Section 101.9. Trusts

(a) Charitable trust. A charitable trust shall be exempt from the personal income tax. This exemption has been granted because the trusts serve a public rather than a private interest. Accordingly, no trust may be deemed to be a charitable trust unless it is operated exclusively during the taxable year in question for religious, charitable, scientific, literary or educational purposes and serves a public interest as compared with a private interest. Additional requirements are as follows:

(1) A trust created by the will of an individual who at the time of his death was a resident individual, one created by a person who at the time of the creation was a resident, or one consisting in whole or in part of property transferred to it by a person who at the time of the transfer was a resident and which is a charitable trust may not be within the term resident trust as used in this article.

(2) A trust shall be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of the exempt purposes set forth in subsection (a)(1).

(3) A trust is not regarded as charitable if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. A trust is not deemed to be operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals. For example, a trust is created by a resident individual and under its governing instrument income is payable to the spouse of the individual for life. Upon the death of the spouse all income of the trust is payable, at the discretion of the trustees, to charitable organizations. The trust may not be a charitable trust for a year in which the income of the trust is payable to the spouse of the individual.

(b) Influencing of legislation as purpose of trust. A trust is not deemed to be operated exclusively for one or more of the exempt purposes if a substantial part of its activities is attempting to influence legislation by propaganda or otherwise. An organization shall be regarded as attempting to influence legislation if the organization does any of the following:

(1) Contacts, or urges the public to contact, members of a legislative body for the purpose of proposing, supporting or opposing legislation.

(2) Advocates the adopting or rejection of legislation. The term legislation includes action by Congress, a State legislature, a local council or similar governing body, or the public in a referendum, initiative, constitutional amendment or similar procedure. An organization may not fail to meet the test as a charitable trust merely because it advocates, as an insubstantial part of its activities, the adoption or rejection of legislation. An organization is not deemed to be operated exclusively for one or more of the exempt purposes if it participates or intervenes directly or indirectly in a political campaign on behalf of or in opposition to a candidate for public office. Activities which constitute participation or intervention in a political campaign on behalf of or in opposition to the candidate shall include, but are not limited to, the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to a candidate.

(c) Special rule. With respect to a trust consisting in whole or in part of property transferred to it by a person who at the time of the transfer was a resident, the tax imposed by § 103.1 (relating to tax imposed on residents) applies only to the income realized from the property transferred to the trust by the resident person, from dealings with respect to the property, and to an income realized from the reinvestment of the proceeds realized from a sale or exchange of the property.