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Rev. Rul. 2002-28, 2002-20 I.R.B. 941

ISSUES

(1) If a private foundation transfers all of its assets to one or more private foundations, is the
transferor foundation required to notify the Manager, Exempt Organizations Determinations, Tax
Exempt and Government Entities Division (TE/GE), that it plans to terminate its private
foundation status pursuant to § 507(a) of the Internal Revenue Code and pay the tax under §
507(c)?

(2) What are a private foundation's tax return filing obligations after it transfers all of its
assets to one or more transferee private foundations and:
(a) terminates, or
(b) does not terminate?

(3) If a private foundation transfers all of its assets to one or more private foundations that
are effectively controlled (within the meaning of the Income Tax Regulations under § 507),
directly or indirectly, by the same person or persons who effectively control the transferor
foundation, what are the implications under:
(a) § 4940,
(b) § 4941,
(c) § 4942,
(d) § 4943,
(e) § 4944, and
(f) § 4945?

(4) If a private foundation transfers all of its assets to one or more private foundations that
are effectively controlled (within the meaning of the regulations under § 507), directly or
indirectly, by the same person or persons who effectively control the transferor foundation, what
are the implications for the transferor foundation's aggregate tax benefits under § 507(d)?

FACTS

In each of the following situations: (i) the transferee private foundations are effectively
controlled (within the meaning of the regulations under § 507), directly or indirectly, by the same
persons who effectively controlled the transferor private foundations; (ii) the private foundations
have not committed 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; (iii) the private foundations
have not terminated under § 507(a)(2) or (b)(1); (iv) prior to the transactions described below,
the transferor private foundations made outstanding grants to organizations not described in §
4945(d)(4)(A), which required the transferor foundations to exercise expenditure responsibility
in accordance with § 4945(h); and (v) the private foundations are not operating foundations
within the meaning of § 4942(j)(3).

SITUATION 1

P is recognized as exempt from federal tax under § 501(c)(3) and is classified as a private
foundation under § 509(a). P's current directors have divergent charitable objectives.

X, Y, and Z are recognized as exempt from federal tax under § 501(c)(3) and are classified as
private foundations under § 509(a). Pursuant to a plan of dissolution, after satisfying all of its
outstanding liabilities, P distributes all of its remaining assets in equal shares to X, Y, and Z. As
part of the plan of dissolution, X agrees to exercise expenditure responsibility for all outstanding
grants made by P. The day after P distributes all of its assets, P files articles of dissolution with
the appropriate state authority.

SITUATION 2

T, a charitable trust, is recognized as exempt from federal tax under § 501(c)(3) and is
classified as a private foundation under § 509(a). The trustees of T determine that T's charitable
purposes can be more effectively accomplished by operating in corporate form.

The trustees of T create W, a not-for-profit corporation, for the purpose of carrying on T's
activities. W is recognized as exempt from federal tax under § 501(c)(3) and is classified as a
private foundation under § 509(a). T transfers all of its assets and liabilities to W.

SITUATION 3

J and K are not-for-profit corporations that are recognized as exempt from federal tax under §
501(c)(3) and are classified as private foundations under § 509(a). J and K generally confine
their grantmaking activities to supporting charitable programs in the city in which both J and K
are located.

V, a newly-formed entity, is recognized as exempt from federal tax under § 501(c)(3) and is
classified as a private foundation under § 509(a). To eliminate the costs of maintaining two
private foundations with identical charitable purposes, J and K transfer all of their assets and
liabilities to V.

LAW

Section 507(a) provides that, except as provided in § 507(b), the status of any organization as
a private foundation shall be terminated only if: (1) such organization notifies the Secretary of its
intent to accomplish such termination, or (2) 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 a liability for tax under chapter 42, and the Secretary notifies such organization that
it is liable for the tax imposed by § 507(c). Under § 507(a)(1) and (2), the organization's private
foundation status is terminated when the organization pays the tax imposed by § 507(c) or the
entire amount of such tax is abated under § 507(g). The person currently designated to receive
the notice of termination described in § 507(a)(1) is Manager, Exempt Organizations
Determinations (TE/GE).

