Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 78-76

1978-1 C.B. 377

Sec. 4941

IRS Headnote

Private foundations; self-dealing; "foundation manager's" sale of property to trust. The trustee of a trust that is a private foundation who, while representing both himself and the trust, willfully and without reasonable cause sells property he owns to the trust knowing that the sale is an act of self-dealing under section 4941(d)(1)(A) of the Code is liable for both the tax imposed on an act of self-dealing by section 4941(a)(1) and the tax imposed on the participation of foundation managers by section 4941(a)(2).

Full Text

Rev. Rul. 78-76

Advice has been requested whether, under the circumstances described below, a disqualified person is liable for the tax imposed on an act of self-dealing by section 4941(a)(1) of the Internal Revenue Code of 1954 as well as the tax imposed on the participation of foundation managers by section 4941(a)(2).

The disqualified person is the trustee of a trust that is a private foundation under section 509(a) of the Code. As such, with respect to the trust, he is a "foundation manager" as that term is defined in section 4946(b). The disqualified person, acting on his own behalf and as trustee on behalf of the trust, sold property he owned to the trust knowing that the transaction was an act of self-dealing under section 4941(d)(1)(A). His participation in the transaction was willful and was not due to reasonable cause.

Section 4941(a)(1) of the Code imposes a five-percent tax on each act of self-dealing between a disqualified person and a private foundation. The tax is to be paid by any disqualified person (other than a foundation manager acting only as such) who participates in the act of self-dealing.

In any case in which a tax is imposed by section 4941(a)(1) of the Code, section 4941(a)(2) imposes a two-and-one-half percent tax on the participation of any foundation manager in the act of self-dealing, knowing that it is such an act, unless such participation is not willful and is due to reasonable cause. The tax is to be paid by any foundation manager who participates in the act of self-dealing.

In this case, the disqualified person participated in the transaction giving rise to the act of self-dealing both as a self-dealer and in his capacity as a foundation manager. Accordingly, since the disqualified person did not act only in his capacity as a foundation manager, he is liable for the tax imposed by section 4941(a)(1) of the Code. See section 53.4941(a)-1(a) of the Foundation Excise Tax Regulations.

In addition, he participated in the transaction knowing that it was an act of self-dealing and his participation was willful and was not due to reasonable cause. Accordingly, as a foundation manager of the trust, he is liable for the tax imposed by section 4941(a)(2) of the Code. See section 53.4941(a)-1(a) of the regulations.