The Tax Law of Private Foundations, 5th Edition

CHAPTER SEVENExcess Business Holdings

1. § 7.1 General Rules
   1. (a) Definition of Business Enterprise
   2. (b) Passive Income Businesses
   3. (d) Percentage Limitations
2. § 7.2 Permitted and Excess Holdings
   1. (c) Constructive Ownership
   2. (d) Disposition Periods
3. § 7.3 Functionally Related Businesses

§ 7.1 GENERAL RULES

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(a) Definition of Business Enterprise

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A for-profit business may be started, yet not generate any income for an initial period of time. That undertaking would appear to be a business enterprise as of its commencement, inasmuch as it is carried on for the production of income. That is, presumably an activity cannot escape classification as a business enterprise during a start-up period in which income is not yet being produced. The tax regulations provide that, if a private foundation holds an interest that is not an interest in a business enterprise, and the interest subsequently becomes an interest in a business enterprise, the interest becomes an interest in a business enterprise at the time of the change in status.^5.1 This rule, however, applies only where the interest is not a business enterprise because it is a passive holding.^5.2

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Four exceptions are available from the definition of the term business enterprise: a trade or business ...