Legislation introduced in the House (H.R. 7) to provide tax incentives for charitable giving includes provisions disallowing the counting of
administrative costs as part of a minimum distribution requirement for private foundations. The
Ways and Means Committee has modified this provision in reporting out the bill by restricting the
types of administrative costs eligible. H.R. 7 was passed by the House on September
17, 2003. The issue of administrative costs and minimum distributions has been the subject of a
series of changes in the past, but currently there are no restrictions other than that administrative
expenses be reasonable. The principal arguments for disallowing administrative costs in the
minimum distribution requirement are to discourage excessive administrative costs and increase the
level of grants. The principal objections are that the restriction would increase the tendency of
current requirements to erode real asset values and that the restriction would be especially harmful
for those grant objectives that require a significant amount of monitoring. The revision may deal in
part with that last objection.