IRS Rules Estate Administration Exception Can Shield Certain Stock Redemptions From Private Foundation Self-Dealing Rules

In Private Letter Ruling 202625012, released June 18, 2026, the IRS addressed the application of the private foundation self-dealing rules under Internal Revenue Code § 4941 to a family-owned corporation, related revocable trusts, and a private foundation that was a potential charitable beneficiary. The ruling involved several related individuals who owned a majority interest in a closely held corporation. 

Each individual had established a revocable trust that would become irrevocable at death. The trusts authorized trustees to direct a portion of trust assets, including corporate stock, to charitable organizations, including a private foundation, through an irrevocable post-death designation. The corporation also held options allowing it to purchase stock from the trusts or estates following the death of a shareholder. The purchase price was required to equal fair market value as determined by an independent appraisal and could be paid in cash, a promissory note, or a combination of both.

The principal issue was whether the corporation’s exercise of the option and purchase of stock that might ultimately pass to the private foundation would constitute an act of self-dealing. Because the corporation, the trusts, and the foundation were all treated as disqualified persons under § 4941, the transaction could have triggered significant excise taxes absent an exception.

The IRS concluded that once a trustee makes an irrevocable determination directing charitable assets to the foundation, the estate administration exception under Treasury Regulation § 53.4941(d)-1(b)(3) can apply, provided the regulatory requirements are satisfied. As a result, the corporation’s purchase of stock from the trust at fair market value during the applicable administration period would not constitute indirect self-dealing. The ruling further provides that if part of the consideration consists of a promissory note, the foundation’s receipt and holding of that note will not be treated as a prohibited extension of credit, and future payments of principal and interest under the note likewise will not constitute self-dealing.

The IRS also ruled that, before a trustee makes the irrevocable charitable designation, sales of stock by the estate or revocable trust to family members, related trusts, or the corporation for cash generally will not constitute direct or indirect self-dealing. According to the IRS, the foundation does not possess a sufficient interest or expectancy in the stock before the charitable designation is made because the trustee retains discretion over whether the foundation will receive any portion of the charitable assets.

Although private letter rulings apply only to the requesting taxpayer, PLR 202625012 provides useful guidance for estate planners and owners of closely held businesses. The ruling confirms that carefully structured redemption arrangements may be implemented without violating the private foundation self-dealing rules, particularly when transactions occur during estate administration.