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knows that the act is an act of self-dealing, and (3) the
participation by the foundation manager is willful and is not due
to reasonable cause. Sec. 53.4941(a)-1(b)(1), Foundation Excise
Tax Regs. Respondent must prove, by clear and convincing evi-
dence, that the foundation managers participated knowingly in the
self-dealing transaction. Sec. 7454(b); Rule 142(c).
We first turn to the regulations to provide the initial
guidance in applying section 4941(a)(2). The regulations
interpret what the statute requires for knowing participation.
Section 53.4941(a)-1(b)(3), Foundation Excise Tax Regs., states:
a person shall be considered to have participated in a
transaction "knowing" that it is an act of self-dealing
only if--
(i) He has actual knowledge of sufficient facts
so that, based solely upon such facts, such transaction
would be an act of self-dealing,
(ii) He is aware that such an act under these
circumstances may violate the provisions of federal tax
law governing self-dealing, and
(iii) He negligently fails to make reasonable
attempts to ascertain whether the transaction is an act
of self-dealing, or he is in fact aware that it is such
an act.
The regulations specify that the term "knowing" does not mean
"having reason to know", but evidence that shows a person has a
reason to know a fact is relevant in determining whether that
person has actual knowledge of that fact. Id. These regulations
were adopted in 1972, 3 years after the passage of the statute,
and have not been substantially modified since that time. There-
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