Private Foundations

CHAPTER SEVENExcess Business Holdings

1. § 7.1 General Rules
   1. (b) Passive Income Businesses
2. § 7.2 Permitted and Excess Holdings
   1. (a) General Rules
3. *§ 7.3 Functionally Related Businesses
4. *§ 7.4 Rules Applicable to Certain Supporting Organizations
5. § 7.6 Excise Taxes on Excess Holdings

§ 7.1 GENERAL RULES

(b) Passive Income Businesses

p. 337. Insert as fourth paragraph:

A contemporary application of these rules involves the concept of the blocker corporation. In the most recent of its private rulings on the point, the IRS considered the tax law consequences of a wholly owned blocker corporation in a foreign country, formed by a private foundation for asset management and liability protection purposes. At least 95 percent of this corporation's income will be from passive investments; some investments will be debt-financed. This income will be foreign personal holding company income;^19.1 no income will be attributable to insurance activity. The IRS ruled that (1) the Subpart F income^19.2 to be received by the foundation from the corporation will not be subject to the unrelated business income tax;^19.3 (2) the income the foundation will receive from the corporation will be dividend income and therefore excluded from unrelated business income taxation;^19.4 (3) the foundation's ownership of the corporation's stock is not an excess business holding because the operation is not a business enterprise; and (4) the foundation's ownership of the corporation will not be a jeopardizing investment. ...