Required Distributions – Private Foundations

Private foundations (PFs) are required to annually distribute a portion of their assets for charitable purposes. Qualifying distributions can take the form of distributions to public charities or can be expenditures made by the foundation to carry out its own charitable purpose.
The required distribution for a given year is 4.925% of the fair market value of the PF’s assets, net of any debt used to acquire the assets.
The required distribution for a given year must be made by the end of the following year to avoid a 30% penalty (a calendar year PF must make its required 2009 distribution by December 31, 2010). The additional year is allowed so that the PF can compute the required amount as part of its Form 990-PF tax filing which is not completed until the year following the tax year in question.
For questions about the penalties, see IRS Form 4720 and its instructions (see Schedule B on page 6).
Additional questions? – contact me.