Section 507(b)(2) provides that in the case of a transfer of assets of any private foundation to
another private foundation pursuant to a liquidation, merger, redemption, recapitalization, or
other adjustment, organization or reorganization, the transferee foundation shall not be treated as
a newly created organization.

Section 507(c) imposes a tax on each organization whose private foundation status is
voluntarily or involuntarily terminated under § 507(a). The tax imposed is equal to the lower of:
(1) the amount which the private foundation substantiates by adequate records or other
corroborating evidence as the aggregate tax benefit resulting from the § 501(c)(3) status of such
foundation, or (2) the value of the net assets of the foundation.

Section 1.507-1(b)(6) of the Income Tax Regulations provides that if a private foundation
transfers all or part of its assets to one or more other private foundations pursuant to a transfer
described in § 507(b)(2) and § 1.507-3(c), such transferor foundation will not have terminated its
private foundation status under § 507(a)(1).

Section 1.507-1(b)(7) provides that a transfer of all the assets of a private foundation does not
result in a termination of the transferor private foundation under § 507(a), unless the transferor
private foundation elects to terminate pursuant to § 507(a)(1), or § 507(a)(2) is applicable.

Section 1.507-3(a)(1) provides that, in a § 507(b)(2) transfer, a transferee organization will
not be treated as a newly created organization. The transferee organization is treated as
possessing those attributes and characteristics of the transferor organization which are described
in § 1.507-3(a)(2), (3) and (4).

Section 1.507-3(a)(2)(i) provides that a transferee organization shall succeed to the aggregate
tax benefit of the transferor organization in an amount equal to the amount of such aggregate tax
benefit multiplied by a fraction the numerator of which is the fair market value of the assets (less
encumbrances) transferred to such transferee and the denominator of which is the fair market
value of the assets of the transferor (less encumbrances) immediately before the transfer.

Section 1.507-3(a)(3) provides that, in the event of a transfer of assets under § 507(b)(2), any
person who is a substantial contributor with respect to the transferor foundation shall be treated
as a substantial contributor with respect to the transferee foundation, regardless of whether such
person meets the $ 5,000 two-percent test with respect to the transferee at any time. If a private
foundation makes a transfer described in § 507(b)(2) to two or more transferee private
foundations, any person who is a substantial contributor with respect to the transferor foundation
prior to such transfer shall be considered a substantial contributor with respect to each transferee.

Section 1.507-3(a)(4) provides that if a private foundation incurs liability for one or more of
the taxes imposed under chapter 42 (or any penalty resulting therefrom) prior to, or as a result of,
making a transfer of assets described in § 507(b)(2) to one or more private foundations, in any
case where transferee liability applies each transferee foundation shall be treated as receiving the
transferred assets subject to such liability to the extent that the transferor foundation does not
satisfy such liability.

Section 1.507-3(a)(5) provides that, except as provided in § 1.507-3(a)(9), a private
foundation is required to meet the distribution requirements of § 4942 for any taxable year in
which it makes a § 507(b)(2) transfer of all or part of its net assets to another private foundation.

Section 1.507-3(a)(6) provides that whenever a private foundation makes a § 507(b)(2)
transfer of all or part of its net assets to another private foundation, the applicable period of time
described in § 4943(c)(4), (5) or (6) shall include both the period during which the transferor
foundation held such assets and the period during which the transferee foundation holds such
assets.

Section 1.507-3(a)(7) provides that, except as provided in § 1.507-3(a)(9), where the
transferor has disposed of all of its assets, during any period in which the transferor has no
assets, § 4945(d)(4) and (h) shall not apply to the transferee or the transferor with respect to any
expenditure responsibility grants made by the transferor. However, the information reporting
requirements under § 4945 will apply for any year in which any such transfer is made.

