IRS Letter Ruling Shows When a Family Foundation's Claim on Company Stock Begins

The IRS released a private letter ruling on June 18, 2026, that shows how a family can leave closely held company stock to charity through revocable trusts without turning later buyouts by relatives or the company into self-dealing. PLR 202625012, dated March 23, turns on one question the regulations never answer: when does a private foundation acquire an "interest or expectancy" in property still held by an estate or trust?

What the family set up

Four related individuals, directly or through revocable trusts, controlled a majority of a corporation's stock. The family also had a private foundation. Each individual's will poured assets, including almost all of his company stock, into a revocable trust that becomes irrevocable at death. Where a spouse survived, much of the stock would first sit in a marital trust.

Each trust contained a charitable gifts article. Stock that becomes subject to it must go to charity, but the trustee picks the recipients. Within six months after the death (or the surviving spouse's death), the trustee must make a written, irrevocable determination of how much, if any, goes to the family foundation and how much to other charities. Under the governing state laws, the foundation holds no right to any of those assets until the trustee names it.

Separately, each individual signed an option agreement giving the company the right, but not the obligation, to buy stock from the estate, revocable trust or marital trust within 15 months after death. The price is fair market value set by independent appraisal, payable in cash, a promissory note or both. The company, the individuals, their estates, the trusts and the trustees were all disqualified persons with respect to the foundation.

What the IRS ruled

Section 4941 imposes an excise tax on direct or indirect sales, exchanges and extensions of credit between a private foundation and a disqualified person. The estate administration exception in Treas. Reg. § 53.4941(d)-1(b)(3) carves out certain transactions involving property in which a foundation has an interest or expectancy, if five conditions are met: the fiduciary has the power to sell, a probate court approves or local law permits the sale, it occurs before the estate is considered terminated, the estate receives at least fair market value, and the foundation ends up with an interest at least as liquid as the one it gave up.

The IRS reasoned that before the irrevocable determination, the trustee has full discretion and the trust documents never require a gift to the foundation. The foundation therefore has no interest or expectancy, and a company option exercise or other stock sale in that window is not a transaction between the foundation and a disqualified person. The letter issued two rulings:

• After death, cash sales of company stock by the estate or revocable trust to family members, family trusts or the company, during estate administration or the marital trust term, are not self-dealing unless and until the trustee names the foundation or some other step gives it an interest or expectancy.
• Once the trustee does name the foundation, the estate administration exception is available, during a reasonable settlement period, for the company's option purchase and the flow of the purchase price to the foundation. If that price includes a company note, the note exception means later principal and interest payments to the foundation are covered too.

The IRS stopped short of saying any actual sale will satisfy the exception's conditions, and it declined to address section 4947 because no one asked. A private letter ruling binds only the taxpayer who requested it and, under section 6110(k)(3), cannot be cited as precedent.

Who is affected

The fact pattern is common among families that own a controlling stake in an operating company and plan to fund a foundation at death. Self-dealing risk is broad because disqualified persons include substantial contributors, foundation managers, owners of more than 20% of a business that is a substantial contributor, their family members, and corporations more than 35% owned by those people. A family company is almost always on that list.

How the timing works

Example: a founder dies holding stock in the family company worth $40 million, all of it passing to his revocable trust. In month four, before the trustee has named any charity, his daughter buys $10 million of shares for cash. Under the ruling's logic, that sale happens while the foundation has no expectancy. In month six the trustee irrevocably directs the remaining $30 million of charitable assets to the foundation. If the company then exercises its option in month ten and pays with a note, the purchase must fit within the estate administration exception, including fair value and court approval or local-law authority, to avoid self-dealing.

Points to discuss with an advisor

Families in this position often review whether their estate documents give the trustee real discretion over charitable recipients, how long that discretion lasts, and whether buy-sell or option agreements can be exercised before any foundation is named. Because the ruling is not precedent and depends on specific state-law representations, these are questions worth taking to estate counsel and a CPA who handles exempt organizations.

What to watch

The regulations still do not define when an interest or expectancy arises, which is why families keep asking for private rulings on it. Two points remain open even for this family: whether each actual sale will meet the exception's five conditions, and whether section 4947 applies to the trusts, which the IRS expressly left unaddressed. Estate planners will also watch for published guidance that would let other families rely on this reasoning without paying for a ruling of their own.

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