IRS Ruling: Foundation Subpart F Income Is Not Subject to UBIT

In a recent letter ruling, the IRS addressed the inquiry of a 501(c)(3) organization. also classified as a private, non-operating foundation under 509(a), that intended to form a corporation in a foreign country to manage foreign investments, including distressed-debt investing.  This action was contemplated as a means of better managing foreign investment and achieving a more tax-efficient structure, as well as fulfilling asset management and liability protection purposes.  The corporation was to be capitalize with cash and non-encumbered property; no debt would be incurred to finance the corporation.

The IRS ruled that subpart F income includable in the income of a private non-operating foundation with respect to a corporation owned by the foundation will not be subject to unrelated business income tax (UBIT), and that the foundation’s ownership of the corporation will not be a jeopardizing investment or result in an excess business holding.

See “Foundation’s Subpart F Income Not Subject to UBIT,” 2014 TNT 144-37 (Jul. 28, 2014).

Posted by Morgan Yuan, Esq., Associate Editor, Wealth Strategies Journal.