Lapham Foundation, Inc. - Page 12




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          for use in lieu of the 15-year term instrument and incorporating            
          reference to mortgage security and protection against other                 
          liens.                                                                      
               By letter dated December 18, 2000, respondent issued a final           
          adverse ruling regarding petitioner’s status as a private                   
          foundation.  The letter stated:                                             
                    This ruling is made for the following reason(s):                  
                    You fail to meet the “attentiveness test” under                   
               the integral part test found under section 1.509(a)-                   
               4(i)(3)(iii) of the Income Tax Regulations.                            
                    You fail to meet the test for control by                          
               disqualified persons set forth in section 1.509(a)-                    
               4(j)(1) of the Regulations.  Your primary asset is a                   
               promissory note secured by assets of a corporation                     
               controlled by disqualified persons and the income of                   
               which is payable by that same corporation.                             
               Disqualified persons are in a position to control you                  
               by means of the power they exercise, through their                     
               corporation, with respect to your primary asset.                       
                                     Discussion                                       
          I.  General Rules                                                           
               Section 509(a) defines a private foundation as any                     
          organization described in section 501(c)(3) except those excluded           
          under section 509(a)(1) through (4).  Paragraphs (1) and (2) of             
          section 509(a) detail what are referred to as publicly supported            
          entities, sec. 1.509(a)-4(a)(5), Income Tax Regs., and encompass            
          religious, educational, medical, and governmental entities and              
          institutions which receive substantial public support.  Paragraph           








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