Section 1.507-3(a)(9)(i) provides that if a private foundation transfers all of its net assets to
one or more private foundations that are effectively controlled, directly or indirectly, by the same
person or persons that effectively controlled the transferor private foundation, the transferee
private foundation will be treated as if it were the transferor private foundation for purposes of §
§ 4940 through 4948 and § § 507 through 509. However, where proportionality is appropriate,
such a transferee foundation shall be treated as if it were the transferor in the proportion which
the fair market value of the assets (less encumbrances) transferred to such transferee bears to the
fair market value of the assets (less encumbrances) of the transferor immediately before the
transfer.

Section 1.507-3(a)(9)(ii) provides that § 1.507-3(a)(9)(i) shall not apply to the requirements
under § 6033, which must be complied with by the transferor foundation, nor to the requirement
under § 6043 that the transferor foundation file a return with respect to its liquidation, dissolution
or termination.

Section 1.507-3(a)(9)(iii)(example 2) provides that if the transferees of a § 507(b)(2) transfer
are effectively controlled by the same persons who control the transferor, each transferee is
required to exercise expenditure responsibility with respect to the transferor's outstanding grants,
unless, as part of the transfer, the transferor assigns and one or more transferees assume the
transferor's expenditure responsibility, in which case, only the transferees assuming the
transferor's expenditure responsibility are required to exercise such expenditure responsibility.
Section 1.507-3(a)(9)(iii)(example 2) also provides that because such transferee foundations are
treated as the transferor, rather than as recipients of expenditure responsibility grants, there are
no expenditure responsibility requirements which must be exercised under § 4945(d)(4) and (h)
with respect to the § 507(b)(2) transfer.

Section 1.507-3(a)(10), by reference to § 1.507-1(b)(9), provides that a private foundation
that transfers all of its net assets is required to file the annual information return required by §
6033 for the taxable year in which such transfer occurs. However, the foundation will not be
required to file such return for any taxable year following the taxable year in which the last of

such transfers occurred, provided the foundation does not hold equitable title to any assets or
engage in any activity during such subsequent taxable year.

Section 1.507-3(c)(1) provides that for purposes of § 507(b)(2), the terms "other adjustment,
organization, or reorganization" shall include any partial liquidation or any other significant
disposition of assets to one or more private foundations, other than transfers for full and adequate
consideration or distributions out of current income.

Section 1.507-3(c)(2) provides that the term "significant disposition of assets to one or more
private foundations" includes any disposition (or series of related dispositions) by a private
foundation to one or more private foundations of 25 percent or more of the fair market value of
the net assets of the transferor foundation at the beginning of the taxable year in which the
transfers occur.

Section 1.507-3(d) provides that unless a private foundation voluntarily gives notice pursuant
to § 507(a)(1), a transfer of assets described in § 507(b)(2) will not constitute a termination of the
transferor's private foundation status under § 507(a)(1).

Section 1.507-4(b) provides that private foundations which make transfers described in §
507(b)(2) are not subject to the tax imposed under § 507(c) with respect to such transfers unless
the provisions of § 507(a) become applicable.

Section 1.507-7(a) provides that the net value of assets for purposes of § 507(c) 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, or (2) the date on
which it ceases to be a private foundation.

Sections 1.507-7(b)(1) and 1.507-8 provide that in the case of a termination under §
507(a)(1), the date referred to in § 1.507-7(a)(1) shall be the date on which the terminating
foundation gives the notification described in § 507(a)(1).

Section 4940(a) generally imposes an excise tax on a private foundation's net investment
income for the taxable year.

Section 4940(c)(1) defines net investment income as the amount by which the sum of the
gross investment income and the capital gain net income exceeds the deductions allowed under §
4940(c)(3).

