Estates, Gifts, And Trusts (EGT)

Private Foundations — Distributions (Section 4942) (Portfolio 472)

  • This Portfolio discusses in detail the distribution requirements imposed upon private foundations by §4942. Section 4942, enacted by the Tax Reform Act of 1969 as part of a comprehensive effort to regulate private foundations, exacts an excise tax upon the failure of a private foundation to make “qualifying distributions” in the amounts required by the statute.

Description

Tax Management Portfolio, Private Foundations — Distributions (Section 4942), No. 472, discusses in detail the distribution requirements imposed upon private foundations by §4942. Section 4942, enacted by the Tax Reform Act of 1969 as part of a comprehensive effort to regulate private foundations, exacts an excise tax upon the failure of a private foundation to make “qualifying distributions” in the amounts required by the statute.

Section 4942 requires a private foundation to spend a specified amount of its funds annually to accomplish charitable purposes directly or to make grants to other organizations that will use the funds for charitable purposes. Generally, the minimum distributable amount is 5% of the fair market value of the private foundation’s assets not used in carrying out its exempt purposes, less any acquisition indebtedness. There are a number of restrictions on the types of expenditures that may be used to satisfy the minimum distribution requirement. Generally, a qualifying distribution may be made as a direct charitable expenditure or as a grant for charitable purposes. A program-related investment or a set aside of funds for a specific project to be conducted in the future may also be a qualifying distribution under certain circumstances.

Other Tax Management Portfolios dealing with private foundations include 456 T.M., Private Foundations and Public Charities — Definition and Classification468 T.M., Private Foundations — Investment Income Tax and Jeopardy Investments (Sections 4940 and 4944)470 T.M., Private Foundations — Self-Dealing (Section 4941)473 T.M., Private Foundations — Excess Business Holdings (Section 4943)474 T.M., Private Foundations — Taxable Expenditures (Sec. 4945); and 458 T.M., Private Foundations and Public Charities — Termination and Special Rules (Sections 507 and 508).

This Portfolio may be cited as Wilson, 472 T.M., Private Foundations — Distributions (Section 4942).

Table of Contents

Detailed Analysis
I. Introduction
II. Required Distributable Amount
III. Qualifying Distributions
IV. Calculation of Undistributed Income
V. Tax on Failure to Distribute Income

wilson-elaine-2015
Elaine Waterhouse Wilson
Associate Dean For Academic Affairs and Professor
West Virginia University College of Law
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