IRS written determination 201510050

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: 201510050
Release
Date: 3/6/2015
Date: December 10, 2014
Legend:
Partnershi(2
=
DP
=
Sister
=
Foundation
=
Date
=
Dear
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
Contact Person:
Identification Number:
Telephone Number:
Employer Identification Number:
UIL: 4941.00-00
This is
in response to your letter dated September 25, 2014 in which you requested certain rulings
with respect to I.R.C. § 4941.
Background:
You are exempt under§ 501 (c)(3), and you are characterized as a private foundation under§ 509(a).
You own a 49.9 percent income interest in Partnershi(2, which owns nearly 6,000 acres of farmland
and wetland, almost entirely consisting
of wetlands. The other partners in Partnershi!2 with you
include a disqualified person (DP), owning
.1 percent of the partnership, who is a substantial
contributor to you; Sister, owning 3.56 percent of the partnership, who is the sister of DP; and
Foundation, owning 46.44 percent
of the partnership, to which Sister is a substantial contributor. Both
you and Foundation were founded by DP's and Sister's mother, who is a substantial contributor to
both foundations.
DP and Sister are also partners in several other partnerships all owning a total of approximately
16,000 acres of land, including the land discussed above. DP and Sister have been unable to
determine the appropriate use of the land held by these partnerships for a number of years. The
inability to agree led to years
of contentious court battles over the appropriate use and disposition of
the land held by these partnerships. After years
of litigation, the court issued an order that all the
partnerships are to be liquidated and all of the land held by them is to be sold as one unit. The
proceeds from such a
sale will be divided among the partners
in accordance with their income share
and total acreage owned by their particular partnership. The appointed Special Master has
determined that these lands will be sold
in a public auction after Date. The auction will be conducted
by the
local county where the land is located.
DP proposes to bid
in the public auction in an attempt to buy the full amount of the land, including the
6,000 acres owned by Partnershi(2. Should DP have the highest bid he will purchase the land from

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Partnership with proceeds going to both you and Foundation in proportion to the foundations' income
interests
in the land.
Ruling Requested:
The
sale of the underlying assets of the partnership to
DP, should he get the winning bid, will not
result
in "self-dealing" as defined in § 4941.
Law:
I.R.C. § 507(d)(2) provides that a substantial contributor means any person who contributed or
bequeathed an aggregate amount of more than $5,000 to the private foundation, if such amount is
more than two percent of the total contributions and bequests received by the foundation.
I.R.C.
§ 4941 imposes a tax on each act of self-dealing between a disqualified person and a private
foundation.
I.R.C.
§ 4941(d)(1) defines self-dealing as the direct or indirect sale or exchange of property between
a private foundation and a disqualified person, the direct or indirect furnishing of goods, services, or
facilities between a disqualified person and a private foundation, and the direct or indirect payment of
compensation by a private foundation to a disqualified person among other things.
I.R.C. § 4946(a)(1) provides that a "disqualified person," with respect to a private foundation, includes
a substantial contributor, as defined under section 507(d)(2); a foundation director, trustee,
or officer;
and any spouse, ancestor, child, grandchild, great grandchild, and any spouse
of a child, grandchild,
or great grandchild of that contributor, director, or officer.
Treas. Reg.
§ 53.4941 (d)-1 (a) provides that it is immaterial whether a transaction results in a benefit
or a detriment to the private foundation in determining whether the transaction is an act of self-
dealing.
Treas.
Reg.§ 53.4941(d)-1(b)(5) provides that an organization is controlled by a private foundation if
the foundation or one or more of its foundation managers (acting only
in such capacity) may, only by
aggregating their votes or positions of authority, require the organization to engage in a transaction
which if engaged in with the private foundation would constitute self-dealing. Similarly, for purposes of
this paragraph, an organization is controlled by a private foundation
in the case of such a transaction
between the organization and a disqualified person, if such disqualified person, together with one or
more persons who are disqualified persons by reason of such a person's relationship to such
disqualified person, may, only by aggregating their votes or positions
of authority with that of the
foundation, require the organization to engage
in such a transaction. The "controlled" organization
need not be a private foundation.
Treas. Reg. § 53.4941 (d)-2(a) provides two examples of acts of self-dealing through a sale or
exchange. The examples include the sale of incidental supplies by a disqualified person
to a private
foundation
regardless of the amount paid to the disqualified person and the sale of stock or other
securities by a disqualified person to a private foundation
in a "bargain sale" regardless of the amount
paid for such stock or other securities.
Revenue
Ruling 76-158, 1976-1 C.B. 354, A private foundation, owning thirty-five percent
of the

