NORTH CAROLINA GENERAL ASSEMBLY

1971 SESSION

 

 

CHAPTER 1136

SENATE BILL 698

 

 

AN ACT TO AMEND THE GOVERNING INSTRUMENTS OF CHARITABLE TRUSTS, PRIVATE FOUNDATIONS, AND NON-PROFIT CORPORATIONS WHICH ARE TO QUALIFY FOR THE EXEMPTION ALLOWED IN SECTION 508 OF THE INTERNAL REVENUE CODE, AS AMENDED.

 

The General Assembly of North Carolina enacts:

 

Section 1.  G.S. 55A-15 is amended by adding a new subsection (c) at the end thereof, which shall read as follows:

"(c)       The foregoing powers shall be limited as follows for any corporation organized under this Chapter which shall be classified as a 'private foundation' as that term is defined by Section 509 of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws, unless any such corporation shall, by its Articles of Incorporation or amendment thereto, specifically state that it does not intend to be so limited:

(1)        Each such corporation shall make distributions of such amounts, for each taxable year, at such time and in such manner as not to become subject to the tax imposed by Section 4942 of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(2)        No such corporation shall engage in any act of self-dealing as defined in Section 4941(d) of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(3)        No such corporation shall retain any excess business holdings as defined in Section 4943(c) of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(4)        No such corporation shall make any investments in such manner as to subject it to tax under Section 4944 of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(5)        No such corporation shall make any taxable expenditures as defined in Section 4945(d) of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws."

Sec. 2.  G.S. 36-23.2 is amended by adding a new subsection (c), which shall read as follows:

"(c)       The words 'impracticable of fulfillment', as used in this Section shall include, but shall not be limited to, the failure of any trust for charity, testamentary or inter vivos, (including, without limitation, trusts described in Section 509 of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws and charitable remainder trusts described in Section 664 of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws) to include, if required to do so by Section 508(e) or Section 4947(a) of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws, the provisions relating to governing instruments set forth in Section 508(e) of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws."

Sec. 3.  G.S. 32-27 is amended by adding a new subsection (31), which shall read as follows:

"(31)    The foregoing powers shall be limited as follows for any trust which shall be classified as a 'private foundation' as that term is defined by Section 509 of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws (including each non-exempt charitable trust described in Section 4947(a)(1) of the Code which is treated as a private foundation) or non-exempt split-interest trust described in Section 4947(a)(2) of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent Federal tax laws (but only to the extent that Section 508(e) of the Code is applicable to such non-exempt split-interest trust under Section 4947(a)(2)):

(1)        The fiduciary shall make distributions of such amounts, for each taxable year, at such time and in such manner as not to become subject to the tax imposed by Section 4942 of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(2)        No fiduciary shall engage in any act of self-dealing as defined in Section 4941(d) of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(3)        No fiduciary shall retain any excess business holdings as defined in Section 4943(c) of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(4)        No fiduciary shall make any investments in such manner as to subject the trust to tax under Section 4944 of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws.

(5)        No fiduciary shall make any taxable expenditures as defined in Section 4945(d) of the Internal Revenue Code of 1954, or corresponding provisions of any subsequent Federal tax laws."

Sec. 4.  A new section, to be designated G.S. 36-23.3 is hereby enacted to read as follows:

"§ 36-23.3.  Charitable Trusts Tax Exempt Status. — (a) Notwithstanding any provisions in the laws of this State or in the governing instrument to the contrary unless otherwise decreed by a court of competent jurisdiction (except as provided in Subsection (b)), the governing instrument of each trust which is a private foundation described in Section 509 of the Internal Revenue Code of 1954 (including each non-exempt charitable trust described in Section 4947(a)(1) of the Code which is treated as a private foundation) and the governing instrument of each non-exempt split-interest trust described in Section 4947(a)(2) of the Code (but only to the extent that Section 508(e) of the Code is applicable to such non-exempt split-interest trust under Section 4947(a)(2) of the Code) shall be deemed to contain the following provisions: 'The trust shall make distributions at such time and in such manner as not to subject it to tax under Section 4942 of the Code; the trust shall not engage in any act of self-dealing which would subject it to tax under Section 4941 of the Code; the trust shall not retain any excess business holdings which would subject it to tax under Section 4943 of the Code; the trust shall not make any investments which would subject it to tax under Section 4944 of the Code; and the trust shall not make any taxable expenditures which would subject it to tax under Section 4945 of the Code.' With respect to any such trust created prior to January 1, 1970, this Subsection (a) shall apply only for its taxable years beginning on or after January 1, 1972.

(b)        The trustee of any trust described in Subsection (a) may, (i) without judicial proceedings, amend such trust to expressly exclude the application of Subsection (a) by executing a written amendment to the trust and filing a duplicate original of such amendment with the Attorney General of the State of North Carolina, and upon filing of such amendment, Subsection (a) shall not apply to such trust, or (ii) institute an action in the Superior Court of North Carolina seeking reformation of the trust instrument pursuant to the authority set forth in G.S. 36-23.2.

(c)        All references in this Section to the 'Code' are to the Internal Revenue Code of 1954, and all references in this Section to specific sections of the Code include corresponding provisions of any subsequent Federal tax laws."

Sec. 5.  This act shall become effective upon ratification.

In the General Assembly read three times and ratified, this the 21st day of July, 1971.