Section 4941(a)(1) imposes a tax on each act of self-dealing between a disqualified person
and a private foundation. Section 53.4946-1(a)(8) provides that, for purposes of § 4941, the term
"disqualified person" shall not include any organization described in § 501(c)(3) (other than an
organization described in § 509(a)(4)).

Section 4942(a) generally imposes a tax on the undistributed income of a private foundation
(other than an operating foundation under § 4942(j)(3)) for any taxable year, which has not been

distributed before the first day of the second (or any succeeding) taxable year following such
taxable year.

Section 4942(c) defines "undistributed income" for any taxable year as the amount by which
the distributable amount for such taxable year exceeds the qualifying distributions made out of
such distributable amount for such taxable year.

Section 4942(d) defines "distributable amount" as the amount equal to the sum of the
minimum investment return, plus certain other amounts, reduced by the sum of the taxes
imposed on such private foundation for the taxable year under subtitle A and § 4940.

Section 4942(g)(1)(A) defines "qualifying distribution" as any amount (including that portion
of reasonable and necessary administrative expenses) paid to accomplish one or more purposes
described in § 170(c)(2)(B) other than a contribution to: (i) an organization controlled directly or
indirectly by the foundation or by one or more disqualified persons with respect to the
foundation, unless certain requirements are satisfied, or (ii) any private foundation which is not
an operating foundation under § 4942(j)(3), unless certain requirements are satisfied.

Section 4942(i) provides for a carryover of the amount by which qualifying distributions
during the five preceding taxable years (other than amounts required to be distributed out of
corpus under § 4942(g)(3)) have exceeded the distributable amounts for such years.

Rev. Rul. 78-387, 1978-2 C.B. 270, holds that when a private foundation transfers all its
assets to another private foundation that is controlled by the same persons who controlled the
transferor foundation, the transferee foundation may reduce its distributable amount under §
4942(d) by the amount of the transferor's excess qualifying distributions as described in §
4942(i).

Section 4943(a)(1) imposes a tax on the "excess business holdings" (as defined in § 4943(c))
of any private foundation in a business enterprise.

Section 4944(a)(1) imposes a tax on any amount invested by a private foundation in a
manner that jeopardizes the carrying out of any of the foundation's exempt purposes.

Section 4945 imposes a tax on any "taxable expenditure" (as defined in § 4945(d)) made by a
private foundation.

Section 4945(d)(4) provides that the term "taxable expenditure" includes any amount paid or
incurred as a grant to a private non-operating foundation unless the grantor foundation exercises
expenditure responsibility with respect to such grant in accordance with § 4945(h).

Section 4945(h) provides that the expenditure responsibility referred to in § 4945(d)(4)
means a private foundation is responsible to exert all reasonable efforts and to establish adequate
procedures to: (1) see that the grant is spent solely for the purpose for which made, (2) obtain full
and complete reports from the grantee on how the funds are spent, and (3) make full and detailed
reports with respect to such expenditures to the Secretary.

Section 4946(a)(1) defines a "disqualified person" for purposes of subchapter A of chapter
42.

Section 6033(a)(1) provides that, with certain exceptions, every organization exempt from
taxation under § 501(a) shall file an annual return.

Section 6043(b) and § 1.6043-3(a)(1) provide that, with certain exceptions, a private
foundation must provide information with respect to a liquidation, dissolution, termination or
substantial contraction as required by the instructions accompanying the foundation's annual
return.

ANALYSIS

SECTION 507

Section 507(b)(2) applies to a significant disposition of assets by one private foundation to
one or more private foundations, other than transfers for full and adequate consideration or
distributions out of current income. See § 1.507-3(c)(1). A transfer of all of a private
foundation's assets to one or more private foundations constitutes a significant disposition. See §
1.507-3(c)(2). In Situations 1, 2 and 3, each transferor foundation transfers all of its assets to one
or more private foundations. The transfers are not for full and adequate consideration and are not
distributions out of current income. Thus, the transfers in Situations 1, 2 and 3 are § 507(b)(2)
transfers.

