I am fortunate to work with many private non-operating foundations (both family foundations as well as independent foundations) with varied grantmaking programs. Some of these foundations make grants only to public charities while others have scholarship programs. Some make grants to governmental entities for public projects while others focus their efforts on international aid. What is consistent across all of these organizations, is their need to satisfy their minimum distribution requirement under Section 4942 of the Internal Revenue Code (foundations must generally distribute at least 5% of the aggregate fair market value of their nonexempt use assets on an annual basis in qualifying distributions) and their desire to avoid the making of taxable expenditures.
A couple of days ago I had the opportunity to speak to the Dallas Bar Association’s Nonprofit Study Group on grantmaking activities of private foundations with a specific focus on qualifying distributions (when grants constitute qualifying distributions, when they don’t, and when out of corpus rules must be followed) and taxable expenditures (when grants constitute taxable expenditures, when they don’t, and when special rules such as expenditure responsibility must be followed). We had a good discussion particularly related to what I view as nontraditional grants, such as grants to supporting organizations, grants to non-501(c)(3)s for charitable purposes, etc. A copy of my reference paper can be found here and a copy of the PowerPoint slides can be found here.
The Dallas Bar Association’s Nonprofit Study Group meets at noon on the 3rd Wednesday of every month (with summers off) in the Rain Room at the Belo Mansion in Dallas. If you are a nonprofit professional in the Dallas/Fort Worth area, I encourage you to check it out.