3
voting stock of a corporation and having a foundation manager personally owning the remaining sixty-
five percent but not holding a position of authority
in the corporation by virtue of being foundation
manager, does not control the corporation for purposes of the self-dealing provisions
of § 4941.
Analysis:
Section 4941 defines self-dealing as, among other things, the direct or indirect sale or exchange of
property between a private foundation and a disqualified person. Such a transaction between a
private foundation and a disqualified person will constitute an act of direct self-dealing, while a similar
transaction between a disqualified person and
an organization controlled by the private foundation will
constitute an act of indirect self-dealing.
For purposes of determining whether
an organization is controlled by a private foundation,
§ 53.4941(d)-1(b)(5) provides that an organization is considered to be
controlled by a private
foundation if any one of four circumstances exist: (1) if the private foundation alone can control the
organization; (2) if the private foundation, by aggregating its votes or positions of authority with those
of one or more foundation managers (acting only
in such capacity) can control the organization; (3) if
a foundation manager (acting only
in such capacity) alone can control the organization; or (4) if the
foundation managers (acting only
in such capacity}, by aggregating their votes or positions of
authority with one another, can control the foundation. Here, you have demonstrated that you do not
control the partnership owning the land
in the ways defined under§ 53.4941(d)-1(b)(5). First, you do
not control the partnership on your own as you do not own over fifty percent of the voting stock of the
partnership.
Second, there is no foundation manager that owns a voting interest in the partnership in
their capacity as a foundation manager so you cannot aggregate your shares with any such
disqualified person. See Rev. Rul. 76-158, supra. This fact means that you do not meet any
of the
others of these four tests.
Section 53.4941 (d)-1 (b)(5) also provides that an organization
is controlled by a private foundation in
. the case of such a transaction between the organization and a disqualified person, if such disqualified
person, together with one or more persons who are disqualified persons by reason
of such a person's
relationship (within the meaning
of section 4946(a)(1)(C) through (G)) to such disqualified person,
may, only by aggregating their votes or positions of authority with that of the foundation, require the
organization to engage
in such a transaction. Here, you do not meet this test either since such test
only includes the shares
of DP and not those of
Sister since sister is not a covered relationship status
under§§ 4946(a)(1 )(C) thought (G). By combining your voting interest with that of DP you and DP
control exactly half of the voting interest of the partnership. Given that the other fifty percent is held
by Sister and Foundation, it can be shown through repeated disputes between Sister and DP over the
direction of the partnership and the
land it owns that neither Foundation and Sister on the one hand or
you and DP on the other hand exercises
control over the organization.
Additionally, you have many factors on your side to indicate that the sale of property is not controlled
by you, and that such sale
is done in an arm's length manner. The sale of the property is a result of a
court order by an impartial court after years of contested litigation. These proceedings make clear
that Sister, who controls the other half of the partnership and receives the other half of the income
created from the sale, is seeking the highest price and greatest return from the sale. The sale will be
conducted by a third party government
official through an auction format, which will result
in the
highest market price given that only the highest bid will win. These factors all indicate that the
transaction
will occur at arm's length and
in the absence of control by one of the parties.

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Given that you do not control the partnership within the meaning of§ 53.4941(d)-1(b)(5), there can be
no indirect self-dealing. And since you are not disposing of the property yourself there is no direct
self-dealing.
Ruling:
The sale of the underlying assets of the partnership to DP, should he get the winning bid, will not
result
in "self-dealing" as defined in § 4941.
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.
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.
Specifically, this ruling does not reach any conclusion as to the qualifying distribution status
of your
proposed transfer under § 4942(g)(3). 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,
Mary Jo Salins
Acting Manager, Exempt Organizations