether and to what extent there would have been any increase in tax shall be made in accordance with regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B).
- (e) **Value of assets—** For purposes of [subsection (c)](#c), the value of the net assets shall be determined at whichever time such value is higher: (1) the first day on which action is taken by the organization which culminates in its ceasing to be a [private foundation](/usc/26/509.md?p=a), or (2) the date on which it ceases to be a [private foundation](/usc/26/509.md?p=a).
- (f) **Liability in case of transfers of assets from private foundation—** For purposes of determining liability for the tax imposed by [subsection (c)](#c) in the case of assets transferred by the [private foundation](/usc/26/509.md?p=a), such tax shall be deemed to have been imposed on the first day on which action is taken by the organization which culminates in its ceasing to be a [private foundation](/usc/26/509.md?p=a).
- (g) **Abatement of taxes—** The [Secretary](/usc/26/7701.md?p=a-11-B) may abate the unpaid portion of the assessment of any tax imposed by [subsection (c)](#c), or any liability in respect thereof, if—
  - (1) the [private foundation](/usc/26/509.md?p=a) distributes all of its net assets to one or more organizations described in [section 170(b)(1)(A)](/usc/26/170.md?p=b-1-A) (other than in clauses (vii) and (viii)) each of which has been in existence and so described for a continuous period of at least 60 calendar months, or
  - (2) following the notification prescribed in [section 6104(c)](/usc/26/6104.md?p=c) to the appropriate [State](/usc/26/7701.md?p=a-10) officer, such [State](/usc/26/7701.md?p=a-10) officer within one year notifies the [Secretary](/usc/26/7701.md?p=a-11-B), in such manner as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations prescribe, that corrective action has been initiated pursuant to [State](/usc/26/7701.md?p=a-10) law to insure that the assets of such [private foundation](/usc/26/509.md?p=a) are preserved for such charitable or other purposes specified in [section 501(c)(3)](/usc/26/501.md?p=c-3) as may be ordered or approved by a court of competent jurisdiction, and upon completion of the corrective action, the [Secretary](/usc/26/7701.md?p=a-11-B) receives certification from the appropriate [State](/usc/26/7701.md?p=a-10) officer that such action has resulted in such preservation of assets.

## Source credit

(Added Pub. L. 91–172, title I, § 101(a), Dec. 30, 1969, 83 Stat. 492; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title III, § 313(a), July 18, 1984, 98 Stat. 786.)

## Notes

### Editorial Notes

### Amendments

1984—Subsec. (d)(2)(C). Pub. L. 98–369 added subpar. (C).

1976—Pub. L. 94–455 struck out “or his delegate” after “Secretary” wherever appearing.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1984 Amendment

Pub. L. 98–369, div. A, title III, § 313(b), July 18, 1984, 98 Stat. 787, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1984.”

### Effective Date

Section effective Jan. 1, 1970, see section 101(k)(1) of Pub. L. 91–172, set out as a note under section 4940 of this title.

### Applicability to Determination of Status as Substantial Contributor for Purposes of Taxes on Self-Dealing of Contributions Made Prior to October 9, 1969

Pub. L. 95–170, § 3, Nov. 12, 1977, 91 Stat. 1352, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “In determining whether a person is a substantial contributor within the meaning of section 507(d)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for purposes of applying section 4941 of such Code (relating to taxes on self-dealing), contributions made before October 9, 1969, which— were made on account of or in lieu of payments required under a lease in effect before such date, and were coincident with or by reason of the reduction in the required payments under such lease,shall not be taken into account. For purposes of applying section 507(d)(2)(B)(iv) of such Code, the preceding sentence shall be treated as having taken effect on January 1, 1970.”