A transfer of assets described in § 507(b)(2) does not constitute a termination of the
transferor's private foundation status under § 507(a)(1) unless the transferor voluntarily gives
notice pursuant to § 507(a)(1). See § § 1.507-1(b)(6) and 1.507-3(d). The transferor foundation is
not required to provide such notice. In Situation 1, P's dissolution under state law has no effect
on whether P has terminated its private foundation status for federal tax purposes.

In Situations 1, 2 and 3, if the transferor foundation does not give notice to the Manager,
Exempt Organizations Determinations (TE/GE), of its intent to terminate, the transferor retains
its private foundation status and the § 507(c) tax does not apply. See § 507(a)(1) and § 1.507-
4(b). The transferor foundation is required to file a Form 990-PF for the taxable year of the
transfer(s), but is not required to file a Form 990-PF for subsequent taxable years during which it
does not have equitable title to any assets and does not engage in any activity. See § § 6033(a)(1)
and 6043(b), and § § 1.507-1(b)(9) and 1.507-3(a)(10). If, at any time following the transfer(s),
the transferor foundation receives additional assets or engages in any activity, the transferor
foundation must file a Form 990-PF. Additionally, because the transferor foundation has not
terminated its private foundation status, the transferor foundation continues to be treated as a
private foundation.

In Situations 1, 2 and 3, if the transferor foundation does give notice to the Manager, Exempt
Organizations Determinations (TE/GE), of its intent to terminate, then the § 507(c) tax applies on
the date such notice is given. See § 1.507-7(a) and (b)(1). Thus, in Situations 1, 2 and 3, if the

transferor foundation provides notice at least one day after it transfers all of its assets, the tax
imposed by § 507(c) will be zero. The transferor foundation is required to file a Form 990-PF for
the taxable year of the transfer(s). See § § 6033(a)(1) and 6043(b).

Regardless of whether the transferor foundation provides notice of its intent to terminate, the
transferee foundations are treated as possessing the aggregate tax benefit of the transferor
foundations. See § 1.507-3(a)(1) and (2)(i). In Situation 1, X, Y, and Z succeed to P's aggregate
tax benefit in proportion to the assets transferred to each. See § 1.507-3(a)(2)(i).

Moreover, regardless of whether the transferor foundation provides notice of its intent to
terminate, where transferee liability applies, each transferee foundation is treated as receiving the
transferred assets subject to the transferor foundation's prior excise tax liabilities under chapter
42 (and any penalties resulting therefrom), if any, to the extent the transferor did not previously
satisfy those liabilities. See § 1.507-3(a)(1) and (4).

SECTION 4940

In Situations 1, 2 and 3, the transfers do not constitute investments of the transferor for
purposes of § 4940; therefore, the transfers do not give rise to net investment income subject to
tax under § 4940(a).

In Situations 1, 2, and 3, because each transferor foundation transfers all of its assets to one
or more private foundations effectively controlled by the same persons that effectively control
the transferor, any excess § 4940 tax paid by the transferor may be used by the transferees to
offset the transferees' § 4940 tax liability. See § 1.507-3(a)(9)(i). In Situation 1, where there are
several transferees, proportionality is appropriate, and X, Y, and Z will each succeed to one third
of any excess § 4940 tax paid by P. See § 1.507-3(a)(9)(i).

SECTION 4941

In Situations 1, 2 and 3, the transfers are to § 501(c)(3) organizations, which are not treated
as disqualified persons for purposes of § 4941. See § 53.4946-1(a)(8). Thus, the transfers do not
constitute self-dealing transactions and are not subject to tax under § 4941(a)(1).

