grant by private foundation grant to establish an endowment

grant by private foundation grant to establish an endowment

Forum topic posted in Forum on 18 August 2008| 2 comments
audience: | last updated: 18 August 2008
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Joined: 06/19/2003
Points: 30
When a private foundation makes a grant to another private foundation (or a controlled public chartiy) to establish an endowment, how long must the grantor private foundation exercise expenditure responsibility over the grant? In perpetuity, or do the same rules apply that govern grants for capital projects, which is generally three years of reporting, or until the grantor is satisfied the grant was used for the specified charitable purposes. Any guidance would be appreciated. Beth Dougherty, Esq.

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Joined: 09/04/2009
Points: 15
grant to start new business
I am a registered Dental Hygienest who is trying to start her own teeth whitening business in South Carolina.
Joined: 07/05/2000
Points: 60
Endowment grants made by a private foundation
Endowment grant from a PF to a PF -- see 53.4945-5(c)(2) -- grant reports are required for the year in which the grant was made and the succeeding two taxable years. If reasonably apparent that funds will not be used for taxable expenditures, the grantor PF can permit the reports to be discontinued. Grants to a controlled public charity (509(a)(1) or (2)) are not expenditure responsibility grants. They can be made without requiring any grant reports. However, a grant to a controlled public charity cannot be counted as a qualifying distribution for purposes of the 5% payout requirement unless the controlled charity redistributes / expends the funds by the end of its tax year following the tax year in which it received the grant and reports the same to the PF. An endowment grant would not be expended within that timeframe, and so an endowment grant to a controlled public charity cannot be counted as a qualifying distribution. It is still a charitable grant, and the PF can still make that grant, but it will have to make other grants that are "qualifying distributions" to satisfy its 5% distribution requirement.
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