IRS written determination 201432025

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Number: 201432025
Release Date: 8/8/2014
Date: May 13, 2014
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
Contact Person:
Identification Number:
Telephone Number:
Employer Identification Number:
UIL: 4941.00-00; 4941.04-00; 4946.01-00; 4946.04-00
Legend:
Foundation
=
Settlor 1 =
Settlor 2 =
Trust =
Dear
We have considered your ruling request dated December 17, 2013, as amended on March 28,
2014, requesting a ruling under Internal Revenue Code (I.R.C.) § 4941.
FACTS
You (the "Foundation") are a charitable trust and grant-making organization recognized under§
501(c)(3) and classified as a private foundation under§ 509(a).
Settlor 1 and Settlor 2 (collectively, "the Settlors") were a married couple. You state that the
Settlor 2 is a substantial contributor within the meaning of§ 507(d)(2) with respect to you.
The Settlors created the Trust, which provides for the allocation
of certain assets between you
and Settlor 2's children (or their descendants) after the Settlors' deaths. Specifically, Settlor 2's
children (or their descendants) will receive a greater percentage and you will receive a lesser
percentage of the Settlors' aggregate estate. The Trust generally defines
"aggregate estate" as
the net fair market value
of the residue of (1) either Settlor 2's survivor trust or Settlor 2's assets,
depending on which settlor survives, and (2) the assets
in Settlor 2's life insurance trust. This
allocation appears
in three sections of the Trust (the "Remainder Clauses").
In a subsequent amendment to the Trust, the Settlors requested a change to this allocation (the
"revised allocation"). Specifically, the revised allocation reduced the percentage
of the
aggregate estate you will receive upon the Settlors' death and increased the percentage
of
those assets that Settlor 2's children (or their descendants) will receive at that time.

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However, due to an inadvertent clerical error, the revised allocation appeared only in two of the
three Remainder Clauses. Settlor 2 (the "Decedent") died prior to the discovery of this error.
After the Decedent's death, the Trust became irrevocable. Accordingly, the Trust petitioned the
court for an order interpreting the Remainder Clauses as a consistent whole and confirming that
the unrevised Remainder
Clause was to be treated as conforming to the two revised Remainder
Clauses. The court granted the Trust's petition and issued
an order interpreting the Trust
provisions as a consistent whole. Additionally, the order found that the Trust's
trustees-Settlor
1 and a financial institution-consented to the granting of the petition and that good cause
existed for granting the petition. Furthermore, your State Attorney General, as a governmental
representative, consented to the court's order.
RULING REQUESTED
Reformation of the Trust is not an act of self-dealing between Settlor 1 and the Decedent's
children (or their descendants), as disqualified persons, and the Foundation
under§ 4941.
LAW
I.R.C. § 4941 (a) imposes a tax on each act of self-dealing between a disqualified person and a
private foundation.
I.R.C. § 4941 (d)(1 )(E) defines "self-dealing" as any direct or indirect transfer to, or use by or for
the benefit
of, a disqualified person of the income or assets of a private foundation.
Treas. Reg. § 53.4941 (d)-2(f) provides that a transfer to, or use
by or for the benefit of, a
disqualified person of the income or assets of a private foundation shall constitute an act of self-
dealing.
I.R.C. § 4946(a)(1)(A) defines the term "disqualified person"
as, with respect to a private
foundation, a person who
is substantial contributor to the foundation. Section 4946(a)(1)(D)
includes a member of the family (as defined in§ 4946(d)) of any individual described in§
4946(a)(1 )(A).
I.R.C. § 4946(a)(2) provides that the term "substantial contributor'' means a person who
is
described in § 507(d)(2). That section defines "substantial contributor" as any person who
contributed or bequeathed an aggregate amount of more than
$5,000 to the private foundation,
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 of the foundation
in which the contribution or
bequest is received by the foundation from such person. In the case of a trust, the term
"substantial contributor'' also means the creator of the trust.
I.R.C. § 4946(d) provides that, for the purposes
of§ 4946(a)(1), the family of an individual shall
include only his spouse, ancestors, children, grandchildren, great grandchildren, and the
spouses of
children, grandchildren, and great grandchildren.

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ANALYSIS
Section
4941 imposes a tax on each act of self-dealing between a disqualified person and a
private foundation. With respect to a private foundation,§ 4946(a)(1) defines "disqualified
person"
as a person who is a substantial contributor to the foundation and also as any member
of that person's family, including that person's spouse and children. I.R.C. §§ 4946(a)(1)(A),
(a)(1 )(D), and (d). You affirm that the Decedent
is a substantial contributor with respect to you.
Accordingly, Settlor
1, as the Decedent's spouse, and the Decedent's children, as the
Decedent's lineal descendants, are also disqualified persons with respect to you. Therefore,
unless an exception exists, each act of self-dealing between the Foundation and Settlor
1, the
Decedent, or the Decedent's children
will trigger the § 4941 tax.
Section 4941 (d)(1 )(E) provides that any direct or indirect transfer to, or use by or for the benefit
of, a disqualified person of the income or assets of a private foundation
is an act of self-dealing.
Judicial reformation of the clerical error
in the Trust amendment increases the amount of Trust
assets to be received by disqualified persons (i.e., Decedent's children) and decreases the
amount you
will receive. The reduction of Trust assets to be received by you may
be
considered a transfer to, or use by or for the benefit of, a disqualified person of income or assets
of a private foundation. Accordingly, the judicial reformation may result
in an act of self-dealing.
However, the facts and circumstances indicate that no act of self-dealing occurred. The
Settlers
amended the Trust prior to Decedent's death, when the Trust was revocable. The clerical error
was not discovered until after Decedent's death, once the Trust became irrevocable. Your State
court determined that the Settlers intended all three Remainder Clauses to be consistent.
Furthermore, the court found all interested parties consented to the reformation. Additionally,
your State Attorney General consented to the court's order. Therefore, no act of self-dealing
within the meaning of § 4941 occurred
as a result of the judicial reformation of the Trust.
CONCLUSION
Reformation of the Trust
is not an act of self-dealing between Settlor 1 and the Decedent's
children (or their descendants), as disqualified persons, and the Foundation
under§ 4941.
If the judicial reformation affected the amount of any deduction taken under § 2055 with respect
to amounts going to the Foundation, the taxpayer(s) should amend the return(s) for the taxable
year(s)
in question to reflect resulting change.
This ruling
will be made available for public inspection under section 6110 of the Code after
certain deletions of identifying information are made. For details, see enclosed Notice 437,
Notice of Intention to Disclose. A copy of this ruling with deletions that we intend to make
available for public inspection
is attached to Notice 437. If you disagree with our proposed
deletions, you should follow the instructions
in Notice 437.
This ruling is directed only to the organization that requested it. Section 611 O(k)(3) of the Code
provides that it may not be used or cited by others as precedent.

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This ruling is based on the facts as they were presented and on the understanding that there will
be no material changes in these facts. This ruling does not address the applicability of any
section of the Code or regulations to the facts submitted other than with respect to the sections
· described. Because it could help resolve questions concerning your federal income tax status,
this
ruling should be kept
in your permanent records.
If you have any questions about this ruling, please contact the person whose name and
telephone number are shown
in the heading of this letter.
In
accordance with the Power
of Attorney currently on file with the Internal Revenue Service, we
are sending a copy of this
letter to your authorized representative.
Enclosure
Notice 437
Sincerely,
Michael Seto
Manager, EO Technical