SECTION 4942

In Situations 1, 2 and 3, because each transferor foundation transfers all of its assets to one or
more private foundations effectively controlled by the same persons that effectively control the
transferor, the transferee foundations are treated as though they were the transferor for purposes
of § 4942. See § 1.507-3(a)(9)(i). Accordingly, the transfers to the transferee foundations are not
treated as qualifying distributions of the transferor foundation. In addition, in Situations 2 and 3,
each transferee foundation assumes all obligations with respect to the transferor's undistributed
income within the meaning of § 4942(c), if any, and reduces its own distributable amount under
§ 4942 by the transferor foundation's excess qualifying distributions under § 4942(i). In Situation
1, where there are several transferee foundations, proportionality is appropriate, and X, Y and Z

each becomes responsible for one third of P's undistributed income and succeeds to one third of
P's excess qualifying distributions, if any. See § 1.507-3(a)(9)(i) and Rev. Rul. 78-387.

SECTION 4943

Whether the transfers cause a transferee foundation to have excess business holdings and be
subject to tax under § 4943(a) depends on the facts and circumstances. In Situations 1, 2 and 3,
because each transferor foundation transfers all of its assets to one or more private foundations
effectively controlled by the same persons that effectively control the transferor, the transferee
foundations are treated as though they were the transferor for purposes of § § 4943 and 4946. See
§ 1.507-3(a)(9)(i). Accordingly, in determining whether a transferee foundation has excess
business holdings, the disqualified persons of the transferee foundation are determined in part by
treating the transferee as though it were the transferor. For example, both the substantial
contributors of the transferee and the substantial contributors of the transferor are treated as a
disqualified persons of the transferee in determining whether the transferee has excess business
holdings as a result of the transfer. See § 4946(a)(1)(A) and § 1.507-3(a)(9)(i); see also § 1.507-
3(a)(3). In addition, in determining whether a transferee foundation is subject to tax under §
4943, the transferee's holding period in the transferred assets for purposes of § 4943(c)(4), (5)
and (6) includes both the period during which the transferor foundation held such assets and the
period during which the transferee foundation holds such assets. See § 1.507-3(a)(6).

SECTION 4944

In Situations 1, 2 and 3, the transfers do not constitute investments for purposes of § 4944;
therefore the transfers do not constitute investments jeopardizing the transferor foundation's
exempt purposes and are not subject to tax under § 4944(a)(1).

SECTION 4945

In Situations 1, 2 and 3, because each transferor foundation transfers all of its assets to one or
more private foundations effectively controlled by the same persons that effectively control the
transferor, the transferee foundations are treated as though they were the transferor for purposes
of § 4945. See § 1.507-3(a)(9)(i). Because the transferee foundations are treated as the transferor
foundation rather than as recipients of expenditure responsibility grants, there are no expenditure
responsibility requirements that must be exercised under § 4945(d)(4) or (h) with respect to the
transfers to the transferee foundations. See § 1.507-3(a)(9)(i) and (iii)(example 2).

The transferor foundation is required to exercise expenditure responsibility over the
transferor's outstanding grants until the transferor disposes of all of its assets. Thereafter, during
any period in which the transferor foundation has no assets, the transferor foundation is not
required to exercise expenditure responsibility over any outstanding grants. See § 1.507-3(a)(7).
However, the transferor foundation still must meet the § 4945(h) reporting requirements for the
outstanding grants for the year in which the transfers are made. See § 1.507-3(a)(7).

The transferee foundations assume expenditure responsibility for all the transferor's
outstanding grants. See § 1.507-3(a)(9)(i). In Situation 1, because X agreed to exercise

expenditure responsibility for all of P's outstanding grants, Y and Z have no expenditure
responsibility over P's grants. However, in the absence of such an agreement, X, Y and Z each
would be required to exercise expenditure responsibility with respect to all of P's outstanding
grants. See § 1.507-3(a)(9)(i) and (iii)(example 2).

