Sec. 5205. Repeal of exception for private operating foundation failure to distribute income
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Subsection
(a)of section 4942 is amended— by striking a private foundation— and all that follows through
(2)to the extent and inserting a private foundation to the extent , and by redesignating subparagraphs (A), (B), (C), and
(D)as paragraphs (1), (2), (3), and (4), respectively, and by moving such paragraphs, as so redesignated, two ems to the left. Section 4942(j) is amended by striking paragraphs (3), (4), and (5). Section 170(b)(1)(F)(i) is amended by striking (as defined in section 4942(j)(3)) , Section 170(b)(1) is amended by adding at the end the following new subparagraphs: For purposes of this paragraph, the term private operating foundation means any organization— which makes qualifying distributions (within the meaning of paragraph
(1)or
(2)of section 4942(g)) directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated equal to substantially all of the lesser of— its adjusted net income (as defined in subsection section 4942(f)), or its minimum investment return, and substantially more than half of the assets of which are devoted directly to such activities or to functionally related businesses, or to both, or are stock of a corporation which is controlled by the foundation and substantially all of the assets of which are so devoted, which normally makes qualifying distributions (within the meaning of paragraph
(1)or
(2)of section 4942(g)) directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated in an amount not less than two-thirds of its minimum investment return (as defined in section 4942(e)), or substantially all of the support (other than gross investment income as defined in section 509(e)) of which is normally received from the general public and from 5 or more exempt organizations which are not described in section 4946(a)(1)(H) with respect to each other or the recipient foundation; not more than 25 percent of the support (other than gross investment income) of which is normally received from any one such exempt organization; and not more than half of the support of which is normally received from gross investment income. Notwithstanding the provisions of clause (i), if the qualifying distributions (within the meaning of paragraph
(1)or
(2)of section 4942(g)) of an organization for the taxable year exceed the minimum investment return for the taxable year, subclause
(II)of clause
(i)shall not apply unless substantially all of such qualifying distributions are made directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated. For purposes of subparagraph (H), the term functionally related business means— a trade or business which is not an unrelated trade or business (as defined in section 513), or an activity which is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which is related (aside from the need of the organization for income or funds or the use it makes of the profits derived) to the exempt purposes of the organization. . Section 170(e)(3)(A) is amended by striking as defined in section 4942(j)(3) and inserting as defined in subsection (b)(1)(H) . Section 150(b)(3)(F), as redesignated by this Act, is amended— by striking 4942 (relating to the excise tax on a failure to distribute income) and , by striking section 4942(j)(4) and inserting section 170(b)(1)(I) . Section 2055(e)(4)(D) is amended by striking section 4942(j)(3) and inserting section 170(b)(1)(H) . Section 2503(g)(2)(B) is amended by striking section 4942(j)(3) and inserting section 170(b)(1)(H) . Section 4942(g)(1)(A) is amended by striking which is not an operating foundation (as defined in subsection (j)(3)) . Section 4942(g)(3)(A) is amended by striking which is not an operating foundation . Section 4942(g)(4)(A) is amended by striking which is not an operating foundation . Section 4943(d)(3)(A) is amended by striking section 4942(j)(4) and inserting section 170(b)(1)(I) . Section 6110(l)(2)(A) is amended by striking section 4942(j)(3) and inserting section 170(b)(1)(H) . Section 7428(a)(1)(C) is amended by striking section 4942(j)(3) and inserting section 170(b)(1)(H) . The amendments made by this section shall apply to taxable years beginning after December 31, 2014.