HOLDINGS

(1) A private foundation that transfers all of its assets to one or more private foundations in a
transfer described in § 507(b)(2) is not required to notify the Manager, Exempt Organizations
Determinations (TE/GE), that it plans to terminate its private foundation status under §
507(a)(1). If the private foundation does not provide notice and does not terminate, the private
foundation is not subject to the § 507(c) termination tax. If the private foundation chooses to
provide notice, and therefore terminates, it is subject to the § 507(c) tax; however, if the private
foundation has no assets on the day it provides notice (e.g., it provides notice at least one day
after it transfers all of its assets), the § 507(c) tax will be zero.

(2) (a) A private foundation that has disposed of all of its assets and terminates its private
foundation status must file a Form 990-PF for the taxable year of the disposition and must
comply with any expenditure responsibility reporting obligations on such return.

(b) A private foundation that has disposed of all of its assets and does not terminate its
private foundation status must file a Form 990-PF for the taxable year of the disposition and
must comply with any expenditure responsibility reporting obligations on such return, but does
not need to file returns in the following taxable years if it has no assets and does not engage in
any activities. If, in later taxable years, it receives additional assets or resumes activities, it must
resume filing a Form 990-PF for those taxable years in which it has assets or activities.

(3) Where transferee liability applies, each transferee foundation is treated as receiving the
transferred assets subject to the transferor foundation's prior excise tax liabilities under chapter
42 (and any penalty resulting therefrom), if any, to the extent the transferor foundation did not
previously satisfy those liabilities.

(a) The transfers do not give rise to net investment income and are not subject to tax
under § 4940(a). The transferee foundations may use their proportionate share of any excess §
4940 tax paid by the transferor to offset their own § 4940 tax liability.

(b) The transfers do not constitute self-dealing and are not subject to tax under §
4941(a)(1).

(c) The transfers do not constitute qualifying distributions for the transferor foundation
under § 4942. The transferee foundations assume their proportionate share of the transferor
foundation's "undistributed income" under § 4942 and reduce their own distributable amount for
purposes of § 4942 by their proportionate share of the transferors' excess qualifying distributions
under § 4942(i).

(d) Whether the transfers cause a transferee foundation to have excess business holdings
and be subject to tax under § 4943(a) depends on the facts and circumstances. In making these
determinations, the disqualified persons of a transferee foundation are determined in part by
treating the transferee as though it were the transferor. In addition, the transferee's holding period
in the transferred assets for purposes of § 4943(c)(4), (5) and (6) includes both the period during
which the transferor foundation held such assets and the period during which the transferee
foundation holds such assets.

(e) The transfers do not constitute investments jeopardizing the transferor foundation's
exempt purposes and are not subject to tax under § 4944(a)(1).

(f) The transferor foundation is not required to exercise expenditure responsibility under
§ 4945(h) with respect to the transfers. The transferor foundation is required to exercise
expenditure responsibility over any outstanding grants until the time it disposes of all of its assets
and must satisfy the § 4945(h) reporting requirements for the taxable year in which the transfers
were made. Following the transfers and during any period in which the transferor has no assets
or activities, the transferor foundation is not required to exercise expenditure responsibility with
respect to any of its outstanding grants.

Each transferee foundation must exercise expenditure responsibility with respect to all
outstanding grants by the transferor foundation. If, however, the transferor foundation assigns
and transferees assume the transferor's expenditure responsibility with respect to a grant, only the
transferees assuming the transferor's expenditure responsibility are required to exercise such
expenditure responsibility with respect to such grant.

(4) The transferor foundation's aggregate tax benefits under § 507(d) are transferred to the
transferee foundations in proportion to the transferor's assets transferred to each transferee.

DRAFTING INFORMATION

The principal author of this revenue ruling is Theodore R. Lieber of the Exempt
Organizations, Tax Exempt and Government Entities Division. For further information regarding
this revenue ruling contact Theodore R. Lieber on (202) 283-8999 (not a toll-free call).